Weekly Economic Bulletin from Nepal for the week 14th August to 20th August, 2022!

Nepal’s remittance earning reaches a record-high of Rs. 1 trillion

Nepali migrant workers sent home record-high earnings of Rs.1 trillion in the last fiscal year ended mid-July. How? Because of the appreciation of the US dollar to all-time highs, and the surge in the number of migrant workers after Covid-19 restrictions were lifted and countries opened their labor markets.?

In this regard, the number of Nepali workers taking approval for foreign employment- both new and reentry- reached 637,113, which is the second highest number since Nepalis started to look for overseas employment more than two decades ago.?

Depending on how you view it, the record-high remittance is both Bad and Good News for the country. Good News because it definitely has helped provide a respite to the depleting forex reserves. But Bad News because the benefit of the remittance also comes at an opportunity cost of the nation’s development. Also, migrant workers leaving in droves is indicative of the lack of opportunities in the country, which stems from the poor economic health of the nation.

Decline in foreign exchange reserves prompts NRB to become more vigilant?

According to an annual report on ‘Current Macroeconomic and Financial Situation of Nepal’ unveiled by Nepal Rastra Bank (NRB) on August 16, foreign currency reserves with the country declined by 13.1 percent to Rs 1.215 trillion in the last fiscal year 2021/22.

The decline in reserves, which can mainly be attributed to the excessive imports, has prompted the NRB to become more vigilant towards trade-based laundering. In an integrated directive issued on August 16, the central bank has made it mandatory to all the licensed-banks and financial institutions to provide exchange facility to traders only after verifying the actual price in the international market with the price listed in the invoice.?

Consumer courts remain a distant reality while unfair market practices soar

In order to better protect consumer rights, in February 2018, the Supreme Court had ordered the Government to stop its foot-dragging in implementing the freshly amended Consumer Protection Act 1997, and establish consumer courts in each of the seven provinces.?

Consumer courts were necessary because unscrupulous traders had become increasingly emboldened to engage in unfair business practices knowing consumers didn’t want to get involved in complex court cases. Envisioned as an alternative to civil courts, consumer courts would provide speedy and hassle-free justice for consumers against complaints of business malpractices.?

However, on account of lobbying by manufacturers and traders, the Government has been deliberately holding back on setting up consumer courts. This is evident by the fact that despite it being four years since the SC’s order, the Government has not lifted a finger to set up the consumer courts.

But while the Government remains apathetic to consumer rights guaranteed by the constitution, unfair business practices have more than doubled in the last fiscal year.?

Wire factories go off-line after being hit by a double whammy of taxes

Half a dozen wire factories with a combined investment of Rs.10 billion have shut operations in the Sunsari-Morang corridor, with more likely to follow. As a result, more than 2000 laid-off employees have been left high and dry ahead of the Dashain festival.?

Why have they shut down? It’s because of the Government’s ‘protectionist move’ that is advantageous to a handful of industries but is threatening to push many others on the verge of collapse.?

In the budget for this fiscal year, Finance Minister Janardan Sharma announced a hike in the import duty on billet, which is used to manufacture mild steel wires, from 5 to 10 percent. He also jacked up the excise duty from Rs.2.5 per kg to Rs.4.5. But on the other hand, he reduced or removed duties on raw materials that are used to produce billet in the country.

Even though the Finance Minister’s move favors the six billet producing plants in the country, many industries that use imported billet to produce wires and rebars are now in a fix. Especially as the Indian Government has also imposed a 15 percent tax on the export of mild steel billets to increase local availability.?

Even though manufacturers have been protesting against the unfavorable changes in taxes since days after the release of the budget in June, the Government’s apathy to their plight have forced the industries to close down.?

China hints at buying Nepali tea as India mulls to ban its imports

Trouble had been brewing for the tea industry after India’s parliamentary committee had asked the Government to impose anti-dumping duty ranging from 40-100 percent for the import of ‘low-quality Nepali tea’ that was supposedly jeopardizing the Indian tea industry.?

The future for the tea industry, which is a major source of foreign currency, looked grim as Nepal ships around 90 percent of its orthodox tea and 50 percent of its crush, tear and curl (CTC) tea to the southern neighbor.

However, China has now come to the rescue of Nepal’s tea industry. Recently, upon request made by Foreign Minister Narayan Khadka during his visit to China, the northern neighbor gave a positive response about importing Nepali tea.?

Therefore, as per the bilateral agreement, the way to export Nepali tea to China has opened at present. Now, the next step for the Government is to work on the procedure for its exports and also on fulfilling the four provisions that China requires tea exporters to comply with.?

Warren Buffett of India, dies at 62

Billionaire investor and stock trader of India, Rakesh Jhunjhunwala passed away at the age of 62 on August 14.?

Jhunjhunwala was dubbed as the ‘Warren Buffett of India’ because of his successful venture in the Indian financial markets, and also as ‘Big Bull’ because of his optimism over India’s growth.?

Jhunjhunwala was an inspiration to many people, including presidents, CEOs, and investors. Saddened by his untimely death people around the world therefore took to social media to pay their respects to the greatest Investor India had ever seen.

Surprising many, NRB reports an inflation of just 6.32 percent in last FY

Feeling intense pressure from rising prices, consumers had expected inflation to reach 13.5 percent in the last fiscal year. But surprisingly, NRB has reported an inflation figure almost fifty percent lower than what consumers predicted.

According to the annual report on ‘Current Macroeconomic and Financial Situation of Nepal’ unveiled by Nepal Rastra Bank (NRB) on August 16, the annual Consumer Price Inflation (CPI) last year hit 6.32 percent, up from 3.60 percent inflation from the previous fiscal year.

The inflationary figure reported by the central bank seems unbelievably low as prices of virtually all goods rose sharply on account of the supply chain disruptions caused by the lingering effects of the Covid-19 pandemic and Russia’s war on Ukraine. More so, as Nepal’s currency depreciated to all-time lows against the US dollar.?

Bowing under pressure from automobile traders, Government allows imports of vehicles with conditionality??

In a bid to control the outflow of foreign currencies that had sank to concerning levels, the Government had imposed a blanket ban on the import of 10 luxury items, including automobiles.

But after coming under intense pressure from automobile traders, the Ministry of Industry Commerce and Suppliers has reversed its earlier decision, permitting import of vehicles to automobile traders that had opened the Letters of Credit (LC) before April 26.?

With the government’s permission, an estimated 900 imported vehicles worth Rs 9 billion will be available for sale in the domestic market for the upcoming festival season. ?

Electricity access to reach 100% by 2024.

Nepal had planned to achieve 100% access to electricity by 2030 as per Goal 7 of the Sustainable Development Goals (SDGs), which the country signed into in 2015. But it seems we are set to achieve this goal well-ahead of the target year.?

Nepal Electricity Authority on August 17 announced its plan to achieve 100 percent access to electricity within 2024, which is six years ahead of the target year set by SDG.?

But in case you are wondering, this isn’t just another one of the ambitious goals that the Government usually sets but can’t achieve. As access to electricity has already reached 92.52 percentage of the population, this goal is indeed very much achievable. Even more so, in consideration of the gigantic leap we have made in the energy sector under the leadership of Kul Man Ghising, managing director of Nepal Electricity Authority.

Feasibility study for an alternative site to NIA to be completed in the next month

The Supreme Court had halted the construction of the Nijgadh International Airport (NIA) in its current location after the controversial airport turned out to be an environmental nightmare despite being a developmental dream. The apex court had then directed the Government to construct it in an alternative place that is technically suitable and has minimal environmental damage

In response to the supreme court’s verdict on the NIA, the government formed a 10-member panel to carry out necessary study. According to the Civil Aviation Authority of Nepal (CAAN), the panel is expected to complete its feasibility study in the next one month.