The Nepali economy has remained mired in a stagnant growth pattern for decades. Since 1990, the Himalayan nation's GDP has averaged just 4.1% each year. Recent annual account estimates from the National Statistics Office underscore this trend, with GDP projected to expand at a meager 3.87% in the current fiscal year. NSO data further highlights a concerning downturn in the construction and manufacturing sectors for the same period. Projections indicate negative growth for both industries, with manufacturing expected to decline by 1.60% and construction contracting by 2.07%.
However, amidst these challenges, there are glimmers of hope. The tourism sector is positioned for substantial growth at 21.84%, trailed by electricity at 17.44% and the transport sector at 11.89%. The business community is engulfed by a sense of pessimism given the current bleak economic environment in the country. With a sharp decline in the overall market demand, business activities across multiple sectors have slowed drastically leading to a reduction in employment opportunities.
Since the onset of the Covid-19 pandemic in early 2020, the Nepali economy has faced significant challenges, particularly impacting the private sector in the last two years. The acute shortage of investment-grade liquidity in the banking system, coupled with soaring interest rates, has exacerbated the situation. Structural weaknesses within the economy, coupled with global economic uncertainties stemming from events like the Russia-Ukraine war, have further contributed to Nepal's economic woes.
Presently, domestic public finances are in a precarious state, necessitating bold actions in financial management from the government. While the government acknowledges the severity of the economic challenges, a clear intervention strategy remains elusive. Monetary measures have been exhausted, highlighting the need for macroeconomic reform through fiscal policies. Our experience over the past decade has clearly shown that solely relying on the central bank is futile for the nation's economy in the long term and the government also needs to look into creating an environment conducive to achieving healthy economic growth rather than focusing only on collecting revenue.
Credit expansion has faltered despite ample liquidity and low-interest rates. Expectations of increased domestic production post-interest rate reductions haven't materialized, impacting exports and government revenue from import trade. Given the circumstances, structural reforms are imperative. The government should focus on improving the business environment by streamlining regulations, simplifying procedures for starting and operating businesses, and reducing bureaucratic hurdles.
Amid these challenges, the private sector has been trying to demonstrate its resilience. Some businesses are actively investing in sectors such as energy, hospitality, and automobile assembly. Examples include Sahas Urja's acquisition of the Budhigandaki Hydroelectric Project and joint ventures like Ramesh Corp's partnership with India's Kajaria Ceramics to establish a tile manufacturing industry. Partnerships and investments continue to emerge, such as the collaboration between Shangri-La Hotel and Resort Group and IHG Hotels & Resorts to develop new hotel properties. Retail tycoon Min Bahadur Gurung and education entrepreneur Umesh Shrestha's partnership to acquire Hotel De L' Annapurna exemplifies ongoing investment initiatives.
Despite concerns about the investment climate, development finance institutions have injected substantial capital into Nepal across diverse sectors, including banking, energy, hospitality, and IT. These investments signify opportunities for economic recovery and growth amidst the prevailing challenges. This issue of the New Business Age explores these initiatives made by the Nepali private sector despite grappling with challenges. It shows the private sector is trying to come out of the current crisis.
Madan Lamsal
madanlamshal@gmail.com
