Fuel shortage to continue for a couple of days

The Valleyites will have to suffer more as the state-oil monoploy claims that the petroleum shortage will ease in a couple of days. The petrol pumps in the Valley started running dry since since last couple of days as Nepal Oil Corportation (NOC) failed to supply enough petroleum products.
"The shortage will ease from Thursday," said NOC spokesperson Mukunda Dhungel. "The dealers have loaded 48,000 litres of petrol, 36,000 litres of diesel and 2,400 litre of kerosene from Amlekhagunj depot today that is expected to reach the valley the day after."
The dealers have also loaded 2,15,000 litre of petrol and 3,57,000 litre of diesel from Thankot depot today.
However, most of the Valley petrol pumps today also wear a deserted look and some -- like Sajha, Nepal Police and Nepal Army petrol pumps -- had a serpentine queue throughout the day. "Today 68,000 litre of petrol, 1,80,000 litre of diesel and 83,000 litre kerosene reached the Thankot depot that is expected to ease the shortage," said the the state oil monopoly that has estimated the daily need of Kathmandu Valley at 3,00,00 litre of petrol and 4,00,000 litre to 4,50,000 litre of diesel in normal condition.
The NOC has failed to load the required amount of petroleum products from June 2, accepted Dhungel. "Our stock has also depleted by 9,000 kilo litre (KL) since June 2," he said adding that the stock on June 2 was 42,000KL and today it has dropped to 33,000KL now.
However, the pressure has increased since last four days as the NOC publically accepted that it cannot supply the required amount of the petroleum products. "We have asked for Rs 1 billion from the finance ministry to pay our supplier -- as we are in loss -- but the ministry turned down our request," the NOC said.
However consumer groups are not ready to believe that the NOC is in loss. "The international price has come down by half to around $70 per barrel from last year's $140 and NOC has been hiking the prices of petroleum products time and again," said Jyoti Baniya, general secretary of Consumers' Rights Protection Forum (CRPF). "Its yet another ploy to hike the price," he said adding that the monopoly market and deep-rooted corruption in the NOC is responsible for the accumulative losses. "The government must interfere," he suggested.
In March, NOC has hiked petrol, diesel and kerosene prices to Rs 80 per litre and Rs 61 per litre. On every 1st and 15th of the English calender month, NOC receives the new rate of petroleum products from its supplier Indian Oil Corporation (IOC).
The rate is revised according to the international market price. According to Dhungel, the new price list that is to be received on July 2 will have increased price of diesel. "The price in India has also gone up," he added.

Budget may not change income tax ceiling

The government is not going to increase income tax ceiling in the budget for the fiscal year 2010-11 as that will result in a higher gross disposable income further fuelling consumerism and ing the balance of trade.
"The government -- as suggested by entrepreneurs -- is rather encouraging exports," said finance secretary Rameshwor Khanal at a pre-budget interaction organised by the Confederation of Nepalese Industry (CNI) here in the Finance Ministry today.
According to CNI, the country is witnessing a ballooning trade deficit of Rs 238 billion. "If the domestic production could substitute the imports, the growing consumerism could also be beneficial. Increasing the income tax ceiling could harm the national economy by increasing the gross desposable income," he said.
Similarly, the government is also curbing investment abroad. "If the private sector is allowed to invest abroad, it could have an adverse impact on the economy as the country is facing liquidity crunch," he opined. Earlier, the government has relaxed the policy paving way for the the private sector to invest abroad. The government is now planning to persuade these investments back to the country.
CNI while making suggestions for the budget 2010-11 asked the government to introduce multi Value Added Tax (VAT). The finance ministry however made it clear that the government is sticking to the current VAT system for the moment.
"Investment-shy policies have hurt the economy," said CNI president and CA member Binod Chaudhary. "High interest rates, insecurity, electricity problem, labour unrest and lack of infrastructure development have increased business operating costs, creating difficulty in business development," he said. The budget should be effective in implementing the Industrial Policy 2067 that has recently passed, he demanded.
CNI has also insisted on removing demand charge in diesel as the alternative for electricity supply. "If need be, we have to look for an alternative like Infrastructure Development Bank for big infrastructure projects taken up jointly by the private sector and the government," said CNI vice-president Hari Sharma. "Large infrastructure projects that can become the base for economic development is the need of the hour," he added.
CNI has also urged the government for cooperation in making Nepal Tourism Year 2011 a success.
"The government for the success of NTY 2011 should make NTY 2011 period strike-free and grant financial assistance for the development of the tourism sector as a whole," Sharma said. Development of regional airports and renovation of ancient monuments as heritage hotels in participation with the private sector can boost the tourism sector, he said.
CNI has urged the government to make value addition in herbal products, refund duties and VAT to trading companies during re-export, remove export duty on Nepali exportable products, and to minimise fine of 25 per cent to 10 per cent in case exported goods returned among others. Technology transfer and ancillary industries should be encouraged for large, small and micro industries for their forward and backward linkages, CNI said.
The government has been advised to form Industrial Sickness Review Board (ISRB) and develop business corridor like Itahari-Biratnagar, Hetauda-Birgunj, and Butwal-Bhairahawa into Industrial Clusters.
Currently, food deficit has more than doubled to 3,12,000 tonnes from last year's deficit of 1,25,000 tonnes. Similarly, bank's lending to productive sector has also decreased to seven per cent from last year's 14 per cent. "The only sector that seems to achieve the target is revenue but the import-based revenue is also hurting competitiveness of the domestic production," the CNI said.

Petroleum scarcity hits Valley

The petrol pumps in the Valley are once again running dry. The irritant is not hard to seek. It is the ubiquitous constraints in supply as the sole petroleum products supplier Nepal Oil Corporation (NOC) has been unable to supply enough due to diminishing stock.
The state-run sole petroleum supplier has said that its sole supplier Indian Oil Corporation (IOC) has reduced the sdupply as NOC could not pay its due.
However, some of the petroleum dealers are claiming that its NOC's old trick to hike the prices of petroleum products.
"The international price has come down by half to $70 per barrel currently from last year's $140 and NOC has hiked the prices of petroleum products twice in 2010, once in February and again in March," he said adding that the deep-rooted corruption in the state-oil monopoly is responsible for the accumulative losses.
In March, it has hiked petrol, diesel and kerosene prices. Petrol was hiked to Rs 80 per litre -- dearer by Rs 2.50 -- and diesel and kerosene prices were hiked to Rs 61 per litre -- Rs 2 dearer -- in Kathmandu Valley. It has not changed the price of cooking gas, that according to the corporation, is making loss. LPG -- popularly known as cooking gas -- costs Rs 1,250 per cylinder.
On every 1st and 15th of the English calender month, NOC receives the new rate of diesel, kerosene and petrol from its supplier IOC. However, the rate of cooking gas is revised -- according to the international market price -- on the first of every English month.
NOC said, its sole supplier IOC cut the supply from this time stating that it could not pay the dues.
The NOC has asked Rs 1 billion with the finance ministry that rejected the idea saying the government cannot give money. "The NOC asked us to either let it hike price or lend Rs 1 billion," the source at the ministry said adding that the ministry rejected both the option.

Commercial banks deposits increases

Propelled by the pre-year end government spending, the deposit of the commercial banks have seen a 'satisfactory' increment compared with a couple of months ago.
"Only two weeks ago, around Rs 7 billion deposit has increased," said Sashin Joshi, president of Nepal Bankers Association (NBA).
According to the highly placed source at the central bank the deposit of commercial banks has increased to Rs 592 billion by the end of May. "It might increase to Rs 600 billion by the end of the fiscal year," the source added.
However, Joshi thinks that the growth rate is still lower compared with last fiscal year's growth rate. "However, it is a good sign as in the last six months, there was almost zero per cent increase in the deposit growth," he said adding that the bankers are watching keenly the sustainability of the growth rate.
Accelerated by the increasing growth rate of the deposit, the deposit mobilisation of the commercial banks has also increased.
According to the central bank's data based on 10 months macroeconomic situation, deposits mobilisation of commercial banks increased by 5.6 per cent (Rs 30.6 billion) amounting to Rs 580.5 billion as at mid-May 2010. In the nine months, deposits mobilisation of commercial banks stood at Rs 576.3 billion.
Similarly, the liquid assests of the commercial banks also stood at Rs 170.4 billion as at mid-May. It was at Rs 164.9 billion in the six months. Liquid assets include the cash at the bank's vault, their reserves at the central bank and the marketable securities.
"The positive data will certainly boost the confidence of the depositors, who are still under the hangover of the last Dashain's bitter experience," the central bank source said adding that they are hesitant on depositing money at the banks due to low confidence, though banks are offering depositors higher interest rates than last year.
The depositors have lost confidence due to series of issues starting from last Dashain's cash crunch to souce declaration while depositing above Rs 1 million.
Meanwhile, the commercial banks average credit-to-deposit (CD) ratio has also dropped to 86 per cent from around 95 per cent some months ago. According to the central bank commercial banks CD ratios should not exceed 95 per cent by the end of this fiscal year, 85 per cent by the end of 2010-11, and 80 per cent by the end of 2011-12.
Similarly, to make the banking sector more stronger, the NRB has also drafted risk management guidelines that will be issued to commercial banks by July end. "Though, new prudential measures will be challenging for the commercial banks to meet, it will strenghten the sector and help mitigate the market risks," the central bank source said.

Comen launches new contracts

Commodities & Metal Exchange Nepal Ltd (Comen) has launched new contracts in order to cater to the investment needs of its clients. "We have added new sizes of gold, natural gas, crude oil and zinc," said the Comen. "Besides the existing one-kg and 100-gm gold contracts, we have launched a new gold contract of 500-gm," it said adding that it has also launched a new 1,250 mmBTU natural gas contract along with two new crude oil contracts with the size of 300-barrel and 50-barrel.
"Under zinc, we have launched a new five-tonne zinc contract," said the first state-of-the art exchange in Nepal.
Comen was the only exchange in Nepal to have such investment and technical support from the commodity relevant institutions until some time ago. Currently, there are three commodities exchanges.
Mercantile Exchange Nepal Ltd (Mex) and Nepal Derivative Exchange (NDEX) are the two other exchanges for commodity & futures markets.
These are the platform for the futures that is primarily intended for hedging and speculation. Contracts in futures market result mostly in cash settlement and do not frequently result in delivery.
With the establishment of Mex, new investment sector has been generated where investors can mitigate their risk in different commodities ranging from precious metals, energies to agro-products.

MEX receives guest
KATHMANDU: Deputy Minister for Child Development and Women’s Affairs of Sri Lanka visited Mercantile Exchange Nepal Ltd (Mex) to know about the operational set-up of futures market in Nepal. MLAM Hisbullah, who landed in Nepal on Monday on an official visit, went to the exchange. Hisbullah took time from his busy schedule and met Dipendra Khatiwada, MD and Mr Jitesh Surendran, CEO of Mex to understand the functioning of MEX in Nepal. Hisbullah also visited Nepal Spot Exchange (NSE).

Nepal, Bangladesh to sign MoU for rail link

Nepal and Bangladesh are expected to enter into a historical treaty next month when they sign proposed MoU for a rail link between the two country via India.
Two rail routes have been proposed to carry Nepalis good to Bangladesh. First, Mongla-Khulna- Rohanpur - Singabad-Raxaul-Birganj (India-Nepal check post). Second, Mongla-Khulna-Biral-Radhikapur-Jugbani-Biratnagar (India-Nepal check post).
Nepal and Bangladesh are going to discuss a slew of trade and transit issues in the meeting rescheduled for July 15. Earlier, the meeting was scheduled for May first week. "During the meeting both the countries will discuss trade developments," said Surya Prasad Silwal, joint secretary at the Ministry of Commerce and Supplies (MoCS).
"We will also discuss the implementation of earlier decisions," he said adding that this meeting would also discuss possible transport modalities.
The draft-MoU mentioned that respective sides would develop infrastructure within their territories and work will begin with Rohanpur- Singhabad transit.
"The process, procedure and documentation for Nepali vehicles used for export, tariff on Nepali products, and primary list of products from Nepal will be discussed," Silwal added. Transit Treaty between the two South Asian countries will also be discussed during the secretary-level meeting.
As per the draft MoU, rail connectivity between Bangladesh and Nepal will begin once the transit traffic between Singhabad station of India and Rohanpur station of Bangladesh starts.
And, the rail connectivity between Bangladesh and Bhutan will be established once the transit traffic between Biral and Radhikapur starts.
It said there are huge infrastructural problems for Bangladesh to start transit traffic through Biral and Radhikapur.
Bangladesh is ready to let Nepal use Chittagong and Mongla ports for later's international trade. Besides, Nepal will get a discount for using Mongla port. Nepal began transportation of goods through the Mongla port in 1997 and almost the same time it started using the Chittagong port.
Nepal was mainly handling cement, cement clinker, rice, wheat and other goods through the Mongla port. But since 2000, Nepal has stopped using the port.
Bangladesh is about to sign an MoU with India to start rail connectivity with Nepal and Bhutan via India. The MoU is likely to be signed in July this year to facilitate smooth and speedy flow of transit traffic to and from Nepal by the overland rail route through India and Bangladesh. Nepal and India had signed transit deal in March 1978 while Nepal and Bangladesh had signed a protocol in April 1976.

Imports grow six times to exports, Remittance growth slows down to 10.2 per cent, BoP still deficit at Rs 17.36 billion

The country is still witnessing the overall Balance of Payment (BOP) deficit that stands at Rs 17.36 billion in the 10 months of 2009-10 against a surplus of Rs 43.06 billion in the same period last year, the central bank . In the first nine nine months the BoP deficit stood at Rs 22 billion.
"Due to large trade deficit coupled with a decelerated remittance growth led to a huge current account deficit at Rs 34.78 billion against a surplus of Rs 37.04 billion in the same period last year," said the Nepal Rastra Bank's macroeconomic report of the first 10 months (till mid-May).
Nepal received Rs 186.44 billion in remittance, 10.2 per cent up against the 55.5 per cent growth in the same period of last financial year.
"On a monthly basis, the remittance inflows grew by 14.7 per cent in April-May compared to a growth of 25.7 per cent in the same month of the previous year," said the report.
The gross foreign exchange reserves, however, declined by 14.9 per cent to Rs 238.34 billion in mid-May from a level of Rs 279.99 billion in mid-July 2009. But such reserves had increased by 33.3 per cent to Rs 283.43 billion in the same period last year.
"NRB's reserves declined by 17.4 per cent to Rs 185.29 billion from a level of Rs 224.19 billion in mid-July 2009," it said adding that the gross foreign exchange reserves in dollar terms declined by 7.5 per cent to $3.32 billion in mid-May from a level of $3.59 billion in mid-July 2009.
"Such reserves had increased by 15.4 per cent to $3.58 billion in the same period last year," the NRB added. "The widening of the current account deficit resulted in the depletion of foreign exchange reserves.
Based on the trend of import in the ten months of the current fiscal, the current level of reserves is sufficient for financing merchandise imports of 7.9 months and merchandise and service imports of 6.6 months.
Similarly, The free-on-board (FOB)-based merchandise trade deficit grew by 52.1 per cent to Rs 251.16 billion comapred to a deficit of 27.4 per cent to Rs 165.16 billion in the same period last year.
Though, total government spending increased by 25.1 per cent to Rs 159.6 billion compared with an increase of 25.7 per cent in the same period last year, the government budget surplus on cash basis stood at Rs 7.1 billion compared with a surplus of Rs 6.1 billion in the same period last year, according to the report.
Similarly, exports has plummetted by over six times than the imports. "The merchandise exports declined by 11.2 per cent to Rs 50.20 billion against the growth of 19.5 per cent to Rs 56.54 billion in the same period last year," it said adding that exports to India alone declined by seven per cent in contrast to a growth of 10.4 per cent. Likewise, exports to other countries plummeted by 18.2 per cent against a growth of 38.2 per cent in the same period last year.
The merchandise imports, on the other hand, has grown by 35.6 per cent to Rs 309.88 billion against the growth of 25.4 per cent to Rs 228.54 billion in the same period last year.
Imports from India grew by 35.3 per cent compared with a growth of 10.5 per cent in the same period last year. Likewise, imports from other countries grew by 36 per cent compared with a growth of 52.2 per cent in the same period last year.

Govt set to amend tax system to encourage M&A

The government is planning some incentives to facilitate Merger and Acquisitions (M&A).
"The government -- after its bitter experiences from the past -- is planning to bring some changes in tax system to facilitate merger and acquisitions," said finance secretary Ramehwor Khanal, speaking at an interactive session on 'Appreciating Mergers & Acquisitions' organised by National Banking Training Institute (NBTI) and Nepal Economic Forum (NEF) here in the capital today.
Mergers & Acquisitions are slowly becoming the buzzwords in Nepali business-o-sphere but due to various constraints like taxes are the hindrances. "Thus, the government has also been thinking of giving tax rebate as a sweetener," Khanal added.
"Domestic banks should merge and have bigger capital base to increase their competitiveness," he said adding that after January, Nepal is open to international banks for wholesale banking.
"Thus, it's important for local banks to be stronger and prepare for the competition," he said adding that the M&A could reduce the cost of operations, though in Nepal merger has been also difficult due to egos and prestige issues among the chairmen and CEOs.
"The cultural integration, technology adaptation, and the huge cost are some of the serious issues that could spoil the M&A scene," said Suman Rayamajhi co-founder of the Beed Investment.
"Despite various hurdles, M&A is inevitable," he said adding that there has to be lots of homework and pre-and -post merger planning for a successful merger.
However, the rate of success of M&A across the globe is at 15 per cent only.
Sujit Mundul, CEO of the Standard Chartered Bank Nepal, sharing his experience of merger between the Standard Chartered Bank and Grindlays Bank agreed that the rate of successful merger is very low.
Sujeev Shakya, president of NEF, urged the government to bring some soaps like tax rebate and golden hand-shake to facilitate the mergers, as it is the need of the hour.
"It's the right time to discuss the mergers as rights issues are being under-subscribed and liquidity crunch is hurting the banking sector," said Siddhanta Raj Pandey, CEO of Ace Development Bank and board member of NBTI. "However, the government's revised tax system and labour law will decide the fate of possible mergers," he added.

PEs spend more on staff
KATHMANDU: Talking about the cost on employees, finance secretary said that per capita expenditure on the Public Entreprises (PEs) is much more. "The PEs spent Rs 50,000 per head," he said adding that it is much more than any private institutions that are considered better pay masters. "Even the loss-making PEs are spending Rs 25,000 per head," Khanal added. "The productivity of the employees is however less than the money spent on them." —HNS

Domestic airlines speading wings

Buddha Air adds 70-seater ATR 72-500, Makalu Air starts flying

Private airlines companies are flying high. Though the ailing national flag carrier has been in controversy over buying new aircrafts, the private ones have been adding new aircrafts.

Buddha Air has brought a new 70-seater aircraft ATR -72-500 yesterday. "The new aircraft has landed at Tribhuvan International Airport (TIA) yesterday evening," the airlines said adding that with the addition of ATR-72-500 -- that is manufactured in coordination between France and Italy -- Buddha Air now has a total of eight aircrafts.

According to the airlines, the 70-seat aircraft will start its internal flights from Monday.

Similarly, Makalu Air -- a newly established private airlines -- has obtained Air Operator Certificate (AOC) to operate three Cessna Grand Caravan. "The airline will start its operations with its first aircraft based in Nepalgunj," said the Makalu Air that has successfully conducted its test landing od the new aircraft Cessna Grand Caravan at Talcha airport in Mugu district.

The test flight was conducted as per the requirement of the Civil Aviation Authority of Nepal (CAAN).

Currently Makalu will focus its operations on charter passenger services and charter cargo services exclusively. "Though, its first aircraft will be based in Nepalgunj with its services focused in the western region, it looks forward to expanding its services in all the other regions of Nepal, after the arrival of its second and third aircrafts," said the company.

Cessna Grand Caravan is a single engine aircraft designed with a superior advantage and especially compatible for flights in Nepal’s high altitude, remote and short tke off landing (STOL) air fields.

Currently, six single engine aircrafts operators -- Air Kasthamandap, Tara Air, Hilander Air, Makalu Air, Untiy Air and Akash Bhairab Air -- have got the licence from the Ministry of Tourism and Civil Aviation Ministry.

Budget uncertain due to political tug-of-war

Due to the continued political tug-of-war, annual budget is going to suffer for the third consecutive yesr this time after the election of Constitutuent Assembly election in 2008.
One one hand UCPN-Maoists -- the largest party in the parliament -- is opposing to the idea of bringing the budget by the incumbent Madhav Kumar Nepal-led government and on the others, partners in government is 'extremly hopeful' that the same government will bring the budget on July 9 -- five days before the current fiscal year ends.
"The government will bring the budget on time," said Bharat Mohan Adhikari, former finance minister from CPN-UML. "Its a compulsion," he said adding that to make the institutional democracy functional, it's necessary to let the government bring the budget through the normal course.
The other faction of the government Nepal Congress (NC), though hopeful of political consensus, is ready to bring the budget through ordinancy, if UCPN-Maoists continue to obstruct the parliament.
"Though, ordinance is not a good option, we will be forced to bring the budget through ordinance," said Dr Ram Sharan Mahat, former finance minister from Nepal Congress (NC).
"It would be unfortunate that the political developments have taken over the economy," he added.
However, the UCPN-Maoist party has threatened to go to street and oppose in the parliament too. "This government has no moral and constitutional right to bring Programme and Policies, and budget both," said Dr Baburam Bhattarai, former finance minister from UCPN-Maoists.
"The Prime Minister has to fulfil a pledge to step down and make way for a national unity government," the Maoist ideologue said.
Prime Minister Madhav Kumar Nepal agreed on May 28 to resign as part of an 11th-hour deal after marathon round of talks to persuade the UCPN-Maoists to vote for an extension of parliament's term and avert a political crisis.
"The agreement was to pave way for the national consensus government," Dr Bhattarai added.
The parliament was scheduled to begin on June 18 for the pre-budget debate on the government's budget proposals but that has been delayed and the fiscal year is coming to an end on July 16. The Constitution has made an arrangement of pre-budget discussion so the elected members of the CA can air the concerns of their constituenties. But its is unfortunate that this year too, like the earlier years, the pre-budget discussions could not be hold due to political dead-lock.
The parties in government are adament on bringing the budget despite UCPN-Maoists' obstruction. "If the Maoists continue to obstruct, worst-come-worst, a year before's experience will repeat," Dr Mahat said. He had brought a Bill on Accounts then.
However, the Bill could be brought as a means to give legality to administrative expenses for the short-term of four months only and the full-fledged budget has to be brought to replace it. The absence of budget cannot stop the government collect revenue but it cannot spend.

Silver hits new record

Silver has hit new records in the domestic market today as it was traded at Rs 573.50 per tola (11.664 gram).

"Recent increase in customs duty -- to Rs 16 per 10 gram from Rs 3 -- coupled by the hike in the international price has propelled the price of silver in the domestic market," said Tej Ratna Shakya, president of Nepal Gold and Silver Dealers Asociation (NEGOSIDA).

Due to the increase in price, the trade has come down. "The daily demand of silver is over 30 kg per day," he said adding that the price hike has brough it down to around 25 kg.

The increase in price will not only hurt the trading but also the silver jewellery export. "The exports will also be hit, due to price hike," Shakya added.

In the international market silver was traded for $19.20 per ounce.

Historically, silver has always produced a greater per cent increase in bull markets, sometimes increasing two to three times the initial price.

Silver prices hit a low of $8.79 just 14 months before jump-starting in 2010, closing the first week at $18.45. That's a 9.7 per cent climb just in the first week, and 110 per cent in 14 months. In the long-term, silver investments have yielded a 9.1 per cent annual appreciation since 1991, and a 123 per cent gain in the last five years. And silver prices are only going to rise.

Similarly, gold has also hit the new record high of $1257 per ounce in the international market, though the domestic market did not feel the heat due to stronger Indian rupee against the dollar.

Today in the domestic market the precious yellow metal was traded at Rs 31,000 per 10 gram.

On June 2 gold -- following on the upward path had hit another record high of Rs 30,910 per 10 gram (Rs 36,050 per tola).

Prices of rice, wheat, flour up

Compared with a year ago, the prices have risen of coarse rice nationally by 12 per cent, wheat flour by 15 per cent, lentils by 10 per cent, and black-gram by 35 per cent, according to a report.

National food price inflation remains a significant concern, said the report jointly prepared by World Food Programme Nepal, MoAC (Department of Agriculture), Agribusiness Promotion and Marketing Development Directorate, Federation of Nepalese Chambers of Commerce and Industries (Agricultural Enterprise Centre), and Consumer Interest Protection Forum (CIPF).
However, staple food prices -- including those of coarse rice and wheat -- rose slightly over the past month," it said. The Nepal Rastra Bank’s data for May also indicates that recent year-on-year food price inflation is over 14.6 per cent. High food prices are driving overall consumer price inflation, which is currently estimated at 10.8 per cent, according to the central bank data for the first nine months of the current fiscal year.
Similarly, a nation-wide strike called by the UCPN-Maoist on May 2-7 heavily restricted the opening of food markets and stopped virtually all food transportation.
"Through out the period of the strike, the closure of markets caused agitation among shop owners and local community members," the report said. "This led to a number of clashes, particularly in Humla, Dhankuta, Parbat, Birganj and towards the end of the strike in Kathmandu."Daily wage labourers interviewed by WFP staff during the bandh indicated that their families were skipping meals and commonly consuming only one proper meal a day to cope with loss of income, the report added.A high rate of households borrowed money and purchased food items on credit.
Meanwhile, a strong supply of chicken has resulted in price reductions in the range of 11 to 20 per cent in major urban markets and in the Tarai.
The report observes the food prices are likely to continue to rise until the completion of the winter harvest, expected to finish in most areas in the next month.
The harvest is expected to be normal and India is also expecting a strong crop. Wheat prices are expected to ease following the harvest. However, rice prices are anticipated to continue to increase until the summer harvest in late 2010.

NOC, NEA plays foul in govt revenue collection

Failure of Nepal Oil Corporation (NOC) and Nepal Electricity Authority (NEA) to pay back their respective loans has hit the government's revenue collection target. The government had targetted to collect Rs 26.26 billion in non-tax revenues. But by the end of Jestha, the revenue collection has reached Rs 20.54 billion — over Rs 6 billion less than the target.

Similarly, revenue mobilisations through vehicle-tax and registration-fee have slowed down and they missed their respective targets by over Rs 1 billion and Rs 2 billion respectively. "The government has collected Rs 2.13 billion under vehicle-tax and Rs 4.73 billion under registration-fee by mid-June," said revenue secretary Krishna Hari Baskota. The targetted collection from vehicle-tax and registration-fee were Rs 3.50 billion and Rs 6 billion respectively.

Encouraged by the revenue collection trends, the government has revised its target upwards by Rs 13 billion to Rs 190 billion. Earlier in the budget for the fiscal year 2009-10, the government had set a revenue target of Rs 176.5 billion for the current financial year.

"We can still meet the revised target," Baskota claimed adding that the collection under customs, VAT and excise duties are encouraging. "Due to encouraging collection from customs, VAT and excise duties, we have exceeded the overall target," he added.

The government has collected Rs 31.26 billion under customs, Rs 47.84 billion under VAT, Rs 20.85 under excise and Rs 26.24 billion under income tax heads, pushing up the overall revenue collection.

"The total revenue collection has exceeded by 2.76 per cent to Rs 153.59 billion against the target of Rs 150.83 billion by the end of mid-June," said the revenue secretary. "The collection exceeded by 27 per cent compared to the samer period last fiscal."

In the same period last fiscal year, the government had collected Rs 121.23 billion.

Still, the largest contributor to the government coffer is VAT, followed by customs, implying a growing import and consumerism. According to Prof Dr Bishwambher Pyakurel, "The government is in a trap of import-based revenue, which is not a good sign for the economy. "We are already suffering from microeconmomic difficulties," he said. "We are losing our export competitiveness," Prof Dr Pyakurel added.

IMF approves Rapid Credit Facility

International Monetary Fund (IMF) directors viewed the arrangement under the Rapid Credit Facility (RCF) to Nepal as helpful in cushioning the shock from the global crisis and boosting confidence. They hoped that the RCF would serve as a bridge to a programme addressing Nepal’s structural challenges that could be supported by an arrangement under the Extended Credit Facility.

IMF has concluded Article IV consultations with Nepal on May 28. The Executive Board of the International Monetary Fund (IMF) decided to provide the RCF to Nepal.

According to the IMF, four years after the end of the civil conflict, Nepal remains in political transition, with a new constitution being drafted and fresh elections expected once the constitution is approved. Despite being one of the poorest countries in Asia, Nepal is making progress on social outcomes.
"Macroeconomic stability has been maintained in the past few years, but the global crisis is having a delayed impact on Nepal’s economy and exposing its structural weaknesses," it said. The exchange rate peg and prudent fiscal policy have been anchors of stability. By end 2008-09, public debt had declined to 40 per cent of GDP from 64 per cent in 2001-02, and foreign exchange reserves had increased to six months of import cover due to robust remittance inflows.
In the first half of 2009-10, however, remittances growth slowed and exports declined by 14 per cent which combined with soaring imports caused reserves to decline by about 13 per cent, it stated.
A liquidity crunch ensued in the banking system as banks have overextended themselves over the past years in an environment of accommodative monetary policy, weak supervision, and proliferation of financial institutions.
The near-term economic outlook is challenging. Real GDP growth is expected to slow to three per cent in 2009-10 from an estimated 4¾ per cent in 2008-09, due to a poor monsoon, softer remittances, and tighter monetary conditions. The external current account is projected to record a deficit of two per cent of GDP in 2009-10 due to a deteriorating trade deficit and decelerating remittances.
At the same time, inflation is projected at 12 per cent by end of 2009-10. Fiscal policy remains prudent, and the authorities plan to reduce the 2009-10 net domestic financing to 1.6 per cent of GDP from the budgeted 2.1 per cent.
However, capital spending remains low, owing mainly to capacity constraints. It is anticipated that real GDP growth will recover to four per cent in 2010-11 reflecting expected stronger remittances on the back of the recovery in the Gulf countries and Malaysia (the main host countries of Nepali workers) and that the current account will move close to balance, although the situation remains fragile.
In the near term, risks are on the downside and stem mainly from weaker remittances, continued high imports, capital flight, heightened financial sector vulnerabilities, and political instability. Credit and liquidity risks in the banking system are high. Tackling structural problems remains essential to achieve high growth over the medium term. While Nepal’s potential is high, progress is required in addressing the poor business climate, power shortages, inadequate infrastructure, weak governance, and difficult labor relations.
Political stability and improved security are necessary conditions for progress in several of these areas.
Against this background, the 2010 Article IV consultation focused on maintaining continued macroeconomic stability in the context of a deteriorating external position and how IMF financial assistance could contribute to this end; and managing financial sector risks and reducing vulnerabilities.
Executive Board AssessmentExecutive Directors observed that, after years of macroeconomic stability, Nepal’s economy is experiencing a substantial, albeit somewhat delayed, impact of the global crisis, which is exposing the country’s structural weaknesses. External and financial sector risks have risen as evidenced by the significant deterioration of the current account, the reserve decline, wavering confidence, and banking sector liquidity stress.
The Directors welcomed the authorities’ commitment and efforts to safeguard external and financial stability. They viewed maintaining the exchange rate peg as a key short-term objective to shore up confidence, observing that it has served Nepal well so far by providing macroeconomic stability.
In the medium term, a number of Directors recommended a reconsideration of the type of peg as well as alternative options for a nominal anchor. They stressed the need for monetary policy to support the peg by maintaining short-term interest rates above those of India, and suggested that liquidity management be strengthened to avoid abrupt fluctuations in interest rates. They also stressed that emergency liquidity support needs to be consistent with the peg.
Directors encouraged the authorities to phase out the import and foreign exchange restrictions.
They took note of significant credit and liquidity risks in the financial sector. They welcomed the recent macroprudential measures adopted by the Nepal Rastra Bank to limit banks’ liquidity risk and exposure to the real estate sector, but stressed that enforcement will be crucial for their effectiveness.
Directors encouraged the authorities to strengthen the bank resolution framework, including through the passage of the amended Banks and Financial Institutions Act, enhance contingency planning, and expand regulatory oversight over savings and credit cooperatives.
They noted that bank licensing policy needs to be tightened and financial sector consolidation facilitated. They observed that the rapid proliferation of financial institutions has stretched the authorities’ supervisory capacity, and welcomed the recent licensing moratorium.
Directors also encouraged the authorities to proceed with the restructuring of the two state-controlled banks.

Directors commended the authorities’ fiscal prudence, and supported its continuation. They noted that, although improved debt dynamics have created room for higher spending, a tight fiscal stance remains justified in the short term to support the exchange rate peg.
They encouraged further efforts to curb tax evasion and broaden the tax base.
Directors reiterated that tackling long-standing structural problems remains essential to achieve high growth over the medium term. Key areas for improvement are the business climate, governance, infrastructure and labor relations.

ADB extends over $72m to help Nepal expand credit access to rural poor

June 18The Asian Development Bank (ADB) will provide $72 million in further assistance to Nepal for an ongoing programme aimed at helping poor and isolated rural communities access credit and financial services.
The ADB Board of Directors today approved a loan of $60.4 million equivalent, and a grant of $12.1 million, both from its concessional Asian Development Fund, for the second phase of the Rural Finance Sector Development Cluster Program, and for a related sector project. Nepal is emerging from a decade-long period of conflict into a new phase of reconciliation and rebuilding, and has made substantial headway in reducing poverty. But in the countryside, including remote hill communities, poverty rates remain high. A lack of access to affordable credit is a key factor holding back development, as rural households are unable to access funds from the formal sector, forcing them to tap informal sources such as money lenders who typically charge high interest rates.The cluster program aims to remove obstacles to credit access in rural communities by carrying out institutional and policy changes designed to make rural financial institutions more willing and able to provide credit and services to those in need. Under the second phase of the program, reforms in the Agricultural Development Bank Ltd ― the country’s largest commercial lender ― will be completed, including a capital restructuring which will involve the entry of a private strategic investor, marking the first major financial privatization in Nepal. This will be complemented by reforms at the Small Farmers Development Bank with the goal of increasing credit access to 20,000 more marginal farmers in remote mountainous areas by 2012. Support will be given to develop and expand credit information services for microfinance institutions and savings and credit cooperatives, and to provide specialist skills training for financial institutions. “The policy and institutional reforms under this phase of the program will transform key rural financial institutions into viable finance intermediaries with a strong client orientation and pro-poor focus, while improving the efficiency and outreach of semiformal institutions,” said Mayumi Ozaki, Finance Specialist, Rural and Microfinance, in ADB’s South Asia Department. The cluster program is targeting an increase in credit access to the rural poor from 1 million accounts in 2008, to 1.17 million by 2012, and an increase in women’s access to finance from 200,000 accounts to 283,000 over the same period.
ADB’s loan ― which will help cover adjustment costs related to the restructure of key rural finance institutions ― has a 24-year term, including a grace period of 8-years, with interest charged at 1% per annum during the grace period and 1.5% for the balance of the term. The grant will help fund a sector project to develop a legal framework and regulatory authority to supervise and develop capacity at rural finance institutions.
An additional grant of $200,000 from ADB’s Technical Assistance Special Fund will provide capacity support to assist Agricultural Development Bank’s transformation.The Ministry of Finance is the executing agency for the program, which is due for completion around June 2012.

Two Nepali summiters eye world records

Two Nepali summiters Lhakpa Sherpa and Mingma Sherpa are on their way to create history as top summiters in the world.
"I am flying to Pakistan on Friday to scale two peaks above 8,000 metres," said Mingma (32), who has already scaled 11 of the 14 peaks above 8,000 metres. He is planning to scale Nanga Parbat (8,125 metres) and Gasherbrum-I also called K5 (8,080 metres in Pakistan before returning to scale the last among the 14, Mt Kanchanchanjunga, in his list.
The eight-thousanders' club has only 24 members till date and Mingma has only three peaks to scale to be the member of the prestigious club. The eight-thousanders are fourteen independent mountains on earth that are more than 8,000 metres (26,247 ft) high above sea level. They are all located in the Himalayan and Karakoram mountain ranges in Asia.
Out of the 14 eight-thousanders, eight — Mt Everest (8,848m), Kanchenjunga (8,598m), Makalu (8,485m), Lhotse (8,501m), Cho Oyu (8,188m), Dhaulagiri (8,137m), Manaslu (8163m) and Annapurna (8,091m) — are in Nepal.
Similarly, after four years' rest from her career as a mountaineer Lhakpa Sherpa — the only Nepali woman to scale Mt Everest six times from 2000 to 2006 — is headed for another record. She will be attempting to scale Mt K2 (8,611 metres) — the second highest peak in the world. She has been on top of the world — Mt Everest — for the sixth time in 2006. She will be the first Nepali woman and the third woman climber in the world to summit the Mt K2, considered very dangerous to climb.
Till date, 3,410 people have scaled the Mt Everest for 5,060 times after Edmund Hillary and Tenzing Norgay scaled the peak for the first time in 1953.

Capital gains tax plunges by over three times

Adjusted price of shares — due to a flooding of bonus and rights shares — and decreasing share price have brought down the capital gain tax (CGT) collection, which is expected to drop by over three times.
The Nepal Stock Exchange (Nepse) estimated to collect Rs 270 million capital gain tax in the financial year 2009-10, a whopping fall compared to the last financial year. "By May 29, the Nepse has collected Rs 248.9 million capital gain tax," said Nepse chairman Tanka Paneru while presenting the report during the 28th annual general meeting (AGM) of the Nepse in the capital yesterday. "By the end of this financial year, we expect to collect Rs 270 million," he added.
It is over three times below the collection registered in the previous financial year. The Nepse had collected Rs 910 million CGT during the fiscal 2008-09. In the fiscal 2007-08, it had collected Rs 910 million
A capital gain tax is a tax charged on capital gains, the profit realised on the sale of a share that was purchased at a lower price. The capital gain tax is charged 10 per cent for individuals and 15 per cent for institutions.
"After the Nepse has been changed to a profit-oriented organisation, it has posted Rs 136.4 million income in fiscal 2007-08," Paneru said. Similarly, the Nepse has registered an income of Rs 158.5 million in fiscal 2008-09, which is 16.20 per cent up, compared to fiscal 2007-08. It has registered a net profit of Rs 85.4 million in the fiscal year 2008-07, an increase of 20.45 per cent compared to fiscal 2007-08.
In fiscal 2007-08, it had posted a net profit of Rs 70.9 million. The AGM has also approved a 20 per cent cash dividend from the profit of 2007-08.
"But the secondary market has not announced any dividend as it is planning to increase its capital," Paneru informed. The AGM has approved the increase in capital. According to the approved capital structure, the paid-up capital of Nepse will be Rs 300 million.
"The increase in paid-up capital will help Nepse to privatise in future," Shanker Man Singh, Nepse's general manager said
The government, Nepal Rastra Bank (NRB), Nepal Industrial Development Corporation (NIDC)and brokers are the promoters of Nepse, the only organised secondary market in the country, where 171 companies have been listed for trading in their shares. "The paid-up capital of the listed companies’ stands at Rs 75,342 million by the end of May 29, 2010," according to Nepse. However, the market capitalisation has decreased to Rs 3.79 trillion from Rs 5.13 trillion in fiscal 2008-09.

Private sector makes plea for a common economic agenda

Entrepreneurs have urged the government to create a secure environment with improved law and order situation, ensure regular power supply and easy access to finance at low interest rates so that industries can flourish.
During the 44th annual general meeting (AGM) of the umbrella organisation of the Nepali private sector on Friday, they appealed to create an environment in which politics does not interfere with business.
Prime Minister Madhav Kumar Nepal while inaugurating the AGM committed to improving the overall situation including security in the country.
Kush Kumar Joshi, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said a common minimum economic agenda should be prepared, and that should act as the guiding principle for any government that comes to power till the Constitution is prepared and promulgated.
The umbrella organisation of the Nepali private sector earlier in the afternoon organised a discussion on Nepali Economy Under the Shadow of Politics.
The leaders of the major political parties — Nepali Congress (NC), UCPN-Maoists, CPN-UML — though admitted that the economy is in a bad shape and needed foreign investment, they could not commit to creating an investment-friendly environment.
"Business without politics is the need of the hour," said former finance minister (NC) Mahesh Acharya. "Economy should be strong, if a nation wants to be independent," he said.
Former finance minister Dr Baburam Bhattarai (UCPN-Maoists) said that a modern industrial structure is needed for economic development of the country. "Institutional reform is the need of the hour," he said. The land ownership pattern should be changed and "the government should own the land that could be leased to the entrepreneurs or those who till the land".
Bharat Mohan Adhikari, former finance minister and CPN-UML stalwart expressed serious concerns over growing trade deficit. "The rising import and declining exports is making the country more paralysed," he said. Despite being an agricultural economy, Nepal has to heavily depend on India for vegetables and meat products. "The country has all the symptoms of a failed state," the CPN-UML stalwart said. Ironically, the present government is led by his own party and even Finance Minister Surendra Pandey is also from his party. "The economy is in contraction," he said.
Moderator of the interaction Prof Bishwhambher Pyakurel said that the huge purchase of Indian Currency in the recent months is historic. "It exposes the fact that the imports are rising and Nepali industries are in sorry state," he said. "It calls for an immediate action."
The industrialists repeated their concerns and requested the parties to implement the economic agenda that promised during the election campaign.

FNCCI brainstorms at 44th AGM

The umbrella organisation of Nepali private sector -- Federation of Nepalese Chambers of Commerce and Industry (FNCCI) -- is holding its 44th annual general meeting (AGM) on Friday.
FNCCI's AGM comes at a time when the country is passing through crucial economic and political transitions. "The economy has been forced to take a backseat. The AGM will hold an interaction on 'Economy Under Political Shadow'," said Kush Kumar Joshi, president, FNCCI.
"Political parties must have a clear vision on where they want to see the country economically after one year or so," he added.
According to him, the first session of the AGM will have an business captains having an interaction with representatives of all major political parties. Next day, Finance Minister Surendra Pandey is expected to outline government's response to private sector's concerns during an interaction on 'Youth Self-employment Programme and government's role'.
The business fraternity urges that there should be an environment, where everyone can work for his livelihood. "The government has been unable to create an investment-friendly environment despite its repeated promises," Joshi said.
"Continuous hours of load-shedding, insecurity, and liquidity crunch have been bleeding the private sector white," the president of the umbrella organisation of the Nepali private sector said.
According to a Nepal Rastra Bank (NRB) report, imports to the country have grown seven times the exports. "Nepal's merchandise exports during the nine months of 2009-10 has declined by 10.4 per cent to Rs 45.67 billion against a growth of 20.3 per cent in the same period last year. Similarly, the merchandise import has increased by 41.3 per cent to Rs 284.14 billion against the growth of only 25.3 per cent in the same period last year," the NRB report said.
A strong private sector with committed political backing can alone encourage exports. "Growing trade deficit in the nine months of 2009-10 has grown double to 58.9 per cent (Rs 238.47 billion), compared to a rise of 27 per cent in the same period last year," Joshi said adding that the government should take serious stock of the situation.

Commercial banks, hydro companies propel Nepse

The share holders of commercial banks and hydropower companies gained today as except for the two sub groups all others lost.

The banks sub group propelled the secondary market by 3.84 points to close at 486.6 points after it saw heavy trading in some of the commercial banks. Sunrise Bank (12,340-unit), Lumbini Bank (5,379-unit), Bank of Kathmandu (4,268-unit), Prime Commercial Bank (3,343-unit), Nepal Investment Bank (2,879-unit), NIC Bank (2,255-unit), Kumari Bank (1,469-unit) and Laxmi Bank (1,104-unit) pushed the banking index up by 5.94 points to close the banks sub group at 468.92 points.

Similarly, Butwal Hydropower (2,196-unit) and Arun Valley Hydropower (1,294-unit) along with Chilime Hydropower (400-unit) shares were traded at the market, pushing the sub group by 2.04 points to 726.13 points.

However, the Asian Life Insurance that saw 6,220-unit of its shares being traded could not lift the insurance sub group as the sub group lost 0.37 point to close at 569.58 points.

Meanwhile, the year on year (y-o-y) Nepse index declined by 32.74 per cent to 444.76 points in the nine months of 2009-10. The index stood at 661.27 in the same period last year.

Likewise, Nepse sensitive index (based on July 2006) stood at 108.65 points in mid April, which was 176.17 points in the same period last year.

The float index -- calculated on the basis of final transaction as of August 24, 2008 as base market value -- remained at 41.88 in mid-April, a contraction of 35.15 per cent compared to the same period last year, according to the central bank's data.

The y-o-y market capitalisation also declined by 18.21 per cent to Rs 344 billion in mid-April. The ratio of market capitalisation to GDP stood at 31.80 per cent, said the central bank. "It was 43.87 per cent in the same period last year."

Of the total market capitalisation, bank and financial institutions accounted for 74 per cent followed by manufacturing and processing companies (1.8 per cent), hotels (1.1 per cent), business entities (0.3 per cent), hydropower (four per cent) and other economic sectors (18.7 per cent).

Total paid up capital of the listed companies stood at Rs 74.26 billion in mid-April -- an increase of 35.82 per cent over a period of one year. The increase was largely due to the additional listing of securities at the secondary market.

In the ninth month of current fiscal, additional securities worth Rs 20.15 billion -- ordinary share of Rs 3.59 billion, bonus share of Rs 3.43 billion, right share of Rs 5.96 billion and government securities of Rs 7.25 billion -- were listed at the Nepse.

The total number of companies listed at the Nepse has increased to 168 in mid-April compared to 157 in the same period last year.

Arun valley increases paid up capital

KATHMANDU: As per the decision of 14th AGM of Arun Valley Hydropower Development Company on December 29, 2009, the company has distributed 40 per cent of the paid up capital that is 686,000-unitbonus shares. The bonus share has been listed on the Nepse on June 9. After the bonus shares, the total paid up capital of the company is Rs 240.1 million. The company is also making a detailed study for a proposed hydro power project at Kabeli B-1, with a capacity of 25 MW. -- HNS

World Bank estimates three per cent growth

The World Bank (WB) has projected growth at three per cent for the current fiscal year.

"However, growth rate could climb up to four per cent in the next fiscal year, and 4.2 per cent and 4.5 per cent in the fiscal years following that," according to the WB report 'South Asia Economic Update-Moving Up, Looking East' released here today.

Similarly, South Asia is poised to grow by about seven per cent led by India in 2010 and eight per cent the next fiscal year.

However over the longer period of time, according to WB’s projection, growth is likely to be arrested at around five per cent, if reforms stay incremental and key structural impediments remain. Likewise, if the country attains political stability next year enabling serious efforts to remove the impediments, the growth could reach five per cent by fiscal year 2012-13.

Furthermore, the Bank has also estimated the inflation to be 11.8 per cent in the current fiscal year. The government had aimed to reduce the inflation to seven per cent though revised it to 11 per cent in mid-term budget evaluation. According to the WB projection in the view of Indian inflation and remittances, in the fiscal year 2010-11 inflation will go down to eight per cent and by the fiscal year 2012-13 it will be tapered down to five per cent.

The WB has also attributed the political uncertainties as the reason for darker economic prospects of Nepal which is expected to continue until the political parties reach the consensus. "Similarly, low business confidence, due to unending law and order problems, extortion, strikes and lack of security, is causing the industry and commerce to contract," said the report.

Likewise, WB has also pointed out the nation’s inability to design and implement key structural reforms that address matters such as labour regulations and financial weaknesses as responsible for slower growth rate.

The bank has, however, called the government’s sound fiscal framework with strong revenue performance as a positive sign for the Nepali economy.

Furthermore, it has pointed out the potential to achieve substantial service exports due to relative indifference of the service sector to the political development as another encouraging sign for the economy.

However, WB has assumed that the in coming years also Nepal will be politically unsteady, the fiscal management will be still be sustainable. Similarly, it has projected a slow improvement of efficiency and climate of investment and the remittance flows are also supposed to continue to grow but at a slower pace of 10-12 per cent per year as in line with projected growth of destination economies.

According to the WB projection, India will grow by nine per cent in 2011, Bangladesh by 6.4 per cent, Bhutan by seven per cent, Sri Lanka by six per cent and both Maldives and Pakistan by four per cent, making South Asia fastest growing region after East Asia and Pacific.

South Asia to grow by seven per cent

Led by India, South Asia is poised to grow by about seven per cent in 2010 and nearly eight per cent in 2011, making it the second-fastest growing region after East Asia & Pacific, according to the South Asia Economic Update 2010, Moving Up, Looking East, the World Bank’s first yearly assessment of the economies of the region.

Contrary to current beliefs, South Asia’s particular strengths and forms of global integration — not the lack of it — was a key factor behind its resilience following the financial crisis of 2008. With emerging markets playing an increasing role in driving growth, integration should be a key component of a sustained and inclusive growth strategy going forward, the report says. “Over the past fifteen years the region has become much more open—and it appears that the form of openness it has chosen has provided resilience in the face of recent shocks,” said Andrew Steer, World Bank Acting Chief Economist for the South Asia Region. "Financial systems proved to be robust with limited exposures to overseas subprime markets. Remittances, exports of goods and services such as in the IT and garment sectors, and foreign direct investments kept up during the crisis. At the same time, policy response in most countries played a key role in boosting confidence and accelerating recovery."

The report says that remittances have become the biggest source of foreign earnings in the region representing a (simple unweighted) average of 10 per cent of GDP, a figure that is five times larger than net foreign direct investment flows.

According to Ernesto May, Sector Director for Economic Policy for the South Asia Region, the region is facing a very different global economy over the medium term. “There is significant consensus now that what will emerge from this crisis will not be simply a return to pre-crisis conditions, but a “new normal”. Developed countries are starting to save more and spend less, are burdened with large fiscal and financial adjustment after, and are likely to grow at a much slower pace, especially in Europe and North America, whereas Asia and emerging markets will become much bigger drivers of global growth."

While high-income markets will continue to be important for South Asia, even if at a slower pace than in the past, other emerging markets and regions are also fast-growing and increasingly important partners. In looking for future drivers, the Update focuses on trade and investment integration opportunities and recommends three principal directions for the countries in the region:

· Intensify their Look East strategies to integrate faster with East Asia. Currently trade between the two regions amounts to $126 billion annually and could reach $450 billion per year.

· Integrate more closely with each other within the South Asia region, to generate up to $50 billion per year more to the current $20 billion

· Preserve links to high-income markets in Europe and North America, and others, as these will continue to be important for labor-intensive exports, services, and as sources of capital and know-how.

“Given complementary economic structures, trade and investment integration will help boost domestic manufacturing and services with gains for growth and welfare,” said Miria Pigato, Sector Manager for Economic Policy South Asia. “South Asia is well on its way to integrating rapidly with East Asia, which is already the largest partner for merchandise trade with the region. While trade with East Asia (excluding China) is the biggest part of this trade, China’s share is also growing, and together, trade with East Asia could triple to $450 billion annually. Within the South Asia region itself, annual trade could potentially be increased by some US$50 billion.”“The Regional Economic Update expects growth in the region to reach close to pre-crisis peak levels and faster than its high rates of 6.5 percent annually from 2000 to 2007,” said Dipak Dasgupta, lead economist and principal author of the report.

“Rising domestic confidence combined with government fiscal and monetary stimulus packages and, in some cases, external assistance is helping stimulate recovery. Improved optimism is helping drive the recovery in private spending in India, Bangladesh, Bhutan and Sri Lanka.” India’s growth is expected to rise to nine per cent in 2011, Bangladesh to 6.4 per cent, Bhutan to seven per cent, and Sri Lanka to above six per cent.

However, in countries with weaker fundamentals, unresolved conflict or post-conflict issues, and those that were heavily exposed to the global downturn, such as Maldives, Nepal and Pakistan, slower recovery is taking place (about 4 percent in 2011 for all three countries). Afghanistan is recovering from a drought and is expected to show stronger growth of 7 percent based on expanding external assistance. There remain some significant risks in the global environment—slowing worker remittances and exports in a still hesitant and uncertain global recovery, as recent events in Europe show, with volatile commodity prices, and continuing volatility in global capital flows. “To ensure a sustained, durable and faster growth, countries need to create more fiscal space and contain rising inflation, while ensuring that the exit from fiscal and monetary stimulus is gradual and in tune with the recovery of private demand,” said May. “Boosting agriculture will also be vital to keep food prices moderate”.The South Asia region faces unique challenges such as those stemming from conflict and insecurity which will need to be addressed if the region is to fulfill its full potential.For some countries in the region, and some regions in all countries, economic growth and development has been hobbled in the past decade by rising conflict and insecurity. “As peace returns, the post-conflict peace dividends can be large but are not automatic; policy settings need to be supportive—potentially raising growth by 2-3 percentage points annually in the countries and more in the sub-regions severely affected,” said Steer. The post-conflict bounce in growth and optimism in Sri Lanka is an example, and could be possible in Nepal, if policies sustain the dividend. In conflict affected areas, winning the peace and ensuring security will require strengthening the role of the state to deliver better services, the creation of jobs, and good governance. More trade among neighbors might help. However the region also has unique opportunities. One of the key prospects for the region could be the rise of a globally competitive manufacturing sector that will also benefit from a Look East trade intensification strategy to help integration with global production networks and reduce large behind-the-border costs such as logistics. South Asia is attracting greater investor attention; and paradoxically, its growing prowess in exports of sophisticated exports is also enhancing its potential in more sophisticated manufacturing. This process has already started, says the Update, with fast-growing private infrastructure investments (PPI) that are supporting rapidly growing manufacturing, in new sectors such as automobiles, electronics, machinery, steel, and capital goods. “South Asian countries could do well to seize these advantages decisively with industrial clusters and export processing zones in late or newly industrializing areas, and accelerated skills training, infrastructure and a deregulated business environment in already established areas,” said Dasgupta. The South Asia Update is the World Bank’s comprehensive review of the region’s economies.

Govt not to give guarantee for NAC to purchase aircraft

A U-turn of the Finance Ministry has landed Nepal Airlines Corporation (NAC) in a soup.
Finance Minister Surendra Pandey has in his budget for the 2009-10 had promised to give a guarantee for the purchase of new aircraft. "But after a five-month long study, the ministry decided not to go ahead with the deal," a high level source at the finance ministry said.
Earlier, Public Accounts Committee (PAC) had also directed NAC not to go ahead with the purchase of the aircraft. The finance ministry wrote to the Ministry of Tourism & Civil Aviation not to go ahead with the planned deal as according to it, "the evaluation and selection process of the aircraft was against the public procurement law."
However, the NAC officials smell a rat in the latest decision of the finance ministry. "The ministry could have decided within five days," said a high-level source at the NAC.
"After five months, it ordered the ministry not to go ahead with the purchase," the source said adding that the national carrier could have arranged a loan from other sources.
"Other financial institutions are ready to finance the airline," the source said adding that financing is not the problem. "But in that case, the ownership of the aircraft will be of the financial institutions, and not of the NAC."
Nepal is going to celebrate Nepal Tourism Year 2011, and the national carrier has the two age-old aircraft -- Boeing 757s Karnali and Gandaki -- that also have to be grounded due to technical problems.
Earlier, the Maoists-led government had promised of a government guarantee to purchase the aircraft as the NAC needed them badly.
NAC had in September decided to buy two aircraft -- a wide body A330-200 with a seat capacity of 279 and a narrow body A320-200 with 150 seat capacity -- from European manufacturer Airbus at an estimated cost of around $41.289 million and $92.845 million respectively. The American aircraft company Boeing had also submitted the proposal but the proposal of the Airbus was selected by the technical committee.
NAC -- that has been operating the two Boeing 757s bought in 1987-88 -- has an ambitious plan of purchasing a fleet of six aircraft in five years to help boost the image of the ailing carrier. However, the process has been marred in controversy every time it tried to buy or lease aircraft.
Lately, NAC is losing its customers and some two dozen international airlines flying to Nepal are profiting at the cost of the national carrier.

Gold continues bullish crusade

Gold followed on the upward path today and hit another record high of Rs 30,910 per 10 gram (Rs 36,050 per tola) in the domestic market. After a brief slowdown, the precious yellow metal has resumed its northern course terrifying the customers before the marriage season, due to weak Indian Currency (IC) against the dollar.
"Consumption demand on gold has also dropped but the yellow metal has nonetheless been ascending, backed by safe haven and alternative investment demand against currency fluctuations and uncertainty," said Tej Ratna Shakya, president of Nepal Gold and Silver Dealers Association (NEGOSIDA). "The market hardly saw 10 kg of gold being traded today."
"Supply crunch on one hand and IC fluctuation on the other pushed the price of gold in the domestic market," he said, adding that the central bank's decision to award the right to buy gold from banks has to be revisited. "The banks could not supply enough gold," Shakya complained.
According to the tradition, gold is traded more in the domestic market. "The customers are also suffering in the marriage season as they could not buy gold in the market yesterday," he added.
Emerging and Asian countries' efforts in supporting the recovering global economy are still marred by the European debt crisis and weak consumption pressurising the gold price in the international market. "For this reason confidence in the markets is still shaky, as uncertainty still fills the air," Shakya said.
Gold has risen by 0.35 per cent to $1220.40 in the international market. Precious metals, and especially gold, are used as a safe haven against depreciating currencies. Investors demand gold for various reasons, but whatever the motive, gold is feeding on this bullish behaviour. From another perspective, rising confidence pulls liquidity into gold as an alternative demand due to a certain level of uncertainty still lingering in the markets.
Fundamental are still aiding gold and other precious metals, while corrections and fluctuations will not be excluded from the current uptrend that is expected to remain unchanged until new economic data of the EU and the US is released, which is unlikely in the near future.

PAF may get additional funds from World Bank

The World Bank (WB) has — after the mid-term review of the Poverty Alleviation Fund (PAF), Nepal — decided to continue to help it and provide additional grant.

"With the success of the previous programmes, the Bank is positive on extending more grants," said the newly-appointed vice-chairman of the PAF, Vidyadhar Mallik. "The present $100 million grant that was supposed to be for the duration till 2012 is going to be disbursed by 2011," he said, adding that unlike government agencies, the Fund is very efficient in fund disbursement. "It will reach to the community-level immediately."

"However, for the effectiveness of the programme, the government should also take ownership so that PAF can diversify its programmes," Mallik added.

The World Bank has also dubbed PAF’s actions towards reaching the targeted poverty-ridden population as suitable.

Similarly, the Fund's programmes and projects have also facilitated the implementation of the government’s local-level plans, the report has said, adding that it has also appreciated the transparency and the governance of the PAF’s projects.

The World Bank has conducted the assessment based on the field visit of the districts and also conducted meetings with high-level government representatives, representatives from the ministries concerned, Constituent Assembly members, and working committee’s members.

Likewise, the poverty-stricken population has also recognised the improvement that the PAF’s programmes have brought into their lives, calling it first of its kind.

"Since these people get the money in their own hands it has resulted in their confidence build-up and has made them more optimistic," said Rajbabu Shrestha, Executive Director of the Fund. "It funds for income generating activities (IG) of basic infrastructure."

"The programmes have relieved the poor people from the burden of high interest rates charged by local money lenders," he said, adding that they are being empowered as they are forming the groups or community organisations (CO) and cooperatives to help each other. "The fund, given to them, works as a revolving fund. The needy can take loan and go on paying."

The basis of the average income of the targeted poverty-stricken households has increased and improved the savings and income of the population and have affected positively in their lives.

"Along with economic improvement and social inclusion, the PAF has become a synonym of the voiceless people," Mallik said, adding that the target can also be restructured.

PAF’s projects have been able to facilitate 507,757 households belonging to 1,655 VDCs. Among all the facilitated households, 29 per cent households were scheduled caste and 27 per cent belonged to janjati and 46 per cent were of other categories.

The Fund — established by the government — with the goal of helping the poor find their way on a sustained path out of poverty, is being funded by the World Bank.

The Fund started working from the 25 districts is looking to extend to 15 more districts. "Its doing homework on extending the programmes to 55 districts," he added.

Nepal bucks slowdown trend, sees growth in tourist arrivals

Despite the global economic slowdown, Nepal has enjoyed a sustained growth in the international tourist arrivals, since June 2009. Compared to the same period last year, tourist arrival during May 2010 has increased by 6 per cent to 26,634.

A total of 34,964 foreign tourists departed from the Tribhuvan International Airport (TIA) in May 2010. Arrivals from Nepal's major source markets India and China have registered a double-digit growth. Time and again, this underscores the importance of neighboring and regional markets in terms of increasing the number of visitor arrivals.

Immigration Office at TIA reveals that arrivals from the South Asian region, except for arrivals from Sri Lanka, have gained an overall growth of 6 per cent. Arrivals from Bangladesh stood at 30 per cent and Pakistan at 26.3 per cent. Visitor arrivals from India have increased by 4.3 per cent which showed sustained growth this year, except soft decline in April. Only Sri Lanka recorded a negative growth of 53.7 per cent in its tourist arrival to Nepal.

China, another major source market, also recorded a double-digit growth of 35 per cent. Visitor arrivals from Japan have registered a growth of 13.9 per cent. However arrivals from Asia (other than South Asia) have marginally declined in May 2010 by 3.7 per cent. Visitor arrivals from South Korea, Malaysia, Singapore and Thailand have registered a negative growth of 14 per cent, 30.3 per cent, 32.7 per cent, and 50 per cent respectively.

European markets registered an overall growth of 10.8 per cent with major source markets showing a positive trend. Markets in the Western Europe have also contributed positively. Arrivals from the UK, Germany, the Netherlands, Switzerland, Denmark, Czech Republic and Poland are up by 4.9 per cent, 14.2 per cent, and 47.5 per cent, 12.3 per cent, 20.9 per cent, 75 per cent and 278.6 per cent respectively. However, visitor arrivals from France and Italy have marginally declined by 0.7 per cent and 1.9 per cent respectively while Spain and Sweden are down by 18% and 17.7 per cent respectively.

Arrivals from USA are up by 10.4 per cent but the figures from Australia, New Zealand and Canada have shown a negative growth of 9.8 per cent, 2.9 per cent and 3.2 per cent respectively.

Use remittances to develop a pro-migrant worker policy

The government needs to develop a pro-migrant worker policy and utilise remittances to that end, a government sponsored study has suggested.

The study commissioned by the Department of Foreign Employment (DoFE) and carried out by Nepal Development Study Corporation (NDSC) has suggested five points that include training to migrant workers, exploring new destinations, simplifying remittance policy, and utilisation of the remittance money in the manufacturing sector.

The study has suggested the government to invest at least five per cent of the annual budget in this sector.

Remittance is contributing equal to around one-fifth to the total gross domestic production (GDP), second after the agriculture sector that contributes 32 per cent. NDSC study has further suggested the government to develop separate policy for women migrant workers as a large number of housemaids are suffering from exploitation in destination countries.

Over 1,00,000 Nepali women believed to be working in the Gulf countries –– Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain, Oman and others –– are vulnerable to exploitation in workplace, according to the study that has revealed the bitter truth of foreign employment, saying ‘around 40-50 per cent Nepalis are leaving the country for overseas jobs through illegal channel'.

According to the report, around 800 Nepalis are leaving the country for overseas jobs every day, which is significantly higher than the previous year. Around three million Nepalis are engaged in jobs overseas, with the Gulf countries and Malaysia together accounting for about 90 per cent of them. According to DoFE, 1,87,149 Nepalis have been employed in overseas jobs last year while in the current year 2,31,943 have already left for foreign jobs.

Foreign employment is generating revenue for the country.

According to the study, the government had earned Rs 1.13 billion from passport and airport tax from migrant workers in 2008-09. Of 4,28,612 passports issued in Nepal, 2,19,965 are migrant workers. Outsourcing and orientation organisations are paying Rs 7.4 million per year as renewal fee. Around 3,43,913 Nepalis are employed abroad.

Training unskilled workers is a major challenge for increasing remittance base for Nepal. Around 75 per cent Nepali workers are unskilled, followed by about 25 per cent semi-skilled and only a nominal per cent of the migrant workers are skilled. Nepali banks and finance companies depend on remittances. According to the study, around 26 commercial banks, two finance companies and 45 remittance companies are engaged in the business. Nepali migrant workers going to the Gulf countries and Malaysia are occupying 58.97 per cent of the total seats in airways that fly to these destinations. Of 7,172 weekly air seats to the destinations, migrant workers occupy 4,230 seats.