Covid outbreak threatens to hamper Nepal’s economic recovery

Nepal’s economy is still in the grip of Covid.

The World Bank has said the global economy is entering a sharp slowdown amid new threats from Covid-19 variants and rising inflation, debt and income inequality that could put the economy at risk. recovery in emerging and developing economies.

Nepal is no exception.

The multilateral funding agency, in its global economic outlook report released on Wednesday, said Nepal’s economy could grow by 3.9 percent in this fiscal year, ending in mid-July 2022, unchanged from compared to its June 2021 outlook.

The rapid spread of the Omicron variant indicates that the pandemic is likely to continue to disrupt economic activities in the short term, the World Bank said.

Risks to the outlook remain tilted to the downside. The pandemic and the emergence of the Omicron variant could hamper economic activities by requiring additional mobility restrictions and undermining external demand, according to the report.

Another risk comes from financing conditions. According to the report, further upward pressure on prices could unanchor inflation expectations, worsen domestic financing conditions, erode real incomes and weaken the financial sector.

“Obviously there is still so much uncertainty. The virus has fought back,” said Hem Raj Regmi, deputy director general of the Central Bureau of Statistics, the national statistical organization.

On the optimistic side, the Central Bureau of Statistics had predicted growth of 6% for this financial year.

The higher growth forecast was made on the basis of the good agricultural harvest, especially paddy and the recovery of the service sector, especially tourism.

“The decline in the paddy crop will have a significant impact on production growth,” Regmi said. “And again, the virus is back. Everything has become uncertain.

Nepal reported 3,075 new cases of coronavirus on Wednesday. On January 2, only 216 daily new cases were reported.

With the first signs of the third wave of Covid-19, Jassimuddin Mansoor, a tailor, is worried.

“I can’t imagine the next lockdown and having my business closed for months,” Mansoor, owner of MP Tailor, told Tripureshwor.

There are fears that if the third lockdown is enforced it will collapse many businesses.

Gatherings of more than 25 people were banned in three districts of the Kathmandu Valley – Kathmandu, Lalitpur and Bhaktapur – from Tuesday evening, while vaccination cards were made compulsory so that everyone can access public facilities and benefit from the services of government offices, starting in January. 21.

District administration offices said people should produce vaccination cards to enter public places like offices, hotels, restaurants, movie theatres, stadiums, airports and parks from of January 21.

“These are light measures that the government has taken to prevent the spread of Covid-19,” said economist Jagadish Chandra Pokharel. “Let’s hope there won’t be a third lockdown.”

According to Pokhrarel, this is the right season for construction work.

“And if the number of cases drops in mid-February and the vaccination campaign picks up speed, it may not hurt the economy much,” he added.

Nepal’s economy has been in the doldrums since the start of the fiscal year.

The inflow of remittances fell for the fourth consecutive month in the 2021-22 financial year despite an increase in the number of outgoing migrant workers, as major employment destinations reopened their doors to foreign job seekers.

The country suffered from a liquidity crisis [limited availability of loanable funds in the banking sector] and low government investment spending. As of January 11, the sixth month of the fiscal year, capital expenditure remained below 10%.

The services sector also did not perform well.

Tourist arrivals continued their downward spiral in 2021, hitting the lowest level since 1977, as the coronavirus kept the industry paralyzed despite several efforts to revive it by easing entry restrictions. Hotels and restaurants are still struggling to operate.

Amid depressed economic indicators, the paddy crop is also not good.

The paddy crop in Nepal is expected to drop to its lowest level in five years at 5.13 million tonnes this fiscal year due to unseasonal rains in October and experts say this could put pressure on the further upside on inflation and downward pressure on the economy.

Paddy is the most remunerative agricultural product in Nepal, with tens of thousands of farmers depending on its income.

As the government struggles to secure chemical fertilizers for winter crops and upcoming summer crops due to the cost factor – prices have risen sharply globally – the agricultural sector is facing a serious crisis.

A preliminary report on paddy production released recently by the Ministry of Agriculture and Livestock Development shows that paddy production may fall by 8.74% year-on-year in this fiscal year, ending in the mid-July 2022.

The World Bank said global growth is expected to slow markedly, from 5.5% in 2021 to 4.1% in 2022 and 3.2% in 2023, as pent-up demand dissipates and fiscal support and currency is unraveled around the world.

In addition, a noticeable deceleration in major economies, including the United States and China, will weigh on external demand from emerging and developing economies.

At a time when governments in many developing economies are running out of space to sustain much-needed activity, new Covid-19 outbreaks, persistent supply chain bottlenecks and inflationary pressures, and Elevated financial vulnerabilities across large swaths of the world could increase the risk of a hard landing, the multilateral funding agency said.

Nepal’s economy contracted by 2.1% in 2019-20 due to a surge in Covid-19 infections following strict lockdown measures. The World Bank said Nepal may have grown by 1.8% in the last fiscal year ending mid-July 2021.

“The global economy is simultaneously facing Covid-19, inflation and political uncertainty, with government spending and monetary policies in uncharted territory. Rising inequality and security concerns are particularly damaging to developing countries. development,” said World Bank Group President David Malpass. “Putting more countries on a favorable growth path requires concerted international action and a comprehensive set of national policy responses.

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