Rohan Byanjankar
Coronavirus disease 2019 or COVID-19 has infected more than 3.8 million people worldwide and more than 265 thousand people have succumbed to death. With the identification of the disease in Wuhan, the capital of China’s Hubei province, the disease swiftly spread across the globe. The western countries, especially Italy, France, Spain, the UK, and the USA faced an irreparable loss of lives.
Nepal is one of the economically struggling sovereign states. The country is lagging far behind due to persistent political upheaval, underdeveloped manufacturing industries, and lack of infrastructure. The service sector is the largest sector with about 58 percent share in GDP followed by the Agriculture sector with about 28 percent contribution in GDP. Nepal receives remittance in bulk as more than 6 million Nepalese youth are working abroad. According to Nepal Rastra Bank (2019), remittance inflows stand at Rs. 879.27 billion in FY 2018/19, and remittance to GDP ratio hovers around 25 percent. The tourism industry also plays a significant role in Nepal’s economy. The target of 2 million tourists in Tourism Year 2020 would have a significant positive impact on Nepal’s economy. Nevertheless, tourism boosts hotels, restaurants, and transportation. About 500 thousand Nepalese are directly or indirectly involved in the tourism business.
COVID-19 is likely to have a drastic impact on the Nepalese economy. The sectors that suffer the immediate impact of COVID-19 are tourism (hotel, restaurants, and transportation), construction and manufacturing, remittance, real estate, and wholesale and retail trade. The current outbreak severely hit the tourism industry. The ban on the mobility of people has impinged travel and hotel businesses. Moreover, the Government of Nepal has been forced to call off “Tourism Year 2020”. UNWTO estimates that in 2020 global international tourist arrivals could decline between 20 percent and 30 percent. Central Bureau of Statistics (2020) has estimated a fall in the hotel and restaurant sector by 16.30 percent. Likewise, the global pandemic has its worst impact on the construction sector as well. The construction activities in the majority of national pride projects and other mega-projects have stopped due to the unavailability of foreign stakeholders and local employees. Similarly, the manufacturing sector is also likely to face a slowdown because of the problem in the import of raw materials due to lockdown across the globe, halt in the production process due to nationwide lockdown, and piling up of inventories due to inaccessibility of market. Accordingly, the skyrocketing unemployment in the international market reduces global remittance flows, and Nepal, being a remittance-based economy, has no escape.
The agriculture and the education sectors are likely to experience a negative impact if COVID-19 persists for a month or two. The timely unavailability of fertilizers and improved seeds will severely affect agricultural production and productivity. The untimely farming also results in low production as the majority of Nepalese farmers rely on monsoon rain. The education sector is also likely to experience a loss. The postponement of examinations of all levels and closure of schools, colleges, and universities will put pressure on the entire educational sector. The disturbed academic calendar demands a lot of coordinated efforts.
The World Bank (2020) has estimated that the real GDP growth of Nepal hovers between 1.5 percent and 2.8 percent, while the IMF (2020) has projected the GDP growth rate of 2.5 percent for FY2019/20. Similarly, the Central Bureau of Statistics (2020) has estimated GDP growth rate of 2.28 percent for FY2019/20 with the assumption that the lockdown ends by Baisakha 25 and economy with run smoothly except for hotels, restaurants, and airlines sectors.The GDP growth rate is likely to further plunge as the lockdown has been extended toJestha 5, 2077. Likewise, the Asian Development Bank (ADB) has estimated the loss ranging from 1 percentto 2 percent of GDP based on the three scenarios. In nominal terms, such loss amounts to Rs. 30 billion to Rs. 62 billion. The first scenario assumes lockdown till March-end with an expected loss of Rs. 30 billion (1 percent of GDP), the second scenario is built upon the assumption of lockdown continued for weeks with loss expectation of Rs 50 billion (1.6 percent of GDP), and the third scenario assumes nationwide lockdown for 1 to 2 months with a total loss of Rs. 62 billion (2 percent of GDP). Likewise, the study conducted by FNCCI concluded a nationwide strike for a day results in a loss of Rs. 2 billion. Similarly, the government has missed the revenue collection by Rs. 198 billion as of April 2020. Hence, the lockdown is costlier as loss per day piles up by billions of rupees.
COVID-19 crisis is likely to bring about four major economic crises: Supply shock, demand shock, financial anxiety, and expectation shock. The disturbances in the global supply chain, inaccessibility to market due to lockdown, labor shortages, and disturbances in the manufacturing sector is likely to instigate supply shock. On the other hand, downfall in the inflow of remittance reduces domestic consumption as 58.2 percent of the rural household receives remittance and 79 percent of total remittance is consumed (NLSS III, 2010/11). Moreover, CBS (2020) has anticipated the downfall in remittance to Rs. 716 billion in FY2019/20. Besides, a month-long lockdown has severely affected daily wage earners. As a result, the overall aggregate demand is likely to shrink.The Government of Nepal and Nepal Rastra Bank must work together to revive the economy. The government shall adopt expansionary fiscal measures such as introducing unemployment benefits, unlimited quantitative easing, tax waiving, providing subsidy, and the like. The government must draft a framework to manage the excess labor force as foreign migrant workers returning to Nepal is likely to skyrocket unemployment. Moreover, the government must focus on the reallocation of financial resources to effectively combat the epidemic. The unutilized budget from different projects and budget heads must be allocated to tackle the ongoing crisis. On the other hand, Nepal Rastra Bank must exercise expansion monetary measures on both households and businesses, such as a moratorium on the loan payment, no fees,and penalties in late payments of credit cards, promote online payments, easy financing facility to the companies involved in producing or trading health equipment, rescheduling or restructuring of loans, relaxation on loan provisioning, and the like.
Lockdown is only the temporary measure to curb the spread of COVID-19, but the economic loss of lockdown is severe though it is temporary. Premature exit from lockdown may have fatal consequences. However, the lockdown must be followed by rapidity in testing. Thus, the Government of Nepalmust accelerate the speed of testing for finding the virus infected people and to curb the further spread of it. Also, the strict vigilance over the porous border is the utmost necessity. We must pay attention to prevent Nepal from entering the third stage of COVID-19. The national threat against COVID-19 calls for cooperationof all the political parties, civil society, social workers, and security and health personnel.