Kathmandu. Although Nepal’s economy, which has been suffering from a continuous slowdown due to the COVID-19 pandemic, has shown some signs of improvement this year, the overall situation is still sluggish.
Despite a partial improvement in the growth rate, the economic recovery has not been able to achieve stability. Although there has been a general improvement in the major economic indicators, it does not seem that meaningful progress has been achieved qualitatively. While the indicators in the external sector appear to be somewhat balanced, the internal economic structure, especially the public finance management sector, is still in a challenging situation.
The permanent contraction in domestic demand has had a negative impact on overall economic activity. There is sufficient liquidity available in banks and financial institutions and interest rates have also decreased. The flow of credit is relatively slow.
While Nepal achieved a ‘double B minus’ score in the sovereign credit rating, which measures the investment climate, this year, it was unfortunate to be placed on the Financial Action Task Force (FATF)’s grey list.
Year in Review: The National News Committee has attempted to summarize important economic developments and achievements for 2081. Nepal completed its sovereign credit rating nearly six years after the country’s sovereign credit rating process began. Nepal received a ‘double B minus’ (BB minus) score in the first-ever credit rating. Credit rating is an important indicator that investors look for when injecting foreign direct investment (FDI) and external debt. This rating shows that Nepal’s economic structure, public financial management, and overall economic and financial situation are sound and that there is an investment-friendly environment.
After an independent assessment of Nepal’s credit, Fitch Ratings, a rating agency providing financial information services to more than 30 countries around the world, said, “Nepal’s public debt to gross domestic product (GDP) ratio is in a favorable position. This ratio can be maintained at the current level with Nepal’s targeted economic growth and revenue consolidation. Debt burden sustainability and external sector are good.”
Nepal on FATF’s Grey List Nepal has been placed on the Financial Action Task Force (FATF) grey list this year due to its failure to implement the Anti-Money Laundering Law. This decision was made at the FATF meeting held in Paris, France on February 21 due to Nepal’s structural and practical weaknesses. Nepal has been placed on the grey list again by the FATF because its anti-money laundering laws have been enacted, but investigations, prosecutions and regulations are ineffective. Nepal was previously removed from the list in 2014.
Nepal was finally placed on the grey list after a one-year monitoring period and insufficient improvements were made. The main weaknesses include weak non-financial sector regulation, high risk of money laundering, inability to track financial investments in terrorist activities, weak investigation and prosecution, weak implementation despite legal reforms, and weak inter-agency coordination for preventing money laundering. Third Investment Summit Earlier this year, Nepal organized the third investment summit in Kathmandu to attract domestic and foreign investors.
At the conference held on April 16 and 17, more than a dozen agreements were signed for cooperation and collaboration in data centers, hotels, tourism, trade, hydropower, public-private partnerships (PPP), among other sectors. The approval of investments worth about Rs 9.13 billion is a notable achievement of this conference.
In addition, the launch of an automated system for foreign investment approval and the agreement to advance the Remit Hydro project were also special aspects of the conference. This shows that Nepal is trying to effectively present itself as a suitable destination for investment. The burden of public debt The government’s outstanding debt has reached Rs 2.676 billion and 300 million as of mid-Falgun of the current fiscal year. According to the government debt report for the second quarter of the current fiscal year prepared by the Public Debt Management Office, about 2.5 billion government debt has been added in this fiscal year alone.
The total public debt at the beginning of the current fiscal year was Rs 2434.9 billion, but by mid-Falgun, it had increased by Rs 241.93 billion, reaching Rs 2676.3 billion. This is 46.91 percent of the gross domestic product. By mid-Falgun, Nepal’s public debt liability has increased by Rs 66.29 billion due to the change in the foreign exchange rate alone.
In the total public debt so far, the share of foreign debt is 50.83 percent, or Rs 1,360.46 billion, and the share of domestic debt is 49.16 percent, or Rs 1,315.57 billion. The ratio of domestic debt to gross domestic product is 23.06 percent and the ratio of external debt is 23.85 percent.
Implementation of the Sixteenth Plan The current fiscal year 2081/082 is the base year of the Sixteenth Plan. The Sixteenth Five-Year Periodic Plan (2081-82-2085-86) with the main goal of ‘Good Governance, Social Justice and Prosperity’ has been implemented from the current fiscal year. Some ambitious targets have been set in this periodic plan. The target of this periodic plan is to achieve an economic growth rate of 7.3 percent in the fiscal year 2085/86 and a per capita income of US$ 2,413.
In the last year of the plan’s implementation, important goals have been set, including reducing the population facing the absolute poverty line to 12 percent, reducing consumer inflation to 5 percent, achieving a human development index of 0.650, and increasing the human wealth index to 78. Gold price hits all-time high Gold price in the Nepali market has reached its highest ever, setting a record. On Chaitra 29, gold was traded at Rs 185,300 per tola, reaching its highest point ever.
Formation of Cooperative Authority To regulate cooperative institutions that mainly deal in savings and loans, the government had prepared the legal basis for the formation of the National Cooperative Regulatory Authority by bringing the ‘Ordinance to Amend Certain Nepal Acts Relating to Cooperatives, 2081’ on December 14. This authority has been formed with the objective of preparing and implementing national standards for the registration, regulation, supervision, monitoring and reporting system of cooperatives that mainly deal in savings and loans.
Earlier, a special parliamentary inquiry committee was formed on Jestha 15 regarding the misuse of savings of cooperatives. The committee, formed under the coordination of Surya Bahadur Thapa Chhetri, MP of the House of Representatives, submitted its study report to the parliament on Bhadra 11. Economic and Financial Indicators According to Nepal Rastra Bank, annual consumer inflation was 3.75 percent in Falgun. Total goods exports increased by 57.2 percent in the eight months of this fiscal year to Rs 158.17 billion. Total goods imports increased by 11.2 percent to Rs 1145.57 billion during the same period. Similarly, net service income is in deficit by Rs 75.13 billion. Remittance inflows have increased by 9.4 percent to Rs 1051.77 billion in the first eight months of the current fiscal year.
Similarly, the current account has been in surplus by Rs 180.8 billion and the balance of payments by Rs 310.37 billion during this period. While net capital transfers have been at Rs 6.41 billion, direct foreign investment has inflowed at Rs 8.49 billion. Total foreign exchange reserves, which were at Rs 2041.10 billion in mid-Ashar, have increased by eight percent to Rs 249.92 billion in mid-Falgun. Based on eight months of imports, the foreign exchange reserves held by the banking sector are expected to be sufficient to cover 17.2 months of goods imports and 14.3 months of goods and services imports. According to the Office of the Comptroller and Auditor General, the total government expenditure as of mid-Falgun of the current fiscal year is Rs 839.36 billion.
Of which, current expenditure is Rs 584.13 billion, capital expenditure is Rs 82.34 billion, and financial expenditure is Rs 172.89 billion. In the last eight months, deposits in banks and financial institutions have increased by Rs 277.23 billion, while credit to the private sector has increased by Rs 344.82 billion. The weighted average interest rate on interbank transactions between banks and financial institutions has reached three percent in Falgun 2080 BS, compared to 2.92 percent in Falgun 2080 BS.
In the last Falgun, the average base rate of commercial banks was 6.34 percent, that of development banks was 8.42 percent, and that of finance companies was 9.32 percent. The average base rate of commercial banks was 8.77 percent, that of development banks was 10.71 percent, and that of finance companies was 12.33 percent. In the last Falgun, the weighted average interest rate of commercial banks’ deposits was 4.54 percent, that of development banks was 5.32 percent, and that of finance companies was 6.36 percent. Looking at the situation of the capital market, the NEPSE index, which was 2,188.73 in mid-Falgun 2080 BS, has stood at 2,736.49 in mid-Falgun. The stock market capitalization in the last Falgun has stood at Rs. 4543.81 billion. So far, the number of companies listed on the Nepal Stock Exchange Limited has reached 268. Among the listed companies, 130 are banks and financial institutions and insurance companies, while 91 are hydropower companies, 22 are manufacturing and processing industries, seven hotels, seven investment companies, four are trading companies, and seven are from other groups. The year when the global economy collapsed was not a prosperous one for the global economy either.
The economies of various countries were directly affected by war, geopolitical tensions, and fluctuations in trade relations. Humanity had to face food crises, energy, and petroleum crises as supply chains were disrupted. The increase in interest rates against the backdrop of high inflation due to rising petroleum prices and disruptions in the supply system slowed down the growth rate of the global economy. This year was a year that brought profound changes in the global economy, politics, and technology.
Geopolitical tensions, climate crisis, inflation, and financial instability have affected the global economy. The Ukraine-Russia war, instability in the Middle East, and the resurgence of Donald Trump as US president have brought a new wave of international relations. The impact of the US raising customs duties on goods from various countries has been seen in the global market. The rapid development of artificial intelligence, the rise of fintech, and the rise of the cryptocurrency market have shown new possibilities in the global economic landscape this year.
However, the global economy fell victim to weak growth in 2024. The adoption of tight monetary policies by most central banks has led to instability in financial markets. The 16th BRICS summit discussed initiatives to reduce the dominance of the US dollar. However, Trump has continued to warn of retaliation, including trade sanctions, if the BRICS countries try to find an alternative to the dollar.
2024 saw major developments in the fintech sector. Blockchain and stablecoin technologies made cross-border payments transparent, fast, and cheap. Digital wallets, ‘open banking’, the use of artificial intelligence, and e-commerce payment services brought about a major change in financial services. The problems created by the COVID-19 pandemic have not been resolved, and the aftermath of the Russia-Ukraine war and the recent Israel-Hamas tensions have been seen in the global economy. The war between Israel and Hamas and the attack on the ‘Red Sea’ by the Houthi rebels have also seen some disruptions in the global supply chain.
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