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The spectre of COVID-19 on Nepal’s Economy

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Nepal is a landlocked country with limited resources. With limited resources, the two sectors which are crucial for its economy are tourism and remittances from abroad. These two sectors have played a pivotal role in drawing people out of poverty and improving their standard of living. But with COVID-19 declared as the global pandemic by the World Health Organization (WHO), these sectors will be the worst hit in the coming months. The pandemic has already led to 1.21 million-plus confirmed cases and 67.84 thousand plus deaths. It has brought the most powerful and developed countries to their knees. The impact of this pandemic will be felt in Nepal’s economy and society for a much larger period. These two important pillars of its economy are hugely dependent on the external environment and will be worst hit due to COVID-19.

Tourism- Lifeline of Nepal Economy

 For the Himalayan nation, tourism is a crucial sector and has been significant for Nepal for decades as it generates foreign exchanges, employment, foreign direct investment and overall development for the nation. The foreign exchange earnings by the tourism sector have increased exponentially over the years from Nepalese Rupees (NRs.) 24,611 million in the financial year (FY) 2010-11 to NRS. 67,095 million in FY 2017-18. This led to increase in number of registrations of new companies in the tourism sector. This led to growth of employment opportunities for the people especially for the youth population of the country. As per the World Travel and Tourism Council (WTTC) report 2019, this sector’s share in the total gross domestic product (GDP) was 7.9 per cent and its share in employment was 6.7 per cent of the total employment. 

This year was a significant year for tourism as this was Visit Nepal Year (VNY) 2020. The main aim of this was to increase the annual arrival of international tourists to two million in 2020 and increase employment in the tourism sector to one million. With the cancellation of VNY 2020, Nepal’s tourism economy will go for a tailspin. Nepal’s tourism industry might suffer more than the global tourism industry because the top three countries from where it receives the maximum number of tourists are India, Mainland China and the United States. In 2018, the tourist from these countries made up 37.5 per cent of the total tourists who visited Nepal. The biggest loss will be due to the decline in Chinese tourists. The rate of growth of Chinese tourist was highest and in the last eight years. The tourist from Mainland China has grown by four times.  With the United States now being the hotspot of the spread of this virus and the rapid rise of its numbers in India, the foreign tourist arrival for Nepal will be limited this year.

Backbone of Economy- Foreign Employment and Remittances

The foreign employment and remittances from abroad have been the backbone of Nepal’s economy. Over the years the share of inflow of remittances in the country’s total GDP has been above 25 per cent over the years. The earnings from foreign employment and remittances and has been a major factor in reducing the poverty in Nepal. When the remittances rose from NRs. 617.3 billion in FY 2014/15 to NRs. 755.1 billion in FY 2017-18, the percentage of people below the poverty line reduced from 23.8 per cent to 18.5 per cent during the same period. The foreign employment and remittances have become a center of attraction among the working population of Nepal as it provides better employment and remunerations opportunities to the employees.

COVID-19 has impacted and will impact the global economy in the coming months. In its report, the Institute of International Finance has predicted global growth of  2.6 per cent to 1.6 per cent for this year. As the world will see a recession, Nepal will not be left untouched by it.   But the impact felt by Nepal in this sector will again be more than the global impact like the tourism sector. The major reason for this is that a large number of workers from Nepal work in Qatar, Saudi Arabia, United Arab Emirates and Kuwait. All these are oil-based economy and the prices of oil were already low from starting of this year and the fall in the global economy will further bring down the prices of oil. This will result in job cuts which will affect the foreign employment and remittances in Nepal.

Conclusion

The decline in tourism and foreign employment opportunities will create a downward spiral for the Nepalese economy. This will be a second economic shock for the country after the 2015 earthquake which destroyed its domestic economy. During that time, remittances for abroad acted as the saviour for its economy and the tourism industry also recovered in the following year. The two vital sectors of its economy will be in poor shape in the coming months. Nepal will require aid and loans from its allies and multilateral institutions to sustain its economy. The Himalayan country is still in the early stage of this pandemic but the future of Nepal’s economy and its people are going to be tough.

(Alakh Ranjan is a research assistant at the Centre for Land Warfare Studies or CLAWS)

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