Nepal's economic freedom score is 49.7, ranking it 148th in the 2022 index of economic freedom. Nepal is placed 31st out of 39 Asian countries, and its overall score is lower than the regional and global averages.
Nepal is a beautiful place to visit. It is also a very affordable destination and the Nepali language is not as difficult to learn as you might think. You can ease your visit by learning Nepali with the Ling App.
Nepal is a small, attractive nation noted for its magnificent mountains, hills, cold lakes and rivers, and many other attractions. This natural sanctuary in South Asia is well-known for Kathmandu Valley and Mount Everest, the world's highest peak (8848m).
Why does Nepal lag behind in inclusive economic growth with so much potential and opportunity?
Nepal's economic real growth rate has slowed dramatically in the last five years, from 2017 to 2019. In 2020, the Nepal economy entered a full-fledged downturn, but it recovered in 2021.
Despite being declared naturally beautiful, Nepal ranks among the poorest countries in the world. We know you also wonder why this heavenly featured country has been so unfortunate in its economic growth. So here are the reasons for Nepal's economic crisis with facts and historical data.
People living in absolute poverty account for 18.7% of the population, while the multidimensional poverty index is at 28.6%.
In 2019, Nepal was ranked 147th out of 189 nations, with a Human Development Index of 0.579, indicating that the population of Nepal is in critical condition. Poverty is caused by a combination of factors, including low household income, illiteracy, reliance on agriculture, a lack of basic information, and a lack of work options. According to Economic Survey 2076/77, Nepal's per capita income is $1085, or Rs 1, 26,018.
The World Bank has rated Nepal 165th out of 189 nations in terms of per capita income for the previous year 2019, highlighting the country's dire status. However, the 15th plan aims to reduce the number of people living below the poverty line. And also to reduce the multidimensional poverty index to 11% and 13%, respectively.
Nepal's trade deficit has been a key stumbling block to the country's economic progress. The pattern of trade imbalance has shown Nepal's reliance on other countries.
According to the economic census 2076/77, imports ($924.24 billion) outnumber exports ($74.91 billion) by 12.3 times. It resulted in a trade imbalance of the substantial amount of $849.33 billion. Around 62 percent of overall commerce is conducted with India alone. It demonstrates Nepal's heavy dependence on India, whereas 14.8 percent is conducted with China.
Furthermore, Nepal is reliant on other countries for development assistance. Nepal is open to investment from 92 nations across the world. Nepal's overall budget for the current fiscal year is 1474.64 billion dollars, with grants (60.52 billion) and loans accounting for roughly 40% of the budget (524.5 billion).
The kind, as mentioned earlier, of capital formation has also been a financial drain on the country.
Transportation, power, communication, and other physical infrastructure constitute the backbone of economic development.
However, being a developing nation, Nepal still has a long way to achieve good physical infrastructure. However, metropolitan regions have access to all of this infrastructure. The rural communities have yet to be convinced that modern infrastructure is beneficial.
After the 14th plan was completed, 88 percent of people had access to electricity, with the remaining 12 percent living in darkness. Only 9% of individuals have access to clean drinking water, while the remaining 11% must travel for hours to obtain a pail of water. Only roughly 66 percent of individuals utilize the internet and are aware of current events and new technology.
Unemployment is one of the most significant impediments to Nepal's economy.
The unemployment rate was 11.4 percent as of the 14th plan's completion. According to the Nepal Labor Survey 2017/18, roughly 908,000 of the country's population were actively seeking work.
Almost one-third of individuals seeking jobs were in long-term unemployment. It means they had been unemployed for at least a year. As a consequence of the widespread unemployment, there has been a brain drain.
Due to a lack of chances and jobs, Nepal's highly educated, skilled, and brilliant individuals have migrated in significant numbers to wealthy and developed nations.
In the fiscal year 2076/77, 4.8 million individuals emigrated for work in nations such as Qatar, Malaysia, Saudi Arabia, the United Arab Emirates, Kuwait, and others. They were: skilled 1.5 percent, semi-skilled 24 percent, and unskilled 74.5 percent.
If this trend continues, Nepal would have difficulty carrying out development initiatives even in the civil service owing to a lack of labor force.
The biggest development challenge in Nepal is the economy's fixed reliance on agriculture. According to the economic development survey 2076/77, agriculture employs 60.4 percent of the population of more than half. Yet, its contribution to the country's Gross Domestic Product is just 27.08 percent.
It demonstrates that, despite more than half of the population working in fields raising food and plants, Nepal's economy has not reaped significant benefits. As a result, it is easy to conclude that most of those working in this industry are impoverished and have a terrible existence.
While the rest of the world advances agricultural technology, Nepal continues to employ antiquated or outdated farming techniques. Even farmers are unable to get the necessary quantities of fertilizers and seeds.
Furthermore, irrigation is only available on 56 percent of agricultural land, or 14 79,000 hectares, or 17.97 percent of the total area (26, 41,000 hectares). Only one-third of Nepal's land area is watered continuously throughout the year. While irrigation is required to support agriculture, not all agricultural land is irrigated.
The availability of high-quality natural resources is a prized boon for any country's economy. Nepal is abundant in natural resources such as water, minerals, mountains, and forests.
With almost 6000 rivers, rivulets, and tributaries, it is the world's second-richest nation in terms of inland water resources. Hydropower has a theoretical total installed capacity of roughly 83000 MW. However, only 44000 MW is physically viable.
Despite its enormous potential, Nepal has only been able to generate 1233 MW of hydroelectricity. Since the fiscal year 2076/77 accounts for just 2.8 percent of the theoretically viable output.
According to the 14th plan, yearly hydroelectricity usage is 198 kWh per person on average. This is quite low when compared to other nations' power use.
Nepal's corporate independence is hampered by political instability, insufficient infrastructure, and regulatory environment limitations. Thousands of talented Nepalese depart each year to work in private sectors of other countries.
According to the latest Asian development outlook (ado) 2021 update, a flagship publication of the Asian development bank, Nepal's economy is expected to increase by 4.1 percent (at market prices) in the fiscal year 2022, up from 2.3 percent in Fiscal Year2021 (ADB).
The government's budgetary policy for 2022 focuses primarily on improving the country's healthcare system.
Monetary policy will remain accommodating through a specialized refinancing facility. It will also provide concessional loans for critical projects and affected enterprises.
Because of increasing economic development activity in wholesale and retail trading, transportation, and financial services and the vaccination deployment across the country, service growth will accelerate in the following manner.
The entire market value of all products and services generated inside a country every year is referred to as GDP. It is an essential indication of a country's economic strength. Nepal's GDP was estimated to be approximately 33.98 billion dollars in 2020.
Agriculture is the most critical economic sector, employing over 70% of the people and accounting for 33% of GDP. Tourism has continuously grown in prominence and is a significant source of revenue in Nepal.
In addition, the government has been seeking to maximize the use of hydroelectric electricity. Even though the Nepali economy has been gradually developing in recent years, the absence of good political transitions and structures, and social instability are matters of concern for the Nepal economy.
In 2020, Nepal's Gross Domestic Product per capita was estimated to be 1028.46 US dollars. Nepal's GDP per capita is equivalent to 8% of the world's average.
According to the World Bank, Nepal's per-capita income was $1,085 in 2019, making it a lower-middle-income country. Low-income countries are defined as a per-capita income of less than $1,030.
According to the World Bank, Nepal's middle class has expanded in recent years.
Individual and business income tax rates are both set at 25%. Value-added and property taxes are examples of other taxes. The entire tax burden is 22.1 percent of gross domestic product.
Over the last three years, government spending has averaged 27.6% of total output (GDP), with budget deficits averaging 5.3 percent of Gross Domestic Product. As per the World Bank, the national debt is equal to 41.3 percent of GDP.
MAJOR MACROECONOMIC INDICATORS
|2019||2020||2021 (e)||2022 (f)|
|GDP growth (%)||7.5||-1.9||2.7||3.9|
|Inflation (yearly average, %)||4.6||6.1||4.9||5.1|
|Budget balance (% GDP)*||-4.6||-5.2||-6.9||-7.7|
|Current account balance (% GDP)||-7.7||-0.9||-1.2||-3.2|
|Public debt (% GDP)||32.6||36.4||41.9||46.7|
(e): estimate (f): forecast *the fiscal year 2021: July 2020 - June 2021
In 2020, the Nepali economy shrank by 1.9 percent.
The height of the covid-19 pandemic made Nepal's conditions bad in terms of economic growth and development. Despite a particularly catastrophic wave of COVID in July 2021, Nepal steadily recovered after a collapse in economic activity. The wave led the transport, tourism, education, and other private sectors to shut down almost completely
The recovery was first fueled by wholesale and retail commerce, transportation, and financial services. It is also supported by the agricultural products/ manufacturing production sector bolstered by favorable climate change.
Tourism (10 percent of GDP) was at a halt in 2021.
Services (60 percent of GDP) could drive development in 2022. It is all because of a resurgence in the hotel and tourism industries. Then comes agriculture, which government irrigation investment programs will improve. Industrial activity, including textiles, carpets, cigarettes, and cement, has also played a vital role in recovery.
This economic recovery is predicted to last through 2022.
Subsidies to private sector industries, mainly in the agricultural and export sectors, continue to be provided by the government.
As imports recover faster than exports and remittance inflows, the current account deficit increased in 2021 and is anticipated to widen in 2022 Gross Domestic Product figures.
Imports will be boosted by more robust local demand, particularly in the construction sector, as well as rising commodity prices, such as oil (up 40% between January and September 2021).
Exports will also rise, albeit to a smaller level, when global demand improves, notably for agricultural products, which account for 30% of Nepal's exports (palm oil, soybean oil, cardamom, etc.).
Until international tourism ultimately returns, exports will remain below pre-crisis levels. The current account deficit is partly covered by international financing, which has expanded due to COVID-19. And also, the central bank's foreign exchange reserves remain large (nearly ten months' worth of imports), allowing the currency to stay tied to the Indian rupee.
Here we have concluded the major aspects of Nepal's economy. In the Ling app by Simya Solutions, you can also find more useful information about the languages in Nepal and the Nepali language lessons. And you can also read about the Nepali Government in our previous post for the recent updates on the Nepali monarchy and its ministers.