The loss to economy due to the 15-day nationwide lockdown – to contain novel coronavirus disease (Covid-19) – can range between one per cent and two per cent of the gross domestic product (GDP), according to the Asian Development Bank (ADB).
According to the Nepal Macroeconomic Update – a flagship publication of the ADB – that is launched today, Nepal’s economic growth shrink to 5.3 per cent in the current fiscal year 2019-20, largely due to the novel coronavirus disease. The ADB had earlier projected 6.3 per cent economic growth while the government – in the fiscal policy for the current fiscal year – has targeted to achieve 8.5 per cent economic growth. Though finance minister Dr Yuba Raj Khatiwada revised the budget size downwards by Rs 147 billion in February owing to its failure to boost capital spending, Khatiwada – who is also former central bank governor and National Planning Commission (NPC) vice chair – still claims that the country will achieve 8.5 per cent economic growth.
Likewise, the finance minster still claims to contain inflation under 6 per cent, despite the shortage of essential goods in the market. “The average annual inflation in the fiscal year 2019-20 could be higher than the anticipated rate, if the situation further worsens due to Covid-19 pandemic,” the ADB report reads.
In its projection of economic impact of Covid-19 on Nepal, ADB has considered three scenarios, the best case scenario, normal and the worst case scenario.
The first scenario is based on the current situation faced by Nepal and policy measures implemented thereof. The nationwide lockdown has brought major economic activities to a standstill. Manufacturing industries have closed their operations, with only few of those producing essential items – medical supplies, food and dairy products – remaining open. Apart from those providing essential services, all other offices have been closed. Domestic and international trade has substantially slowed down.
If this situation normalises soon and the lockdown is removed from April 8, the loss to the economy may be restricted to about only 1 per cent of GDP, the report reads, adding that the second scenario assumes that the nationwide lockdown will prolong for weeks. While import of essential goods may continue during this period, all other economic activities will be severely affected, and foreign earnings will be hard-hit, domestic production will be badly affected, hundreds of thousands of people living on daily wages may be pushed to further poverty due to prolonged shutdown of the economy and remittance income will substantially fall as out-migration will be totally discontinued. “Under this scenario, the ADB projects the economy will lose about 1.6 per cent of GDP,” it reads.
The third scenario assumes the further prolongation of the nationwide lockdown for one or two months with the sporadic rise of Covid-19 cases in Nepal. This will put pressure on Nepal’s relatively weak health systems. “Under this scenario, the economy will lose about two per cent of GDP,” the report reads, adding, on a positive note, that the economy may rebound to 6.4 per cent in the next year fiscal year 2020-21, with the resurgence of economic activities post-Covid. “It also estimates that inflation will moderate at 5.5 per cent in the next fiscal year.”
The downside risks to the outlook in fiscal 2020-21 include natural hazards – erratic monsoons and floods – that could depress farm output and damage infrastructure. “Should the capacity deficiencies at the provincial and local levels persist, sub-national spending will remain weak,” it adds.
Moreover, the pervasiveness of Covid-19 pandemic could paralyse the economy, if the disease persists for long. The pandemic will weaken global demand, affecting out-migration for foreign employment and put pressure on Nepal’s external stability, states ADB.
Loss measured in constant prices
(Rs million)
According to the Nepal Macroeconomic Update – a flagship publication of the ADB – that is launched today, Nepal’s economic growth shrink to 5.3 per cent in the current fiscal year 2019-20, largely due to the novel coronavirus disease. The ADB had earlier projected 6.3 per cent economic growth while the government – in the fiscal policy for the current fiscal year – has targeted to achieve 8.5 per cent economic growth. Though finance minister Dr Yuba Raj Khatiwada revised the budget size downwards by Rs 147 billion in February owing to its failure to boost capital spending, Khatiwada – who is also former central bank governor and National Planning Commission (NPC) vice chair – still claims that the country will achieve 8.5 per cent economic growth.
Likewise, the finance minster still claims to contain inflation under 6 per cent, despite the shortage of essential goods in the market. “The average annual inflation in the fiscal year 2019-20 could be higher than the anticipated rate, if the situation further worsens due to Covid-19 pandemic,” the ADB report reads.
In its projection of economic impact of Covid-19 on Nepal, ADB has considered three scenarios, the best case scenario, normal and the worst case scenario.
The first scenario is based on the current situation faced by Nepal and policy measures implemented thereof. The nationwide lockdown has brought major economic activities to a standstill. Manufacturing industries have closed their operations, with only few of those producing essential items – medical supplies, food and dairy products – remaining open. Apart from those providing essential services, all other offices have been closed. Domestic and international trade has substantially slowed down.
If this situation normalises soon and the lockdown is removed from April 8, the loss to the economy may be restricted to about only 1 per cent of GDP, the report reads, adding that the second scenario assumes that the nationwide lockdown will prolong for weeks. While import of essential goods may continue during this period, all other economic activities will be severely affected, and foreign earnings will be hard-hit, domestic production will be badly affected, hundreds of thousands of people living on daily wages may be pushed to further poverty due to prolonged shutdown of the economy and remittance income will substantially fall as out-migration will be totally discontinued. “Under this scenario, the ADB projects the economy will lose about 1.6 per cent of GDP,” it reads.
The third scenario assumes the further prolongation of the nationwide lockdown for one or two months with the sporadic rise of Covid-19 cases in Nepal. This will put pressure on Nepal’s relatively weak health systems. “Under this scenario, the economy will lose about two per cent of GDP,” the report reads, adding, on a positive note, that the economy may rebound to 6.4 per cent in the next year fiscal year 2020-21, with the resurgence of economic activities post-Covid. “It also estimates that inflation will moderate at 5.5 per cent in the next fiscal year.”
The downside risks to the outlook in fiscal 2020-21 include natural hazards – erratic monsoons and floods – that could depress farm output and damage infrastructure. “Should the capacity deficiencies at the provincial and local levels persist, sub-national spending will remain weak,” it adds.
Moreover, the pervasiveness of Covid-19 pandemic could paralyse the economy, if the disease persists for long. The pandemic will weaken global demand, affecting out-migration for foreign employment and put pressure on Nepal’s external stability, states ADB.
Loss measured in constant prices
Sector
|
Scenario I
|
Scenario II
|
Scenario III
|
|
Agriculture
|
1069.8
|
1663.7
|
2733.5
|
|
Loss as a percentage of sector GDP
|
0.4
|
0.6
|
1
|
|
Industry
|
1721.4
|
3552.2
|
4234.5
|
|
Loss as a percentage of sector GDP
|
1.3
|
2.6
|
3.1
|
|
Services
|
5763.9
|
8640.1
|
9982
|
|
Loss as a percentage of sector GDP
|
1.2
|
1.8
|
2.1
|
|
Wholesale and retail 1835.1
|
3145.9
|
|
3801.3
|
|
Loss as a percentage of sector GDP
|
0.4
|
0.7
|
0.8
|
|
Hotel and restaurant
|
442.8
|
590.3
|
664.1
|
|
Loss as a percentage of sector GDP
|
0.09
|
0.1
|
0.1
|
|
Transport, storage and communications
|
450.2
|
2251
|
2701.2
|
|
Loss as a percentage of sector GDP
|
0.1
|
0.5
|
0.6
|
|
Total loss (economy-wide)
|
8555.1
|
13856
|
16950.1
|
|
Total loss as a percentage of GDP
|
1
|
1.6
|
2
|
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