世界发展银行-Nepal-Development-Update,-April-2021---Harnessing-Export-Potential-for-a-Green,-Inclusive,-and-Resilient-Recovery_54页_35mb

Summary of Nepal Development Update - April 2021

Core Content

This Nepal Development Update provides an overview of the country's recent economic developments, outlook, and policy options for a green, inclusive, and resilient recovery. It emphasizes the role of exports in driving economic growth, job creation, and productivity, and outlines key priorities and recommendations for enhancing Nepal's export potential.

Main Points

• Economic Impact of the Pandemic:
  The pandemic caused a significant contraction in Nepal's economy, with real GDP declining by 1.9% in FY20 due to lockdowns, social distancing, and the collapse of international tourism.

  • The service sector, particularly tourism and transport, was heavily impacted, with output contracting by 3.6%.
  • Industrial output also declined by 4.2% due to input shortages and restricted labor mobility.
  • Agriculture remained the only growth driver, expanding by 2.2% despite challenges like delayed monsoons and crop damage.

• Recent Recovery Trends:

  • The economy showed signs of moderate recovery in H1FY21, with activity resuming in trade, transport, and financial services.
  • Remittances rebounded, contributing to a narrowing of the current account deficit.
  • GDP growth is projected at 2.7% in FY21 and 3.9% in FY22, driven by agriculture and services.
  • However, the recovery is expected to be gradual and subject to risks, especially from the lingering effects of the pandemic.

• Fiscal and Monetary Policy Response:

  • The central bank reduced policy rates to ease credit conditions, which supported a 11.6% increase in private credit growth in H1FY21, though still below pre-pandemic levels.
  • Public debt rose to 36.4% of GDP in H1FY21, but remains sustainable.
  • Fiscal deficit is expected to remain elevated, reaching nearly 8% of GDP in FY22 due to ongoing spending on relief, vaccinations, and project resumption.

• Challenges to Recovery:

  • Tourism, a key economic sector, remains at a standstill due to the collapse of international arrivals.
  • Political instability, including the dissolution of Parliament and subsequent coalition splits, has affected investor confidence.
  • High reliance on remittances has led to a real appreciation of the currency, undermining export competitiveness and encouraging imports.

• Export Potential:

  • Nepal's untapped export potential is estimated at around $9.2 billion, 12 times its actual annual merchandise exports.
  • Realizing this potential could create 220,000 new jobs and boost productivity growth.
  • Exports have grown at an average of 4% since 2000, placing Nepal among the least dynamic exporters globally.

Key Information

Main Economic Indicators (H1FY21)

• GDP Growth: Moderate recovery observed, but still below pre-pandemic levels.
• Current Account Deficit: Narrowed by 39.6% y-o-y due to reduced imports and increased remittances.
• Inflation: Headline inflation declined, driven by lower food and non-food prices.
• Private Investment: Remained anemic, with a 7.8% decline in domestic investment and 36.7% in FDI.
• Public Investment: Fell by 19% y-o-y due to increased current spending on pandemic-related needs.
• Remittances: Grew by 6.7% y-o-y in H1FY21, helping to stabilize the economy.
• Foreign Exchange Reserves: Increased to $11.3 billion by mid-January 2021, equivalent to 11.3 months of imports.

Export Performance and Challenges

• Export Decline: Exports contracted during the pandemic, but are expected to recover gradually.
• Export Potential: If Nepal had grown at the South Asia average since 2000, export potential would have been reduced by 73%.
• Missing Exports: Estimated at $9.2 billion, with significant implications for employment and productivity.
• Export Composition:
  • Merchandise exports are dominated by raw materials and semi-finished goods.
  • Services exports include transport, tourism, and other sectors, but have not fully recovered.

Policy Options for Recovery

1. Tourism Sector Reform

   • Coordinate with the private sector to improve market analysis and development.
   • Invest in green tourism and community livelihoods.
   • Develop skills and improve access to credit for nature-based tourism.

2. Attracting FDI

   • Simplify and streamline processes for multinationals.
   • Reduce the minimum threshold for FDI and improve the approval process.
   • Engage in economic diplomacy to attract FDI.

3. Modernizing Export Promotion

   • Digitize and automate the Cash Incentive Scheme for Exporters (CISE).
   • Base export promotion on evidence and support exporter capacity development.

4. Reducing Trade Costs

   • Improve customs operations and reduce border congestion.
   • Increase transparency and digitization.
   • Rationalize import duties, especially on raw materials and intermediates.

5. Investing in Phytosanitary Infrastructure

   • Enhance plant pest surveillance and food safety testing.
   • Adopt a risk-based Sanitary and Phytosanitary (SPS) system.
   • Negotiate mutual recognition agreements with India and other key trading partners.

6. Boosting Digital Trade and E-Commerce

   • Develop a robust e-commerce framework aligned with international standards.
   • Improve digital payment systems and consumer protection regulations.

Conclusion

Nepal faces significant challenges in achieving a resilient and inclusive recovery from the pandemic. While the economy has shown signs of recovery, the reliance on remittances and weak export performance have hindered growth and job creation. Realizing Nepal's untapped export potential is critical to accelerating economic recovery and enhancing long-term resilience. This requires structural reforms, investment in infrastructure, and policy improvements to support export growth, attract FDI, and promote digital trade.