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Nepal: Natural Disasters Hinder Economic Development

Key Information
CapitalKathmandu
Population28.5 million
CurrencyNepalese Rupee (NPR) (pegged to the Indian rupee at a rate of 1.6 NPR = 1 INR; 1 NPR = 0.0094 USD as of 26 April 2016)
Official languageNepali
Form of state
Republic

 

Major Merchandise Export (% of total, 2014)Major Merchandise Import (% of total, 2014)
Manufactured goods (67.5%)Manufactured goods (50.0%)
Agricultural products (23.1%)Fuels and mining products (22.7%)
Fuels and mining products (3.2%)Agricultural products (20.0%)
Top three export markets (% of total, 2014)Top three import markets (% of total, 2014)
India (67.0%)India (63.6%)
European Union (11.0%)China (9.4%)
US (7.9%)United Arab Emirates (6.1%)

Sources: Economist Intelligence Unit, the World Trade Organization

 

Political Highlights

Nepal is a landlocked country located between China and India. About three quarters of its land area is covered by mountains. The country has over 100 different ethnic and caste groups. Nepal passed a new constitution in September 2015, establishing the country as a secular, democratic republic. Khadga Prasad Oli of the Communist Party is the first prime minister under the new constitution.

Ethnic Madhesis, who live in the Nepal's southern plains bordering India and are largely of Indian-origin, have objected to the constitution. Their protests have resulted in over 50 deaths since September, while a protracted border blockade led to shortages of fuel, medicines and other essential supplies. Nepal accused India, its traditional close ally and dominant trading partner, of supporting the Madhesis and the blockade, and turned to China for supplies. Nepal risks renewed unrest if it fails to address the issue.

The earthquakes in April and May 2015 killed thousands of people. The government will focus on the reconstruction of residential buildings, roads, bridges, among other things, helped by financial aids in the form of grants and loans from the international community. However, the reconstruction work has been slow so far, resulting in public discontent.


Economic Trend

Economic Indicators2013201420152016*2017*
Nominal GDP (USD bn)19.319.821.421.924.8
Real GDP growth (%)4.15.43.40.54.5
GDP per capita (USD)693.4*703.0*751.1*760.6853.5
Inflation (%)9.99.07.210.211.1
Budget balance (% of GDP)2.11.51.0-1.4-2.0
Current account balance (% of GDP)3.34.65.06.20.5
Public debt (% of GDP)31.927.728.729.929.5

* Estimates
Fiscal year ends mid-July
Source: The International Monetary Fund (IMF)

 

Nepal is classified as a least developed country by the United Nations. It is heavily dependent on workers’ remittances, which amount to 29% of GDP in 2014/15. Agriculture is the mainstay of the economy, providing a livelihood for over three-quarters of the population and accounting for one-third of GDP. Tourism is an important source of foreign exchange earnings. Industrial activity mainly involves the processing of agricultural products.

Last year’s earthquakes, as well as protests and trade disruptions following the promulgation of the new constitution in September have held back Nepal’s economic growth. Growth is expected to rebound in 2016/17, but the pace would depend on how quickly earthquake damage can be repaired and the development of Nepal's political situation.

Inflation is forecast to accelerate, as a probable shortfall in agricultural output will boost inflationary pressures. Supply shocks related to the earthquake and trade disruption will also continue to put upward pressure on prices. The underdeveloped infrastructures are the country’s most important economic bottlenecks. Nepal is also vulnerable to natural disasters, affecting the livelihoods of the farmers. The country is exploiting its potential in hydropower. It is estimated to have a potential to generate more than 42,000 MW of electricity. In 2014, Nepal and India signed an agreement to start selling electricity to each other.

 

Chart: Hong Kong total export to Nepal
Chart: Hong Kong total export to Nepal

Hong Kong-Nepal Trade

Total exports from Hong Kong to Nepal decreased by 26.9% from HK$1,549 million in 2014 to HK$1,131 million in 2015. The top three export categories to Nepal were: (1) telecommunications, audio & video equipment (+28.6%), (2) non-ferrous metals (-71.1%), and (3) photographic apparatus, equipment and supplies and optical goods, nes; watches and clocks (-6.4%), which represented 89.9% of total exports to Nepal.

ECIC Underwriting Experience

ECIC imposes no restrictions on covering Nepali buyers. The Corporation’s underwriting experience on Nepal has been satisfactory, with no claim payment or payment difficulty case reported from April 2015 to March 2016.

 

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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