Covid-19 and economy reviving


The COVID-19 infection and thereby the lockdown has been paralysing the whole world, including Nepal. This epidemic is different from other crises like an earthquake, economic blockade or depression, where there is no lockdown of people, the mobiliser of the world, including the economy. Along with the multi-sectoral impact, the volume and depth of its effect are still unknown. Moreover, the accessibility open to the southern border, followed by a weak economic, health and digitalisation capacity, has further put Nepal at high risk.

Before the outbreak of COVID-19, a 4.5 per cent first-quarter growth estimate was made by the Central Bureau of Statistics (CBS) for this fiscal year, against the ambitious government annual target of 8-5 per cent, mainly due to slackened economic activities caused by a shortfall in paddy production, slow industrial production and lowest expenditure of 25 per cent of the capital budget during this period. However, the last three years had registered high windfall growths of more than 6 per cent primarily because the problems of load-shedding and general strikes had been resolved, and the monsoon had been most favourable.

The COVID lockdown has further hit the slackened economy and the general people. The economy is almost locked, and the general public, especially the poor people, are suffering heavily. Its effect on the economy will largely depend on the success of COVID control and how the economy and general people’s grievances are addressed by the government. The management of this situation so far has been pitiable.

The lockdown has seriously affected all four sectors – real sector, fiscal, financial and external. The real sector, the most important one, which measures income/production, investment, livelihood, employment, poverty and inflation, is being badly affected. Among the 15 sub-sectors in both agro and non-agricultural sectors, only some subsectors like electricity, gas, water, communication, wholesale and retail trade are in operation to some extent, leading to about 10 per cent operation of the economy.

As an estimated 90 per cent of the economy has been closed down, daily GDP loss amounts to around Rs 9.5 billion. So a 45-day lockdown has meant a loss of Rs 428 billion based on this year’s CBS GDP estimates of Rs 3,767 billion. Although some services have opened after 45 days, the situation has not improved.

Slackness in economic activities even before the COVID outbreak and almost shutdown of the economy after its outbreak has led to this fiscal year’s growth to around 2 per cent as per CBS estimates and almost similar estimates by the International Monetary Fund. As the government so far does not seem serious about addressing these economic issues, the dismal performance of the remaining two months may even lead to negative growth.

The financial sector, which mobilises the economy, will also be adversely affected, leading to financial stability threats due to shortfall in investments and deposits, repayment problem and high non-performing loans in the banking sector. Other affected areas include the capital market, insurance and cooperatives. The external sector also will face a serious threat in addressing the overall balance of payments (BOP) as a result of the large shortfall in foreign remittance, further slackened export performance, low foreign investment and bilateral aid coming from the affected countries, despite some inflow of multilateral aid in the form of relief packages.

In this context, the government should focus on balancing COVID control and reducing its adverse effect on the people and the economy. On the other hand, there is a strong need for a relief and stimulus package to provide relief to the affected people and activate the economy. In this connection, here are some practical sectoral suggestions.

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