Weekly Economic Bulletin from Nepal for the week ending 13th August, 2022!

Balancing Nepal’s hydro portfolio

The Deuba led Government has attempted to balance Nepal’s hydro portfolio by inviting the long absent Indian developers in the mix.??

The 52nd meeting of the Investment Board Nepal , chaired by PM Deuba himself, has said YES to India’s state-owned NHPC Limited to study and develop two hydropower projects totaling 1,200MW in western Nepal.?

The projects include 750MW West Seti Hydropower Project and 450MW Seti River (SR-6), a joint storage project. The board has also reportedly decided to award the license of the 679MW Lower Arun Hydropower Project to an Indian company.?

At a time when the two neighbors have been competing to woo South Asian states into their respective spheres of influence, we can expect increased economic assistance from both. But only if we maintain a neutral foreign policy and avoid being perceived on the ‘opposite side’ by either of the warring rivals.

Why are the imports of Electric Vehicles (EVs) seesawing?

The future looks bright for EVs, as all signs point to a growing demand. However, the government’s ever-changing policy is throwing the sector into uncertainty.

In 2020-21 imports of EV decreased by sevenfold after prices doubled due to the finance minister Yubaraj Khatiwada’s decision to hike excise duties up to 80 percent and import duties to 40 percent. In sharp contrast, his successor Bishnu Paudel removed the excise duties and also slashed the import duty on EVs to 10 percent. On the back of the favorable government’s policy EV imports therefore reached an all-time high of Rs. 5.801 billion in 2021-22.

From this fiscal year, the finance minister Janardan Sharma has decided to levy excise duty up to 60 percent on top of the customs duty on high performance electric vehicles. So, with prices bound to pick up, will EV imports drop this year? Or battered by the rising gasoline prices, will consumers remain indifferent to the Government’s ever-changing policy and demand more EV vehicles? Comment your thoughts below.

Caught in the cross-fire

Nepal seems to be caught in the geo-political cross-fire between the regional rivals and neighbors, India and China.

While the energy-hungry southern neighbor has agreed to buy?364 megawatts?generated by six projects,? it has been holding back from agreeing to buy electricity generated by the largest hydropower, Upper Tamakoshi. Similarly, despite the proximity and growing demand for flights to the Indian capital New Delhi, not a single Indian airline has applied to operate services from the freshly constructed Gautam Buddha International Airport.?

Why? Because both these projects are constructed by Chinese companies.??

Relations between the two dueling rivals soured after a border clash at Galwan Valley in June 2020 left?20 Indian soldiers?and four Chinese soldiers dead. Since, then India has been actively discouraging Chinese investment in its own soil with measures like?banning Chinese mobile?apps and running extra screening processes for Chinese investments.

As Nepal is dependent upon both Chinese investments and Indian market, it cannot say no to any of the two neighbors. A delicate balancing act is therefore the need of the hour to solve this geo-political dilemma.

IFC announces investment of $45 million in two financial institutions in Nepal

The IFC has announced an investment of $45 million for Small and Medium Enterprises (SMES) in order to accelerate their recovery by providing them with easier access to credit.?

SMEs are the growth engine?of Nepal’s economy, employing 1.8 million people and contributing around 22 percent of the gross domestic product (GDP). Yet, access to finance is a major constraint for 44 percent of SMEs, especially small and women-owned firms in remote areas, with the finance gap estimated to be at $2.9 billion.

In response, the private sector arm of the World Bank Group has provided a $20 million loan to Sanima Bank Limited and $25 million to NMB Bank Ltd. . These investments will allow the banks to lend to hundreds of SMEs, expanding their outreach to businesses in rural areas, and creating thousands of jobs.

China seals its cross-border passes with Nepal unannounced?

China, which is Nepal's second largest trade partner, has closed the two main border crossings with Nepal unannounced.

On the pretext of controlling the spread of the Covid-19 virus, China had been allowing only 25-30 vehicles from entering Nepal daily compared to the 200-250 vehicles that were allowed daily entry during the pre-pandemic period. However, tightening its stance, China has now completely sealed the two cross-border passes.?

With Chinese goods that dominate Nepalese market being barred from entry, we can all expect Dashain to become very expensive.?

Liquidity crisis in Cooperatives looms large

The umbrella organization of Cooperatives in Nepal has urged cooperatives to implement various prohibitions to stop the liquidity crisis from further escalating.

After the depositors of Gautam Shree Multi-Purpose Cooperative Limited demanded the return of their deposits, pressure that is akin to a bank run is also being placed on other cooperatives by depositors wanting to withdraw their money.

As a result, the National Cooperative Federation of Nepal (NCF) has requested the cooperatives to limit the member-savers of cooperatives to withdraw only up to 5 percent of their deposits at a time.?It has also urged its member cooperatives not to distribute cash dividends to their members.

Federal and Provincial Elections to be held on November 20

After completing the local level elections in a single-phase on May 13, the Election Commission (EC) has approved the schedule for federal and provincial elections to be held on November 20.

According to EC voting on the slated election date will be held from 7 AM to 5 PM. There will also be a ban on publicity campaigns from midnight on November 17.

29 companies awaiting SEBON’s nod to issue IPOs of over Rs 10 billion

The stock market is growing in terms of size, as more and more companies offer their shares to the public through Initial Public Offering (IPOs)

According to the Securities Board of Nepal (SEBON), a total of 29 companies have been waiting for approval from the regulator to issue their initial public offerings (IPOs) worth over Rs 10 billion.

Of the applicants, 16 are hydropower companies, three are manufacturing and processing, two each are microfinance, hotel and tourisms and insurance companies and one is an investment company. Similarly, three applicant companies are related to agriculture business, media and business complex.

Government forms Task Force to contain loan-sharking

The government has formed a Task Force to contain the worrying trend of loan-sharking or the practice of lending money at unreasonably high interest rates.

Formed at the direction of Prime Minister Sher Bahadur Deuba, the six-member task force is set to visit those districts reporting the incidences of loan sharking, find out the causes of it and ways to resolve the problem. It will establish inter-bodies coordination to book those involved in this practice and recommend ways for containing the crime in the future in its report.?

State-owned NEA earns double the profit from last year whereas NOC struggles

Nepal Electricity Authority (NEA) earned net profit of Rs 16.09 billion in the last fiscal year, which was more than double of the amount that the public utility earned in 2020/21. The state-owned company’s financial wellbeing can be attributed to an increase in electricity production and consumption, rise in electricity export to India, reduction in electricity leakage and effective control of operating expenses.

But while NEA has become the topmost entity among the public enterprises in terms of the financial transactions, another state-owned company, Nepal Oil Corporation Limited ’s accumulated loss has reached more than Rs. 31 billion.?

This loss is further likely to increase as the oil monopoly is under pressure to reduce the price of the petroleum products after failing to do so even while its sole supplier Indian Oil Corporation Limited has reduced prices multiple times.