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World economies

July 23, 2012


Nepal NEPAL is among the poorest and least developed countries in the world. The domestic economy is characterised by low productivity and investment from the private sector resulting from political instability, corruption, poor infrastructure, and insufficient political attention to economic policy. The lack of domestic opportunities, in employment or new business creation dramatically increased labour migration, making Nepal highly dependent to remittance flows. As a consequence, inequality and economic exclusion remain widespread: households in the most privileged social groups are five times more likely to be lifted out of poverty by economic growth than the most excluded.

The country’s economy grew by only 3.8 per cent in 2008-2009, 4 per cent in 2009-10 and 3.5 per cent in 2010-11. The ADB report states that the country’s economy witnessed slower growth last year due to decrease in remittances, correction in the real estate market and volatile political environment. According to Nepal Economic Outlook 2012, released by the Institute for Integrated Development Studies, Nepal’s economy will grow at a rate of 4.6 per cent in 2012, and is expected to hover around 5.2 per cent in the following three years. According to Economic Survey 2012 published by the Ministry of Finance, Nepal witnessed GDP growth of 4.60 per cent last year.

Fiscal year 2011/12 offered mixed results for Nepalese as the per capita income jumped to $742 while the per capita debt burden expanded by over 21 per cent to almost $238. Economic Survey 2012 showed the country’s debt to GDP ratio jumped to 32.7 per cent from 30.3 per cent of a year ago. The report also confirmed that the government failed to meet the economic growth rate target despite record cereal production, which improved the food availability situation at the grass-roots level. The year 2012 is critical to economy due to prolonged instability and uncertain politics, according to entrepreneurs.

However, Oxford Economics forecast in March 2012 that industrial and service production have been disrupted by unresolved political conflict, leading to a build-up of bad debt that has put the banks under strain and is forcing a re-tightening of monetary policy. This will keep growth at around 3.5 per cent in 2012-13, despite stronger export growth moving the current account back towards surplus by 2014. With unemployment high and a majority below the official poverty line, the expatriate population has risen to an estimated 1.9m (6 per cent of the population), mostly in India and the Gulf states, lifting annual remittances above US$3.5bn, close to 25 per cent of GDP.

Meanwhile, Nepal’s caretaker government has recently announced a partial budget only for four months of the fiscal year 2012-13 amounting to Rs161.02 billion, which is just the one-third of the total estimated budget. This is just the one third of the total estimated government budget for the new fiscal year beginning July 16. While announcing the new budget, the Nepalese Finance Minister claimed the economic growth in 2011-12 was the highest in three years and that the government would continue big projects in Nepal despite the announcement of partial budget. The country is currently passing through a deeper political crisis.


BURMA, a resource-rich country, suffers from pervasive government controls, inefficient economic policies, corruption, and rural poverty. Despite Burma’s emergence as a natural gas exporter, socio-economic conditions have deteriorated under the regime’s mismanagement, leaving most of the public in poverty. The economy suffers from serious macroeconomic imbalances - including unpredictable inflation, fiscal deficits, and multiple official exchange rates that overvalue the Burmese kyat, a distorted interest rate regime, unreliable statistics, and an inability to reconcile national accounts.

Private banks still operate under tight restrictions, limiting the private sector’s access to credit. The United States, the European Union, and Canada have imposed financial and economic sanctions on Burma. US sanctions, prohibiting most financial transactions with Burmese entities, impose travel bans on senior Burmese military and civilian leaders and others connected to the ruling regime, and ban imports of Burmese products. These sanctions affected the country’s fledgling garment industry, isolated the struggling banking sector, and raised the costs of doing business with Burmese companies, particularly firms tied to Burmese regime leaders.

The global crisis of 2008-09 caused exports and domestic consumer demand to drop. Remittances from overseas Burmese workers slowed or dried up as jobs were lost and migrant workers returned home. In 2011 the government took initial steps toward reforming and opening up the economy by lowering export taxes, easing restrictions on its financial sector, and reaching out to international organizations for assistance. Although the Burmese government has good economic relations with its neighbors, significant improvements in economic governance, the business climate, and the political situation are needed to promote serious foreign investment.

According to the IMF, Burma could be Asia’s next boom economy if it sticks to its new path of political and economic reforms. The economy grew an estimated 5.5 per cent last year and will pick up pace to about 6.0 per cent in the current year, with inflation rising to 5.8 per cent on average. Inflation that averaged nearly 33 per cent in the fiscal year that ended in March 2008 was down to 8.2 per cent in fiscal 2010-11, and 4.2 per cent in the year just ended. Myanmar’s GDP is estimated at just over $50 billion for a population of around 55 million. In contrast, neighboring Thailand, with a population of about 67 million, has a GDP of $348 billion.

For years the currency has been tightly controlled, with multiple rates used by the government and various markets, and has served as a deterrence to trade and investment in the country. Now the government is committed to unifying the rates under a managed float by the time it hosts the Southeast Asian games at the end of 2013.The Myanmar government’s move to put the kyat currency on a managed float at the beginning of April was a key beginning. But the IMF economists believe that any rapid reforms on a large scale could make any potential mistakes very costly. Although planned reforms will take time to implement, prioritisation is essential to deliver tangible benefits to the majority of the population.

Burma’s economy looks set for rapid expansion although concerns over inflation, infrastructure and political stability remain, according to Economist Intelligence Unit. The EIU predicts the national economy will expand by 5.2 per cent in 2012-13 but inflation will likely rise to six per cent and democratic reforms remain shaky. The country was once known as the ‘rice bowl of Asia’ because of its agricultural riches. But economic mismanagement during nearly 50 years of direct military rule left the country deeply impoverished. Resource-rich Burma is now seen as a hot new business frontier as reforms tempt investors, but with currency distortions and a banking system in tatters, analysts warn the economy could be slow to bloom.


THE Maldivian economy is based on tourism and fishing. Economic growth has been powered mainly by tourism, the backbone of the economy, and its spin-offs in the transportation, communication, and construction sector. More than 900,000 tourists visit annually. Fishing remains an important part of the economy as well. While income disparity remains high, particularly between the capital and distant islands, the Maldives’ growth has yielded considerable social progress. The net enrollment in primary education is close to 100per cent. Literacy rates are about 98per cent. Infant and maternal mortality are declining rapidly.

Diversifying the economy beyond tourism and fishing, reforming public finance, and increasing employment opportunities are major challenges facing the government. Over the longer term Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80 per cent of the area is 1 meter or less above sea level. The economy made a remarkable recovery, with a rebound in tourism and post-tsunami reconstruction. GDP in 2011 totaled $2 billion, or about $4,900 per capita. From 2000-2010, real GDP growth averaged around six per cent per year except for 2005, when GDP declined following the Indian Ocean tsunami, and 2009 when GDP shrank by two per cent as tourist arrivals declined and capital flows plunged in the wake of the global financial crisis. The Maldives Monetary Authority (Central Bank) reports GDP growth of 7.5 per cent in 2011. Inflation was at 4.7 per cent in 2010.

The Maldives is facing its worst economic crisis in recent memory, according to the governor of the country’s central bank. It is now in a dangerous economic situation never before seen in recent history. Expenditure in the country has exceeded income, and as a result the budget deficit is increasing. From November 2010 inflation has also been going up. The country last year spent 63.1 per cent of its GDP on state expenses Parliament’s Finance Committee revealed earlier this month that expected revenue for 2012 had plunged 23 per cent – a shortfall of US$168.6 million, leaving the country with a budget deficit of 27 per cent. Government spending for the year has meanwhile increased by almost 24 per cent, to a total of US$1.13 billion.

Figures from the central bank monthly economic review in April show projected GDP growth of 5.5 per cent this year, down from 7.5 per cent last year, but are drawn from the 2012 budget and do not account for the increase in expenditure highlighted by the Finance Committee. The Maldives struggles with very high deficits on the fiscal and current account balance. The former is expected to be significant at around 12 per cent of GDP this year, while the later is ‘improving’ towards a massive 23 per cent of GDP. An IMF program aims to reduce the twin deficits, but progress is hindered by the non-cooperative attitude in the political scene of the Maldives.

The government has also been warning that the national budget will deficit to a huge amount this year. The IMF had warned that despite the necessary measures needed to combat the growing economic instability in the country being tough, they need to be taken to avoid disaster. Parliament’s Financial Committee has projected that the Maldives budget deficit will reach 27 per cent of the GDP by the end of year 2012, a 175 per cent increase on earlier forecasts while the 2012 budget put the deficit at less than 9.8 per cent of GDP. These figures confirm the IMF’s earlier warnings that the Maldives had “substantially understated” its budget deficit, by underestimating its spending and ‘probably’ overestimating tax revenues.

Maldives had a merchandise trade deficit of under $300 million until 2003. Since then the trade deficit has reached an unprecedented $780 million. In 2010, Maldives’ economy was helped by a significant upturn in tourist arrivals. Consequently, the current account deficit was contained at around $460 million in 2010, but jumped to $650 million in 2011. Tourism is expected to continue to grow in 2012. External debt is around 50 per cent of GDP and towers above foreign exchange reserves. Foreign debt is expected to be around $1.6bn in 2011 and $2bn in 2012, while foreign exchange reserves are estimated at $ 0.3bn in 2011 and 2012. Import cover of foreign exchange reserves is a meagre three months.

Maldives’ economy grew fast in 2011 owing to continued strong growth in mainly Asia-sourced tourism, but the country still grapples with hefty fiscal and external imbalances. Although 2012 budget put the deficit at less than 10 per cent of GDP, the IMF team sees the figure as more likely to be 17.5 per cent of GDP, and perhaps larger than this. As a result of this, the economic growth and stability in the Maldives were unlikely to be maintained “in the medium term” unless the government substantially cut spending. Despite urgent calls to reduce spending to curb widening deficits, parliament’s finance committee projects the government spending will have to be increased to cover additional costs which were not included in 2012 projections.