2016年-世界发展银行全球_Nepal_Development_Update_May_2016___Remittances_at_Risk_36页_635kb

Nepal Development Update Summary: "Remittances at Risk"

Core Content

This Nepal Development Update, dated May 2016, provides an analysis of the country's economic situation in the aftermath of two major shocks in 2015: the April 2015 earthquake and a near-complete disruption of cross-border trade following the adoption of the new constitution. The report highlights the economic impact of these events, the resulting challenges, and the outlook for Nepal's economy.

Main Points

Economic Developments

1. Major Shocks of 2015

   • The April 2015 earthquake caused significant loss of life and assets, with total damage estimated at USD 5 billion, mostly in the housing sector.
   • The earthquake also impacted Nepal's poverty reduction efforts, potentially pushing 0.7-1.0 million people into poverty.
   • A near-complete disruption of cross-border trade followed the adoption of the new constitution, leading to acute shortages of fuel and essential supplies.

2. Trade Disruptions

   • Trade disruptions lasted over four months, from mid-September 2015 to end-January 2016.
   • At the peak of the disruptions, imports dropped by two-thirds and exports by half compared to pre-disruption levels.
   • Imports of petroleum products normalized three months after the end of trade disruptions, but the recovery was slow and incomplete.
   • Trade was re-routed away from the main border crossing at Birgunj, which was heavily affected by the disruptions.

3. Impact on Sectors

   • The service sector, particularly tourism, transport, and banking, was severely impacted.
   • Manufacturing was also affected due to the lack of raw materials and transport disruptions.
   • Agriculture suffered from the lack of fertilizers and other inputs, with rice production reaching a seven-year low.

4. Inflation

   • Inflation spiked to over 12% (y/y) by mid-January 2016, the highest since FY2009.
   • Both food and non-food prices contributed equally to the inflation surge.
   • The inflation gap with India widened, with a 6 percentage point difference by mid-February 2016.
   • The real effective exchange rate appreciated by 14% due to inflationary pressures.

5. Foreign Reserves

   • The trade deficit improved significantly, resulting in a current account surplus and record foreign reserves.
   • By mid-April 2016, Nepal had accumulated over USD 9 billion in foreign reserves, covering 15 months of imports.

6. Remittances

   • Remittances have grown to over 30% of GDP, making them the most important external inflow.
   • However, remittances have slowed since their peak in 2015, with a contraction in migrant worker outflows.
   • The slowdown in remittances is attributed to a decline in migration to key destinations like Malaysia and the GCC, which together account for 97% of remittances (excluding India).
   • A sharp decline in remittances could have adverse effects on the economy, given its reliance on these inflows.

Outlook and Risks

• Economic growth is expected to rebound modestly in the forecast period, but will remain weak.
• Growth for FY2016 is estimated at 0.6%, the lowest in 14 years.
• The impact of trade disruptions on economic activity was nearly as large as that of the earthquake.
• Inflation is expected to moderate by the end of FY2016, but will likely remain elevated due to supply-side bottlenecks.
• Fiscal and current account deficits are expected to widen as reconstruction efforts continue.
• The economy is vulnerable to a further slowdown in remittances, which could affect the current account and growth.

Challenges

• Short-Term Challenges

  • Normalizing fuel and other supply chains is critical, especially with the fast-approaching monsoon season.
  • Effective post-earthquake reconstruction is essential to restore economic activity.

• Long-Term Challenges

  • Diversifying the economy, particularly in terms of trade and transport options, is necessary to reduce dependence on India.
  • Increasing poverty reduction and creating economic opportunities for citizens.
  • Regaining investor confidence, especially in hydropower development, is a major hurdle due to the country's poor track record in attracting private investment.

Key Information

• Remittances: Represent the largest external inflow, contributing significantly to the current account and foreign reserves.
• Inflation: Spiked to 12% (y/y) in mid-2016, the highest in 7 years, with a widening gap compared to India.
• Trade Disruptions: Caused a sharp contraction in imports and exports, with imports recovering faster than exports.
• Economic Growth: FY2016 growth is at a 14-year low, with agriculture and services experiencing the lowest growth rates in recent history.
• Foreign Reserves: Reached a historic high of over USD 9 billion by mid-April 2016, covering 15 months of imports.
• Migrant Outflows: Contracted significantly since the earthquake, with a 25% decline in migrant worker outflows by mid-April 2016.

Special Focus: Remittances at Risk

• Remittances are crucial for Nepal's economy, particularly for the current account and foreign reserves.
• The decline in migrant worker outflows is linked to lower commodity prices in key destination countries, which reduced the demand for labor.
• The economic structure of Nepal is highly dependent on remittances, which support consumption and government revenue.
• A sharp slowdown in remittances could have serious implications for growth, fiscal accounts, and external balance.

Conclusion

The Nepal Development Update underscores the vulnerability of the economy to external shocks and the importance of remittances in sustaining economic activity. The dual shocks of the earthquake and trade disruptions have led to a sharp contraction in economic growth, a surge in inflation, and a significant drop in migrant outflows. The report highlights the need for economic diversification, effective reconstruction, and improved investor confidence to ensure long-term stability and growth.