Weekly Economic Bulletin from Nepal for 17th July 2022 to 22nd July, 2022

FDI shoots up following the Covid slump

With Covid in the rearview mirror, foreign investors have returned to the Himalayan Republic and foreign investment pledges have shot up.

According to the Department of Industry (DoI), FDI commitments, with China in the lead, soared 68 percent year-on-year from Rs. 32.2 billion to Rs. 54.15 billion. The investment pledges in 295 projects are expected to create 16,905 jobs.

But due to various unresolved issues such as the lack of implementation of the One Stop Service Center, lack of strong and effective implementation of intellectual property laws, and effective hedging regulations, among many others, foreign investment pledges and actual money spent rarely matches.

First of its kind Hydrogen plants to be built in Nepal

In an effort to diversify away from hydro, Nepal's primary renewable energy source, an agreement has been signed to build the country's first hydrogen plants.

Api Power Company and New Delhi-based GreenZo Energy have signed a memorandum of understanding to develop green hydrogen plants of capacity totaling 50MW in different parts of Nepal.

According to reports, these hydrogen plants scheduled to be installed within a span of three years or by 2025 and can generate 4,000 tonnes of hydrogen annually. The produced hydrogen can be used in various industries including fertilizer, ice cream, and cement making.

Exodus resumes

Attributable to the Covid-pandemic, the number of migrant workers from Nepal plunged to a 16-year low in the fiscal year 2020-21. However, with the complete removal of movement restrictions, the human exodus has now even exceeded pre-pandemic levels.?

According to government statistics, in 2021-22, more than 628,503 people received labor permits, the second highest number on record. The figure excludes young people leaving the country for higher education, which has also seen an unprecedented rise this year.

Many variables, according to experts, are to blame. Economic growth is being hampered by the political uncertainty, agricultural and non-agricultural sectors are stagnating, government’s support for entrepreneurship has been discouraging, and now in the post-pandemic era, global demand for foreign labor has increased and the country is also battling stagflation.

Steel rod exports to India starts for the first time

On the back of the Government’s export subsidy, export of steel rod from Nepal has started for the first time to India.

The Bhairahawa-based Shree Steel has exported a truckload of steel rods worth Rs.2.5 million through the Belhiya customs point?to Nautunua, India on July 20.?

On the back of the government’s eight percent export subsidy, Shree Steel has been able to set the price of its steel at Rs. 60 per kg, which is competitive with the Indian market.

Commercial banks get some respite from the liquidity crunch

On the back of a sharp increase in deposit collection and decline in loans issued, the liquidity position of commercial banks has improved in the last month of the 2021-22 fiscal year.?

According to Nepal Bankers’ Association, deposits collection with banks increased by Rs.141 billion, from Rs 4.40 trillion to Rs 4.541 trillion in the last month of the last fiscal year. Likewise, the loans issued declined by Rs 18 billion from Rs 4.193 trillion to Rs 4.175 trillion in the same period.

The dollar exchange limit reduced for Nepalis travelling abroad?

In light of the dwindling foreign exchange reserves of the country, the Nepal Rastra Bank has reduced the dollar exchange limit for Nepalis traveling abroad.

Issuing a circular on July 20, the Central Bank has directed money changers to provide up to USD 200 per passport for Nepalis traveling abroad. Earlier, the same facility was available for up to USD 1500 per passport.

Significant reduction in the production capacity utilization of Nepali industries: CNI Study

Due to a significant reduction in market demand in the stagflation battered Nepalese economy, the production capacity utilization of Nepali industries has also declined significantly.?

According to a study conducted by the Confederation of Nepalese Industries (CNI), the surveyed industries utilized only 66.81 percent of their total production capacity during the third quarter, compared a 71 percent capacity utilization in the second quarter.

Ministry allows SSF contributors to avail loans

Approving a guideline, the Ministry of Labor, Employment and Social Security has opened the doors for Social Security Fund contributors to avail loans.

Approving the Contributors Credit Guidelines 2079 BS based on the Social Security Fund on July 17, Minister Sher Bahadur Kunwar has opened the doors for SSF contributors to avail loans for various purposes such as building new houses, adding floors in the house owned by the contributor, renovating or purchasing units in joint housing and purchasing houses.?

To avail the house loan, the contributor must at least have contributed for 36 months in the Fund and have at least two years left to retire based on the age limit of the end of the service tenure to be eligible for obtaining such loans. Also, while approving the house loan, the amount will be approved that does not exceed the amount determined by the mortgage evaluation.?

Capital expenditure of Physical Infrastructure Ministry stands lowest in six years

The Ministry of Physical Infrastructure and Transport, which is responsible for constructing physical infrastructures in the country, has spent the lowest percentage of its capital expenditure (Capex) budget in six years.

The Ministry has spent only 53 percent or Rs. 82 billion of the allocated capex budget of Rs.156 billion in the previous fiscal year 2021/22. The Ministry’s dismal expenditure explains why the capex of the country was so low in the last fiscal year.

NEA projects Nepal will be exporting 2,456 MW of electricity to India by FY 2025/26

Provided all hydroelectricity projects in the pipeline complete their construction works within the prescribed timeline, the NEA projects that Nepal will be able to export 2,456.4 MW of electricity to India in the peak production season after the next four years.

Currently, India has allowed Nepal to sell 364 MW of electricity in the Indian market. However, NEA has estimated that the country will sell 613.4 MW of electricity in the next rainy season, 1,296 MW in 2023/24, then to 1,831.6 MW in 2024/25 and finally to 2,456.4 MW in 2025/26.??

The state-owned power utility has estimated that Nepal, due to adequate production of energy even during dry season, will not have to import electricity from India after the fiscal year 2026/27.?