Impact of Global Economic Recession on Nepalese Economy

If you are a regular visitor to this blog then you should know that I have covered a lot about the economic recession that is going on at this moment in the whole world. When we’re talking about the global recession, most of the time, mainstream media talk about rich and developed countries like America, Canada, Australia, England, France, Germany and so on. We hardly talk about the impact of the recession on poor third world countries like Nepal. I do not know the reason but I feel frustrated to see such poor coverage on countries like Nepal at the mainstream media. Today, I’d like to talk about the impact of the ongoing global economic recession on Nepalese economy.

Current Condition of Nepal

I feel that the condition of Nepal is stable at this moment compared to the past two decades. Nepal is now a democratic Republic and it has a mixed economic system in which there is a private sector but the public sector is very strong. There are some political and regional tensions but as I stated earlier, the condition is much better compared to the last two decades. The Communist Party of Nepal (Maoist) is leading a coalition government and the government is under pressure from the people to perform and ensure economic development. A Maoist led government is perhaps not ideal for the growth of the private sector but the country is doing fine at this moment.

Until now, there is little indication that the economy of Nepal is suffering from the implication of the global economic crises but I feel that it is about to happen.

Nepalese Economy: Some Basic Information

First of all, if you do not have idea about the exporting activities of the country then I would like you to visit this link: Economy of Nepal. Carpets and Ready Made Garments (RMG) are two of the most important exporting commodities. Apart from that, the country also exports from other agricultural items. Also, tourism is a very important source of earning foreign exchange just like manpower export to Malaysia and the Middle East. The foreign aid is also an important factor in the economy. About 40% people are very poor and unemployment rate is very high. Hunger, unemployment, illiteracy- all of them exist in larger scale in the country. Nepal is still an agriculture based economy. India is the major and most important trading partner both in terms of export and import.

Impact of Recession on Export Sector

The positive thing for Nepalese economy until now is that export revenue for the first four months of the current fiscal year has increased significantly. However, you have to remember that the economic recession has started to hurt the global economy seriously in the last few months. America is an important market for the garments industry of Nepal. So, any economic slowdown there will have some kind of negative impact on the industry. Carpet is beautiful but it is considered to be a luxury item in many countries. Even before economic recession, I saw reports indicating that export revenue from garments and carpet was declining.

Tourism

You may have doubts whether the export revenue will be seriously affected but I have no doubt that tourism of the country will suffer because of the economic recession. I could see a report today that that arrival of tourists in January 2009 decreased sharply (15.8% less compared to the same period of last year). Most tourists come from the neighboring countries like India. The condition of the economy in India is also not good either and that is why, I do not think that there will be a significant increase of tourist arrival from India. The same perhaps goes for Europe and America where people are less likely to travel foreign countries at this time when they are worried about their future and job security.

Manpower Export

This is a sector which has surely been affected by the global economic recession already in Nepal. Remittance is very important for neighbors of Nepal like India, Bangladesh, Sri Lanka and Pakistan. Nepal joined the manpower export bandwagon a bit late compared to these 4 neighbors. Now, Nepalese workers in Malaysia and UAE are facing uncertain future. You know that many projects in Dubai are getting closed and that has decreased the demand of Nepalese workers. Malaysian government is also cutting the number of foreign workers. In the last few weeks, almost 150,000 Nepalese workers lost their jobs in Malaysia and the Middle East. Also, the number of workers going abroad for job has decreased a lot too in the last few weeks.

Foreign Aid

Nepal imports more than it exports. So, the economy depends a lot on foreign aid. At this moment, the government needs some foreign aid badly to implement its development projects. Well, rich countries are now themselves suffering and it may become some difficult for them to keep the current amount of foreign aid to developing countries like Nepal.

Indian Factor

Nepal is a landlocked country and it is heavily dependent on India for communication and foreign trade. India is the major foreign trade partner in both and export and import. Nepalese people can go to India without any passport and work there. Indian economy is now suffering because of the global recession. So, there is fear that Nepalese economy may suffer from the bad condition in India too.

Oil Price

The only respite that can come to Nepalese economy is perhaps the decrease in global fuel price. In the last 3 years, the people in this country suffered a lot. Many times, they went to the street to protest against high fuel price. Well, the government was helpless too as Nepal is not an oil producing country.

(This entry was originally posed in February 2009. It got deleted for technical problem. Now, I am again posting it today).

I have tried to analyze the possible impact of global economic recession on Nepalese economy. Do you agree with my analysis? Do you have anything more to add? Please, do it by leaving a comment.