Country Report February 2004

Nepal

February 2004

The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group.

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Contents

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2004-05 7 Political outlook 8 Economic forecast

9 The political scene

15 Economic policy

18 The domestic economy

20 Foreign trade and payments

List of tables 13 Total disappearances 19 Nepal: economic growth 21 Nepal: foreign trade 23 Nepal: balance of payments

List of figures 9 Nepal: gross domestic product 9 Nepal: consumer price inflation 17 Nepal: banking indicators 22 Nepal: trade

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Summary February 2004

Outlook for 2004-05 King Gyanendra has begun to consult the leaders of the parliamentary parties, suggesting that he is trying to build bridges with them. However, the parties are continuing to demand the restoration of parliament or the formation of an all- party government and there are signs that they are losing patience with the king. The civil war will continue, even though neither side can win an outright military victory. The parliamentary parties and the Maoists could move closer. Growth will remain sluggish because of the conflict. Sluggish government spending will hinder economic activity in rural areas. The government hopes to keep inflation under 5% in 2003/04. Visitor arrivals picked up in 2003, but will fall back if violence escalates.

The political scene The political crisis has continued. The government has announced an action plan. The government offered Maoist rebels an amnesty for rebels in December. The Maoists have stepped up attacks in southern Nepal and have killed a senior explosives expert. A major battle has taken place in far-western Nepal. The Maoists have demanded "taxes" from two foreign companies. The leader of a communist party, Madhav Kumar Nepal, has held talks with the Maoists. The parliamentary parties have held rallies in protest at human rights abuses. The prime minister, Surya Bahadur Thapa, has denied he is being sidelined but faces dissent from his own party. Human rights violations have caused international concern. The US has designated the Maoists as a terrorist group.

Economic policy The World Bank has approved a budgetary support loan. Poverty reduction has remained a key government priority. An education project has received external funding. Financial-sector transparency is being improved. The names of loan defaulters have been publicised. A rural telecommunications system has been introduced. A row has erupted over a hydroelectric project. China and Nepal have opened two new border posts. Nepal and India have signed a rail agreement. Money supply growth has been slow. Government revenue has grown strongly.

The domestic economy The economy grew by 3% in fiscal year 2002/03 (July 16th-July 15th). The non- agricultural sector has barely recovered. Visitor arrivals grew in 2003, but many hotels have continued to suffer. Prices have begun to creep upwards. Rises in the price of petroleum have underpinned rises in the wholesale price index.

Foreign trade and payments Exports grew strongly in the first quarter of 2003/04, but exports to India remain well below pre-2002 levels. Vegetable oil exports have remained entangled in procedural hassles. Ready-made garment exports to India have risen. Overseas (non-Indian) export receipts rose by 6% in the first quarter. Nepal's Indian rupee reserves have plummeted. An accounting change ensured a current-account surplus in 2002/03. Editors: Gareth Price (editor); Graham Richardson (consulting editor) Editorial closing date: January 19th 2004 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

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Political structure

Official name Kingdom of Nepal

Form of state Constitutional monarchy

Head of state The sovereign, King Gyanendra, is head of state and supreme commander of the Royal Nepal Army

The executive The prime minister presides over a Council of Ministers appointed from the elected members of parliament, mainly from the lower house, the House of Representatives. The lower house was dissolved in May 2002, and an interim government has been in place since October 2002

National legislature Bicameral: upper house, National Assembly, 60 members (35 elected by the lower house; 15 elected by heads of local committees and others in the electoral college; ten appointed by the sovereign); lower house, House of Representatives (suspended since May 2002), 205 members elected for five-year terms from single-member constituencies

Legal system The Supreme Court acts as the court of appeal and review as well as having powers of original jurisdiction; it presides over 16 appellate courts, a special court and 75 district courts

National government The king appointed an interim cabinet on October 11th 2002 after dismissing the elected prime minister. A new prime minister was appointed on June 4th

National elections May 3rd and 17th 1999; the election planned for November 13th 2002 remains postponed

Main political organisations Nepali Congress (NC); Communist Party of Nepal (Unified Marxist-Leninist), or CPN (UML); Rastriya Prajatantra Party (RPP, National Democratic Party); Nepal Workers’ and Peasants’ Party (NeWPP); Nepal Sadbhavana Party (NSP); Jana Morcha Nepal; Nepali Congress (Democratic), or NC (D); armed opposition—Communist Party of Nepal (Maoist), or CPN (M)

Council of Ministers Prime minister, minister of royal palace affairs, defence, home, foreign affairs, women, children & social welfare, science & technology Surya Bahadur Thapa Finance, agriculture & co-operatives, labour & transport management minister Prakash Chandra Lohani Information & communications, local development & health minister Kamal Thapa Education & sports, industry, commerce & supplies, law & parliamentary affairs minister Hari Bahadur Basnet Population & environment, physical planning & works, general administration minister Buddhiman Tamang Culture, tourism & civil aviation minister, land reforms & management, forests & soil conservation Sarbendra Nath Shukla

Central bank governor Tilak Bahadur Rawal

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Economic structure

Annual indicators 1999a 2000a 2001a 2002a 2003a GDP (NRs bn)bc 342.0 379.5 410.2 420.2 n/a Real GDP growth (%)bc 4.5 6.1 4.7 -0.6 3.0 Consumer price inflation (av; %)b 11.4 3.5 2.4 2.9 n/a Population (mid-year; m)b 22.4 22.9 23.2 23.7 n/a Exports fob (US$ m)b 575.6 676.2 613.0 550.8 n/a Imports fob (US$ m)b 1,199.6 1,058.2 915.4 925.0 n/a Current-account balance (US$ m)b 3.5 -129.8 -148.3 -254.2 n/a Reserves excl gold (mid-Dec; US$ m) 845.1 945.4 1,037.7 1,017.6 n/a Public external debt (year-end; US$ m)d 2,970 2,823 2,700 n/a n/a Exchange rate (av; NRs:US$) 68.2 71.1 74.9 77.9 74.51 a Actual. b Asian Development Bank. c Fiscal years ending July 15th of year indicated. d World Bank, Global Development Finance.

Main origins of gross domestic product 2001/02ab % of total Components of gross domestic product 2001/02ac % of total Agriculture, forestry & fishing 39.2 Private consumption 76.1 Finance & real estate 10.8 Government consumption 10.6 Construction 10.5 Gross fixed capital formation 19.7 Social services 10.1 Change in stocks 3.9 Trade, hotels etc 10.0 Exports of goods & non-factor services 18.2 Manufacturing 8.1 Imports of goods & non-factor services -28.8

Principal exports 2002/03ad NRs m Principal imports 2002/03ad NRs m Garments 11,872 Petroleum products 19,090 Woollen carpets 5,306 Textiles 5,626 Vegetable ghee (oil) 3,812 Vehicles & spares 5,394 Pashmina 2,387 Crude palm oil 5,056 Jute goods 1,899 Other machinery & parts 4,446

Main destinations of exports 2001/02aef % of total Main origins of imports 2001/02aef % of total India 59.7 India 42.9 US 19.4 Singapore 7.4 Germany 8.4 Malaysia 4.5 UK 1.7 Saudi Arabia 4.3 Italy 1.2 China 4.0 Japan 1.0 Switzerland 3.9 France 0.9 Indonesia 2.7 a Fiscal years ending July 15th. b Central Bureau of Statistics (GDP at 1994/95 prices, preliminary estimates). c Central Bureau of Statistics (GDP at current prices, revised). d Nepal Rastra Bank (provisional), Nepal Foreign Trade Statistics. e Trade Promotion Centre, Nepal Overseas Trade Statistics. f Provisional figures.

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Quarterly indicators 2001 2002 2003 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Consumer prices (1995=100) 137.4 139.9 136.6 137.2 142.2 142.6 140.4 145.8 Consumer prices (% change, year on year) 2.9 1.2 2.0 2.2 3.5 1.9 2.8 6.3 Financial indicators Exchange rate NRs:US$ (av) 74.7 76.4 77.0 77.9 78.3 78.3 78.0 77.4 Exchange rate NRs:US$ (end-period) 75.7 76.5 76.7 78.3 78.3 78.3 78.0 76.4 Deposit rate (av mid-month figure; %) 4.50 4.50 4.50 3.50 3.50 n/a n/a 3.00 Discount rate (av mid-month figure; %) 6.50 6.50 5.50 5.50 5.50 5.50 5.50 5.50 Government bond yield rate (av mid-month figure; %) 8.50 8.50 8.50 8.50 8.00 8.00 8.00 8.00 Lending rate (av mid-month figure; %) 7.00 7.00 7.00 6.83 6.50 n/a n/a 7.17 Treasury-bill rate (av mid-month figure; %)l 3.90 5.00 5.40 4.50 3.50 3.80 3.90 1.70 Quasi-Money (middle of last month of period; NRs bn) 142.3 145.9 143.6 142.9 150.2 151.5 157.7 164.2 Quasi-Money (% change, year on year) 12.2 10.1 5.0 2.6 5.6 3.8 9.8 14.9 Foreign trade (NRs m) Exports fob 13,494 14,035 12,342 9,386 9,656 12,891 14,316 11,904 Imports cif -26,400 -26,826 -26,325 -27,039 -27,188 -30,000 -32,826 -34,399 Trade balance -12,906 -12,791 -13,983 -17,653 -17,532 -17,109 -18,510 -22,495 Balance of payments (US$ m) Merchandise trade balance fob-fob -174.8 -171.1 n/a n/a n/a n/a n/a n/a Services balance 30.8 28.1 n/a n/a n/a n/a n/a n/a Income balance -0.1 1.0 n/a n/a n/a n/a n/a n/a Net transfer payments 61.0 50.3 n/a n/a n/a n/a n/a n/a Current-account balance -83.2 -91.7 n/a n/a n/a n/a n/a n/a Reserves excl gold (middle of last month of period) 1,034.4 1,037.7 1,056.2 1,041.3 1,020.0 1,017.6 1,083.2 1,139.8

Source: IMF, International Financial Statistics.

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Outlook for 2004-05

Political outlook

Domestic politics On January 2nd King Gyanendra began consulting the leaders of the five parliamentary parties—the Nepali Congress (NC), the Communist Party of Nepal (Unified Marxist-Leninist), or CPN (UML), the Nepal Majdoor Kisan Party (NMKP), the Nepal Sadbhavana Party (Anandi Devi) and the Jana Morcha Nepal. The meetings, which followed a seven-month gap, suggest that the monarch is trying to build bridges with them. However, the parties have remained outside the royalist government and have continued to demand the restoration of parliament or the formation of an all-party government. The prime minister, Surya Bahadur Thapa, even faces opposition from his own party, the Rastriya Prajatantra Party (RPP), which has asked him to resign as prime minister. The civil war has continued since the ceasefire broke down in August. The Maoists have launched sabotage attacks and targeted security officials. They continue to demand that a constituent assembly, which will write a new constitution, be elected. The conflict is likely to continue, even though it is apparent that neither side can win an outright military victory. Since King Gyanendra took executive power in October 2002, his two prime ministers have failed to restore peace, law and order, and hold elections—the reasons why the elected government was dismissed. The parties have demanded that, as the first step towards returning to constitutional rule, either an all-party government is formed or the dismissed parliament is restored. There are also signs that the parties are losing patience with the king. Student unions, affiliated with the parties, have become increasingly republican and have demonstrated on an almost daily basis since mid-December. Unless the king makes concessions to the parties, the Maoists are unlikely to resume negotiations. If the political stalemate continues in the longer term, the parties and the Maoists could move closer. The leader of the CPN (UML), Madhav Kumar Nepal, held a clandestine consultation with Maoist leaders in India in November. The meeting could have been an attempt to explore possible alliances. In early January the CPN (UML) adopted what used to be a Maoist demand, namely that a roundtable conference (including the Maoists) takes place, prior to parliamentary elections and the writing of a new constitution. The Maoist leadership immediately praised the decision of the CPN (UML). The general election has been postponed since November 2002, and local government elections for villages, municipalities and districts are also due to be held. None are likely to take place unless there is another ceasefire. Although the Maoists are demanding elections to a constituent assembly, they have not said whether they would disarm if the government agreed. If the elections are to take place, the government will need to convince the parties to take part, which would in turn require security guarantees. The restoration of the

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dissolved parliament is now unlikely—its term is due to end in mid-April this year, and its restoration would raise yet more constitutional questions.

International relations Special envoys from the US and the UK have recently visited Nepal to assess the political situation. The US has declared the Maoists as terrorists, and has blocked all Maoist assets in the US. The order bars dealings by the US and its citizens with the rebels. India maintains that only the king, the parties and the government working together can create a “national response” to resolve the conflict. In mid-November, for the first time since the insurgency began in 1996, Chinese police arrested four Maoists with a cache of weapons at a Tibetan border town. Economic forecast

Economic growth There are signs of an economic recovery, but growth will remain sluggish because of the conflict. Revised government statistics show that the economy grew by 3% in fiscal year 2002/03 (July 16th-July 15th)—a major improvement given the contraction in 2001/02. The revival was aided by the January-August 2002 ceasefire. The non-agricultural sector grew by 2.8% and agriculture, which accounts for two-fifths of GDP, by 2.4%. In July the government forecast that the economy would grow by 4-4.5% in 2003/04, although this is highly unlikely. The economy will contract if the fighting escalates and political instability continues. Sluggish government spending will hinder economic activity in rural areas.

Inflation The government hopes to keep inflation under 5% in 2003/04, and should be successful given the overall weakness of the economy. However, this will remain dependent on prices in India, which the Economist Intelligence Unit forecasts will pick up in 2004-05, and on international oil prices, which we forecast will decline. The other determinant will be the strength of the harvest. If Nepalese continue to migrate from rural to urban areas to escape the civil war, lower production could lead to a surge in food prices. According to revised official data, average inflation was 4.3% in 2002/03.

External sector After declining for three consecutive years, visitor arrivals picked up in 2003, bolstered mainly by the ceasefire and a marketing drive in India. Even non- Indian tourist numbers have picked up, and this trend could continue unless violence escalates. The major tourist areas are relatively safe, although there have been reports that Maoists have extorted money from tourists. The revival has not been enough to keep the hotels running, and many are being propped up by low-interest loans. The Nepal Rastra Bank (NRB, the central bank) reported a current-account surplus in 2002/03, although this was primarily the result of an accounting change: the NRB data now includes an estimate of inward remittances through informal channels. Nepal’s exports to India have increased slightly, but remain below the pre- March 2002 levels when Nepal and India signed a new trade treaty. The low level of exports has caused a fast depletion of Nepal's Indian rupee holdings. The depletion of the Indian currency reserves led the NRB to allow importers to buy six more goods from India in convertible currency. The Indian rupee

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shortage was also affected by petroleum product imports from India. Major Nepalese exports remain curtailed by quotas and procedural difficulties. Nepal’s agricultural exports will remain slow, partly because of production disruptions and partly because of India’s quarantine rules. Overseas (non- Indian) exports—mainly carpets and handicrafts—have increased slightly but those of ready-made garments have declined. Nepal has joined the World Trade Organisation and may face stiffer competition for some of its exports, especially garments, after 2005 when the Multi-Fibre Arrangement ends.

The political scene

The political crisis is King Gyanendra has failed to win the confidence of the five main political continuing parties—the Nepali Congress (NC), the Communist Party of Nepal (Unified Marxist-Leninist), or CPN (UML), the Nepal Majdoor Kisan Party (NMKP), the Nepal Sadbhavana Party (Anandi Devi) and the Jana Morcha Nepal. The parties maintain that only an all-party government or the restoration of parliament can resolve the political stalemate and address the Maoist uprising. Nepal's internal conflict has continued to deepen. Government forces have clashed with the Maoists almost daily since the truce ended on August 27th. On average about 15 people have been killed each day since the ceasefire ended—most of those killed have been Maoists or "suspected" Maoists.

The government announces an On November 4th the prime minister, Surya Bahadur Thapa, set out a 15-point action plan action plan, outlining the government's main aims and means of achieving them. The aims include the restoration of law and order, holding local and parliamentary elections and strengthening democracy. The security plan includes the introduction of a "civil-military campaign" to tackle the Maoists. Mr Thapa said that this would be done through a "unified command", with the Royal Nepalese Army (RNA) in charge during operations. The unified command would also have political and bureaucratic involvement. The government has announced plans to form rural volunteer security groups, and arm them if needed. On January 1st it was reported that the first such group had been formed at Sudama village in Sarlahi district. The government

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announced the establishment of a Human Rights Promotion Centre under the direct supervision of the Prime Minister's Office. This was launched on December 4th. The government has also promised to implement an affirmative action policy to reserve opportunities for women and people from marginalised groups in education, healthcare and employment. Mr Thapa also announced that mobile teams of government officials would be deployed in villages.

Rebels are offered an amnesty On December 18th the government announced an amnesty to Maoists who if they surrender surrender before mid-February. The offer comes with a promise to withdraw litigation against those surrendering, help with their security and provide support for them to restart normal lives. The Maoists will also receive cash rewards of up to NRs200,000 (US$2,550) for weapons that they hand over. The government also offered rewards for information on where the Maoists may have hidden cash and valuables that they had stolen. The Maoist chairman, Prachanda, issued a defiant statement on December 19th saying that the government's plan to get the rebels to surrender would not work. He also claimed that the government statement proved that desertion was taking place from the government ranks. Political parties are also doubtful that the plan will work, and past attempts to get the rebels to surrender weapons have largely failed. The army has not commented on the scale of desertions.

The Maoists have stepped up The government claims that the Maoists are on the retreat in their traditional attacks in southern Nepal mountain strongholds. However, the Maoists have mounted numerous attacks in Nepal's southern plains where they had not previously been very active. This switch may be an attempt to demonstrate a national presence. Instances of sabotage attacks increased before a day-long strike called by a Maoist-affiliated organisation that claims to champion inhabitants in the plains, the Madhesi National Liberation Front, on December 15th. In early January the Maoists claimed to have established a regional autonomous administration in Rolpa— the Magarant Autonomous People's Government. It says that it plans to set up similar administrations in five other areas.

The Maoists kill a senior On November 15th the Maoists killed Brigadier General Sagar Bahadur Pandey, explosives expert the highest ranking military official killed so far, along with his wife and two soldiers. General Pandey was an explosives expert, and headed the directorate in charge of producing and procuring ammunition. It is unclear whether General Pandey was specifically targeted. Meanwhile, the government claims to have inflicted major damage on the rebels by killing and arresting several senior commanders. It has also arrested several high-profile leaders of pro- Maoist organisations, including students. But it is difficult to accurately say how many have been arrested and where they are being held.

A major battle takes place in The Maoists and the security forces clashed at a school building at Pondon far-western N epal Village District Committee in Kailali district on December 1st. The government said that six security personnel were killed, 11 were injured and about 35 Maoists were killed. Newspapers said that the Maoists were using the remote area to train new cadres. The Maoist said that they had killed 15 soldiers and suffered only seven fatalities themselves.

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Maoists demand taxes from The Maoists have continued to extort donations from people in the villages two foreign companies they control—the rates vary from district to district. On December 4th the Maoists wrote to two foreign companies, Dabur Nepal (owned by an Indian company, Dabur India) and Surya Nepal (a Nepalese joint venture with British- American Tobacco and the Indian International Tobacco Company) demanding that they pay taxes to their "new state". The letter to Dabur Nepal asked employees to quit their jobs if the company did not comply with the demand. The Maoists demanded NRs10m (US$127,500) from Dabur Nepal and NRs5m from Surya Nepal. The targeting of the multinationals prompted a statement by the Indian Embassy on December 15th calling on the Maoists to stop harassing Indian joint-venture companies.

School closures continue The Maoists have also continued to target and kill local political opponents as well as villagers who have not complied with their extortion demands. Pro- Maoist students have also continued to enforce strikes. They enforced numerous school closures in different parts of Nepal in November and December in an attempt to gain the release of detained student leaders. The school strikes culminated in a five-day shut down in Bagmati and Narayani Zones on December 11th-15th. In some remote districts, the Maoists are said to have instructed schools to follow their academic calendar and not that of the government. Most of the schools have remained closed as result.

The leader of the CPN-UML The leader of the CPN (UML), Madhav Kumar Nepal, travelled to India between holds talks with the Maoists November 19th and 21st, and held five hours of meetings with Prachanda and another Maoist leader, Baburam Bhattarai, in Lucknow. Mr Nepal had tried to persuade the rebels to resume negotiations. He said that they were firm on their demand that elections to a constituent assembly, which would write a new constitution to resolve the political crisis, be held. Mr Nepal defended his meeting with the Maoists saying that he was acting in the public interest and that peacemaking should not wait until the government lifted the Maoists' designation as "terrorists". Mr Nepal's visit embarrassed India, which many in Nepal believe provides sanctuary to the Maoists. In a belated statement, on December 15th the Indian Embassy said that it did not approve of the use of Indian territory for "clandestine meetings". It also denied providing sanctuary to the Maoists, saying that there were nearly 10m Nepalese in India, which made it difficult to monitor rebel movements.

The king appoints a new Chief The five main parties and the government remain at loggerheads. The latest Election Commissioner dispute stemmed from the king's appointment, on December 3rd, of Keshav Raj Rajbhandari as the new Chief Election Commissioner (CEC), and three other commissioners. The positions had been vacant since mid-August. The move raised concerns that the king intended to rule directly. The parties accused him of overstepping constitutional limits by suggesting who was best suited for the positions himself. They claimed that this was the first time the monarch had tried to influence constitutional appointments since 1990, although this does not appear completely clearcut. On January 6th the king appointed three members to the Commission for the Investigation of Abuse of Authority—the

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statutory anti-corruption body. One more vacancy, at the Public Service Commission, remains unfilled.

The parties hold rallies to On December 10th the parties held a rally in the capital, Kathmandu in protest protest human rights abuses against human rights violations. More protests began around the country on December 16th, the 40th anniversary of the introduction of one-party rule. The protesters in Kathmandu comprised party cadres and students. For the first time since the protests began, the protesters chanted slogans against the king. Protests have occurred daily since then, and many have been violent. Students and police clashed at a rally on January 7th, and the next day students blocked a main street close to the royal palace gate to hold a "public hearing" on whether Nepal needed a monarchy. The students appear to have adopted what until recently was a Maoist agenda. As a result, their parent parties—all student unions are affiliated with a party—are beginning to rethink their politics.

The king tries to build bridges On January 2nd King Gyanendra resumed consultations with the parties' with the parties leaders, starting with Mr Nepal. The king met the president of the Nepali Congress (Democratic), or NC (D), Sher Bahadur Deuba, and the president of the Rastriya Prajatantra Party (RPP), Pashupati Sumsher JB Rana, two days later. He asked the party leaders to formulate a common position on seven issues: national consensus, law and order, corruption, governance, national unity, representative elections and an all-party government. On January 6th the king met the president of the Nepali Congress, Girija Prasad Koirala, and Narayan Man Bijukchhe from the Nepal Majdoor Kisan Party. Amik Sherchan, president of a small communist party, Jana Morcha Nepal, declined to meet the king saying that he had nothing to add to his meeting seven months earlier.

The prime minister denies he During his meeting with the king, Mr Koirala repeated his earlier demand for is being sidelined the formation of an all-party government or the restoration of parliament. He said that agreement on the seven points would follow the restoration of constitutional rule. Mr Thapa was attending the South Asian Association for Regional Co-operation (SAARC) summit in Pakistan when the king began his consultation with party leaders. On January 7th Mr Thapa described the consultations as important and said that speculation about his ousting was unfounded.

The CPN (UML) adopts some On January 10th the CPN (UML) approved a new roadmap for political stability Maoist demands and peace. Earlier, the party had said that amending the existing constitution would suffice. On January 10th, however, it called for the appointment of an all-party government that would begin talks with the Maoists and hold a roundtable conference including the Maoists. The CPN (UML) has also suggested that an interim government (including the Maoists) should be formed under which parliamentary elections would be held, and has suggested that the UN could be involved in getting the Maoists to disarm prior to the election. The new parliament would then appoint a committee to write a new constitution. This approach differs from that of the Maoists in that the CPN (UML) wants election to parliament, and not to a constituent assembly, but the Maoists quickly praised the proposal.

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The prime minister faces Mr Thapa continues to lead a five-strong cabinet. He had promised to expand dissent from his own party this with members from the parliamentary parties, but the parties have refused to join the government. Mr Thapa has even lost the support of his own party, the RPP. Differences between Mr Thapa and the RPP's president, Pashupati Sumsher Rana, surfaced on November 20th when the RPP central committee accused Mr Thapa of failing to resolve the political crisis and called for him to resign. The party gave Mr Thapa an overnight deadline to tender his resignation. But Mr Thapa's office said that he would not resign because he had been appointed under "special circumstances" and was answerable only to the king and the people—not to the RPP. The party then referred Mr Thapa's defiance to the RPP disciplinary committee. When he responded on December 26th, he reiterated his earlier argument. Not satisfied with the response, on January 2nd the RPP disciplinary committee sought further clarification from Mr Thapa. Mr Rana also sacked general- secretary and information minister Kamal Thapa—one of the prime minister's more vocal supporters—the same day. The RPP remains polarised. On January 9th the prime minister's camp called for the party's General Council to be convened. This body can reverse the decisions of the party central committee.

Human rights violations cause Concern over human rights abuses is growing. In October Amnesty international concern International (AI) estimated that 250 people had disappeared after detention since the insurgency began. On November 12th two UN agencies expressed "profound concern" over reports of secret detention and the risk of torture faced by detainees. On November 20th AI expressed concern and asked Nepal to invite the UN Working Group on Enforced or Involuntary Disappearances and the UN Special Rapporteur on Torture for an assessment. AI said that at least 60 people had disappeared since the ceasefire broke down. On December 10th a local non-governmental organisation, the National Human Rights Commission (NHRC) published advertisements in newspapers listing 709 people who had disappeared, either detained by security forces or abducted by Maoists.

Nepal: total disappearances 2000 2001 2002 2003 Total Detained by state 3 42 250 284 579 Abducted by Maoists - 47 34 30 111 Unknown - 6 6 7 19 Total 3 95 290 321 709

Source: National Human Rights Commission.

A call for UN inspectors On November 18th the NHRC asked the government to invite the UN Human receives support Rights Commission to monitor the situation. Several Kathmandu-based international development agencies and some embassies have expressed concern over the deteriorating human rights situation. The agencies have called on both sides to sign the Human Rights Accord prepared by NHRC. On November 24th seven foreign human rights organisations issued a statement supporting the NHRC's call to invite UN inspectors. On November 18th the NHRC accused security forces of "indiscriminate shooting" when they killed ten people, including four students, at a cultural show organised by the Maoists at the Sharada Higher Secondary School (Doti

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district) on October 13th. The NHRC also criticised the Maoists' use of student organisations as fronts. According to the government, 140 teachers have been killed in the conflict so far and several hundreds have fled from the villages fearing harassment by both rebels and security forces. The conflict has already caused the death of 278 children, according to a report by the Child Workers in Nepal Concerned Centre (CWIN). The NHRC had earlier found the army responsible for indiscriminately killing 19 people, including 17 Maoist supporters, in Doramba (Ramechhap district) in mid-August. The army has yet to report on its investigation into the incident. There have also been cases of panic firing by security forces—in Kathmandu on November 7th; Bhairahawa on December 10th; and Pokhara on December 12th—where ordinary citizens were killed. The army is responding to these concerns, and as of December 17th 17 troops have been found guilty of human rights abuses.

More than 1,000 Maoists have On January 15th the RNA said that 1,200 Maoists had been killed since August died since August 27th. It suspected that another 200 might also have been killed. In the same period, the RNA said that 111 troops had died. The paramilitary police had suffered 84 deaths and 123 civilian policemen had also died. A human rights group, the Informal Sector Service Centre (INSEC), said that 1,639 people had been killed between August 28th and December 21st. Since the civil war began, according to INSEC, 8,610 people had been killed.

Nepal: the death toll By government By Maoists Feb 13th 1996-Nov 25th 2001 992 810 Nov 26th 2001-Aug 28th 2002 2,580 948 Aug 29th 2002-Jan 30th 2003 1,003 511 Jan 30th 2003-Aug 27th 2003 80 47 Aug 28th 2003-Dec 21st 2003 1,186 453 Total 5,841 2,769

Source: Informal Sector Service Centre.

The US designates the Maoists On November 1st, the US declared the Communist Party of Nepal-Maoist a as a terrorist group threat to US national security. The designation freezes Maoist assets in the US and bars most dealings with the organisation. The US assistant secretary for South Asia, Christina Rocca, visited Nepal on December 16th-20th. She said that the US was concerned about human rights abuses and expressed support for democracy. Ms Rocca also assured Nepal of continued US support in the war against the Maoists. Britain's Special Representative to Nepal, Jeffrey James, began a week-long visit to Nepal in late November. Sir Jeffrey met the government, leaders of political parties and the king, and reaffirmed the British position that there can be no military solution to the conflict. He condemned human rights violations by both sides and reiterated Britain's support for constitutional monarchy and multi-party democracy.

Four Maoists are arrested in On November 25th the Indian prime minister, Atal Behari Vajpayee, said that a China representative government working in co-operation with the monarchy would help to formulate a "national response" to the present situation. China has also

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supported the Nepalese government's efforts. On November 18th, for the first time since the insurgency began, Chinese newspapers reported the arrest of four Maoists and the discovery of a cache of explosives and small arms at the Chinese border town of Khasa.

The repatriation of refugees to The repatriation of Nepalese-speaking refugees, who claim to have been Bhutan has stalled thrown out of Bhutan, was expected to begin in January. However, the repatriation has hit another roadblock, following an assault on Bhutanese members of the Joint Verification Team by residents of the Khudunabari camp on December 22nd. The issue is discussed in more detail in the Bhutan Country Report (February 2004).

Economic policy

The World Bank approves a The World Bank approved a US$70m budgetary-support loan to Nepal on budgetary-support loan November 19th. Unlike previous loans, the money is not earmarked for specific projects but goes directly to the Treasury and can be used for different activities within the approved policy framework. The loan, disbursed in a single tranche, is extendable, but future credit is subject to effective use of the first disbursement. The IMF has also approved a separate credit, which is to be used for balance of payments support if the need arises. On November 24th the IMF approved a three-year SDR49.9m (US$72m) poverty reduction and growth facility (PRGF). Under the arrangement, Nepal is eligible to draw SDR7.13m from the IMF in fiscal year 2003/04 (July 16th-July 15th). The two loans have been in the pipeline since 2002 when the government promised donors that it would carry out a broad range of reforms and improve project implementation. Nepal's major bilateral donors, however, remain concerned about the "democratic vacuum" in the country. In a joint statement, the Canadian, UK, French, German, Danish and Norwegian embassies, and the Swiss and Dutch development organisations said that the World Bank loan vouched for their support to ongoing reforms, but did not endorse the lack of "representative democracy in Nepal".

Poverty reduction is still a key The World Bank's Poverty Reduction Support Credit (PRSC) is aimed at helping government priority the government to implement its Poverty Reduction Strategy Programme (PRSP) which has four basic aims—generating broad-based economic growth, improving service delivery, promoting social inclusion, and improving governance. The government says that it is focusing investment on the four "pillars" of the PRSP to reduce poverty by 2007 to 30% of the population from the current level of about 38%. Broad-based growth is to be attained by increasing agricultural productivity and through a recovery in manufacturing, tourism and exports. The service delivery goals include decentralising control and management of schools and health posts, and improving education, rural healthcare and other basic services. The social inclusion objective involves finding ways to ensure that people from poor and marginalised communities have access to government services and opportunities through affirmative action. The governance improvement is to be achieved by increasing the efficiency of the

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bureaucracy, improving financial management and procurement practices, and strengthening anti-corruption and accountability institutions. The government hopes to achieve the goals by attaining GDP growth of between 4% and 6%, in the "lower" and "normal" scenarios, although whether this is obtainable if the conflict continues is doubtful. Since 2002 the government has also been implementing an annualised activity plan with performance indicators that have had promising output. In 2002/03 the government completed all 19 activities on its Immediate Action Plan (IAP). The IAP for 2003/04 lists 24 actions.

Other donors agree to fund an On December 5th 14 bilateral and multilateral donors, including the World education project Bank and UNICEF, agreed to give Nepal US$151m to assist the government's US$814.5m Education for All project (2004-2009). The government has specific targets: increasing enrolment in schools from 81% to 96%, increasing the percentage of children reaching grade five from 40% to 60% and increasing literacy of the over-15 age group from 48% to 66%.

Financial-sector transparency A common structural reform agenda under both the PRSC and PRGF is to make is being targeted the financial sector more transparent and efficient. This is to be achieved by strengthening the Nepal Rastra Bank (NRB, central bank) and loan recovery, and by restructuring commercial and development banks. Under a World Bank- supported project, external management consultants have run the partly state- owned Nepal Bank Limited (NBL) since July 2002 and the state-owned Rastriya Banijya Bank (RBB) since January 2003. On December 23rd NBL announced that it had recovered NRs4.9bn (US$62.5m) in principal and interest on non- performing loans (NPLs) and had reduced staff numbers by 1,473 under a voluntary retirement scheme (VRS). RBB also announced on December 15th that it had recovered NRs2.3bn of its bad loans and had reduced its workforce by 1,270 employees. Both banks are to announce a second round of VRS. The level of NPLs was around 60% when the consultants took over management. The government is also restructuring the NRB to make it more capable of regulating the financial sector. It has also set up a Debt Recovery Tribunal and plans to establish an Asset Management Company to assist commercial banks recover old debt. In mid-1998 RBB and NBL accounted for about 50% of the total banking system assets. Their losses at the time were estimated at around US$450m—or about 8.6% of GDP.

The names of loan defaulters NBL and RBB began publicising the names of their worst defaulters on are publicised October 17th. NBL listed 174 companies that owed the bank about NRs2bn, including some of Nepal's largest business groups, relatives of some top politicians and even royal relatives. RBB listed 61 companies that owed around NRs6bn. The decision follows an NRB directive of September 18th that tightened the norms for lending and blacklisting defaulters. Both banks have promised to publicise the names of bad borrowers until they clear their dues. Both NBL and RBB say that many of the borrowers have sought to repay their debts or to reschedule their loans after the lists were published.

A rural telecoms system is The Nepal Telecommunications Authority (NTA) licensed STM Telecom Media being introduced to provide rural telecoms services on November 21st. (STM Networks USA owns 15% of the company; its service affiliate STM Communications Services 55%; a Thai company, Samart Communications, 15%; and a Nepalese company, Apollo Investment, 20%.) The license comes with five-year exclusivity, as long as the operator meets the network roll-out requirements. The services are to be provided in at least two locations in each of the 534 Village Development Committees (VDCs) in 16 districts in eastern Nepal. The company has six months to install services in 107 VDCs, nine months to add another 237 VDCs to the network and 18 months to complete the project.

A row erupts over a On November 14th the main contractors building the 70-mw Middle hydroelectric project Marsyangdi Hydroelectric Project unilaterally terminated the contract. The German, Spanish and Chinese contractors, who form the Dywidag-Dragados- CWE Joint Venture, stopped work on October 10th citing security reasons. Officials from the German Development Bank, KFW, the financier and project consultant, Fichtner JV, and the Nepal Electricity Authority met in Frankfurt in mid-December, after which the contractors agreed to resume work in February. The German-funded €250m (US$308m) project, which had been scheduled for completion by end-2004, is now scheduled for completion in December 2006.

China and Nepal open two On December 3rd Nepal and China signed an agreement to open new border new border trading posts points for trade at Kimathanka-Rio (in Sankhuwasabha district, east of the capital, Kathmandu), and Nechung-Lekche (in Mustang district, west of Kathmandu). This brings to six the number of trading points. The chairman of the Chinese Political Consultative Conference, Jia Qinglin, signed the agreement in Kathmandu.

The inland container depot Nepal and India signed a rail agreement on November 7th, paving the way for will soon be operational Nepal's Inland Container Depot (ICD) to begin operations. The rail operations will begin after Nepal appoints an Indian-Nepalese joint-venture company to oversee the ICD. The ICD has lain dormant since December 2000 because of the delay in obtaining a rail operation agreement with India. The railway is expected to reduce transport costs by around 40%. Nepalese officials say that

annual savings from transport costs may be NRs1.2bn. The 5.3-km broad gauge railway connecting the ICD in Birgunj, Nepal and the Indian railway network at Raxaul was built with a World Bank loan.

Money supply growth is slow Broad money supply grew by 2.2% year on year in the first quarter of 2003/04 to NRs247.4bn. Net foreign assets grew by 1% to NRs92.4bn and net domestic assets rose by 2.9% to NRs150bn. Narrow money supply shrank slightly to NRs81.42bn, whereas time deposits grew by 3.3% to NRs166bn. Domestic credit grew by 1.7% to NRs230.6bn and private credit by 3.2% to NRs153.7bn. New products, introduced by commercial banks, such as vehicle, housing and educational loans, explain credit growth. Credit to government enterprises fell by 0.2% to NRs62.7bn. Lower spending on development projects has enabled the government to borrow less. Revenue collection has performed strongly. Development spending rose by 4.5% to NRs1.53bn, but this comes on top of a 29% fall in the year-earlier period. Recurrent spending grew by 8% to NRs12.1bn.

Government revenue grows Government revenue and grants rose by 16.7% year on year to NRs12.3bn in the strongly first quarter of 2003/04, bolstered mainly by tax revenue, which grew by 13.2% to NRs10.8bn. Increased imports raised receipts from customs and other duties. Tax revenue declined by 9% in the first quarter of 2002/03. Foreign grants, which had fallen by about 43% in the first quarter of 2002/03, grew by 415% to NRs622m (US$8m). The budget deficit narrowed by 14.7% to NRs2.95bn in mid- October 2003/04. The government raised NRs400m through Treasury bills, NRs70m through citizens' savings bonds and NRs750m from external borrowing, as well as NRs1.91bn in the form of an NRB overdraft.

The domestic economy

The economy grew by almost According to revised government data, Nepal’s economy grew by 3% in fiscal 3% in 2002/03 year 2002/03 (July 16th-July 15th). The agricultural sector grew by 2.4% and the non-agricultural sector by 2.8%. GDP had contracted in 2001/02, for the first time in 20 years, by 0.6%. In July 2003 the government forecast that the economy would grow by 4-4.5% in 2003/04, which now looks unlikely. This forecast would require the agricultural sector, which accounts for about 39% of GDP, to grow by around 3%, and the non-agricultural sector to expand by 5.8%. The government expects that inflation will remain at around 4-5% in 2003/04.

Nepal: economic growth (% change, year on year) 2001/02a 2002/03b Agriculture, fisheries & forestry 2.2 2.4 Non-agricultural sector -2.4 2.8 Mining & quarrying 1.0 1.9 Manufacturing -9.9 2.0 Electricity, gas & water 5.5 6.4 Construction 1.0 1.7 Trade, restaurants & hotels -10.8 3.7 Transport, communications & storage 1.7 3.7

Nepal: economic growth (% change, year on year) 2001/02a 2002/03b Finance & real estate 2.4 2.8 Community & social services 1.6 2.4 Total -0.6 3.0 a Revised. b Provisional. Source: Central Bureau of Statistics.

The non-agricultural sector has The manufacturing sector recovered only slowly in 2002/03. The ceasefire barely recovered allowed for a slight recovery in tourism—the trade, restaurants and hotel sector grew by around 4% after contracting by about 11% in 2001/02. The Central Bureau of Statistics (CBS) also said that average inflation in 2002/03 was 4.3%. Inflation was driven by rising prices of electricity, gas and water, which rose by 7%, transport and communication (5.9%), and finance and real estate (5.4%).

Tourist arrivals rose strongly The January-August ceasefire between the government and the Maoist rebels, in 2003 and the publicity surrounding the celebrations of the 50th year of the first ascent of Mount Everest helped Nepalese tourism in 2003. According to the Nepal Tourism Board, total arrivals in 2003 rose by 23% year on year to 265,600. However, visitor arrivals had fallen by 28% in 2002. Visitor arrivals increased by over 42% year on year in the last quarter of 2003, driven by a 45% rise in Western tourist arrivals. In 2003 as a whole, the number of Indian tourists rose by 33% and Western arrivals by 19%. The increase in Indian arrivals resulted from several marketing drives by the Nepal Tourism Board and special packages offered by airlines and hotels. But arrivals in 2003 remain well below the 421,243 visitors who arrived in 1999, when the downturn started.

Many hotels are continuing The tourism slowdown has affected many, mainly small and medium-sized, to suffer hotels, forcing the government to prop them up with low-interest loans. In 2002/03 the Nepal Rastra Bank (NRB, the central bank) allocated NRs1.5bn (US$19.1m) to refinance sick industries, about 45% of which was earmarked for the tourism sector. The government has allocated a similar amount to refinance ailing industries in 2003/04. In mid-December 2003 the government had disbursed NRs232.2m (US$3m) in low-interest loans to sick industries—most of the borrowers were small and medium-sized hotels. To be eligible for government support, companies must have paid back 12% of their outstanding interest at the banks to qualify for fresh loans.

Prices begin to creep upwards The average national urban consumer price index (NUCPI) rose by 5.2% year on year in July-October 2003, mainly because of increases in the prices of petroleum products and edible oils. The NUCPI was pushed up by increases in the prices of both food and non-food products. Prices of goods in the food and beverages basket rose by 4.8% in the first three months of 2003/04, mainly because of increases in oil and ghee (22.9%), restaurant food (7.1%) and grains and cereals (4.9%). In the non-food category, prices rose by 5.8% in September/October 2003. Transport and communication sector prices rose by 13.8%, and housing prices rose by 10.3%. Fuel, light and water prices—a sub- group under housing—rose by 17.5%. Inflation was highest, in the first quarter of

2003/04, in the Kathmandu Valley where it averaged 6.4%. Inflation was 4.8% in the Terai plains region, and 4.7% in the hill region.

Petroleum prices underpin The average national wholesale price index (NWPI) rose by 3.5% year on year in wholesale price rises September/October 2003. The wholesale price index for agricultural products rose by 0.8%, and the price of domestic manufactured products rose by 3.8%. Prices of imports rose by 8%. Among imports, the price of petroleum products and coal rose fastest, by 24.4%, in September/October 2003.

Nepal: national wholesale price index (1999/2000=100) Sep/Oct 2002 Sep/Oct 2003 Overall index 112.5 116.4 Agricultural commodities 116.5 117.5 Domestic manufactured commodities 106.8 110.9 Imported commodities 109.5 118.3

Source: Nepal Rastra Bank, provisional data.

Foreign trade and payments

Exports grow strongly in the Nepal’s exports rose by 9.1% to NRs11.7bn (US$149m) year on year in the first first quarter quarter of fiscal year 2003/04 (July 16th-July 15th), after falling by 19% in the year-earlier period. Exports to India rose by 12.1% to NRs6.23bn year on year, and overseas exports (those to other countries) rose by 5.8% to NRs5.46bn. Exports to India had fallen by almost 30% and those overseas by 3% in the year- earlier period. Total imports rose by 19.3% to NRs32.3bn in the first quarter of 2003/04, after falling slightly in the year-earlier period. Imports from India rose by 12.3% to NRs17.7bn, and overseas imports rose by 29% to NRs14.6bn. Nepal's trade deficit stood at NRs20.63bn in the first three months of 2003/04. The trade deficit with India stood at NRs11.5bn and the overseas trade deficit stood at NRs9.1bn.

Nepal: foreign trade (NRs m; mid-Jul-mid-Oct) 2002/03a 2003/04b Total exports 10,718 11,691 To India 5,562 6,234 To other countries 5,156 5,457 Total imports 27,098 32,318 From India 15,793 17,734 From other countries 11,305 14,584 Trade balance -16,380 -20,627 With India -10,231 -11,500 With other countries -6,149 -9,127 a Revised. b Provisional. Source: Nepal Rastra Bank.

Indian exports remain far The recovery in exports to India partly reflects a base effect. Exports had fallen short of pre-2002 levels by 30% in the first quarter of 2002/03 and exports remain far short of the pre- March 2002 levels when Nepal and India renewed their trade treaty. The March 2002 treaty is more restrictive than the 1996 agreement, which had given

Nepalese exports unrestricted duty-free access to Indian markets. The new treaty introduced quantitative restrictions on four Nepalese exports, including hydrogenated vegetable oil, or vegetable ghee.

Vegetable oil exports will fall Vegetable oil exports remained entangled in procedural and legal hassles in short of the Indian quota India. Nepal did not export any vegetable ghee during the first quarter of 2003/04. In the year-earlier period, ghee exports had fallen by 76% to NRs499m (US$6.4m). Nepalese and Indian officials met in the capital, Kathmandu in August 2003 to discuss the disruption of vegetable oil exports and other trade issues and agreed to simplify procedures. But vegetable oil exports did not resume until the end of November. By the end of December Nepal had exported about 20,000 tonnes of vegetable oil. It is unlikely that exporters will be able to sell the remaining 80,000 tonnes under the quota by the time the Indian fiscal year ends in March. The intergovernmental committee on trade was to have reviewed trade in November 2003, but its meeting was postponed.

Ready-made garment exports Among other major exports to India, toothpaste sales rose by 113% to NRs437m, to India are rising instant noodles by 8% to NRs84m, polyester yarn by 32% to NRs194m, and thread by 22% to NRs310m. Ready-made garment exports surged to NRs291m from about NRs56m in the first quarter of 2002/03. However, jute exports fell by 32% to NRs413m, and soap exports fell by 14% to NRs88m. Nepal's pashmina exports to India rose by 38% to NRs145m in mid-October 2003, but may begin to taper off because India imposed a new 16% countervailing duty on pashmina sales in November 2003.

Overseas exports rise by 6% in Nepal’s overseas exports grew by about 6% in the first quarter of 2003/04. the first quarter Among Nepal’s major exports, woollen carpet sales rose by 0.6% to NRs1.3bn, ready-made garment sales fell by 4.7% to NRs2.4bn and pashmina sales fell by 27% to NRs234m. Handicraft sales soared from about NRs68m in the first quarter of 2002/03 to NRs249m in the same period of 2003/04. Petroleum products are Nepal's largest import from India. Oil imports cost NRs3.9bn in the first quarter of 2003/04, about the same level as in the year- earlier period. Other major imports from India included vehicles and spares (NRs1.2bn), textiles (NRs974m), medicine (NRs872m) and mild steel billet

(NRs1.1bn). Nepal's major overseas imports were polythene granules (NRs747m), crude soybean oil (NRs604m), crude palm oil (NRs584m), machinery and parts (NRs563m), thread (NRs387m) and textiles (NRs290m).

Nepal's Indian rupee reserves The fall in exports to India in 2002/03 and the higher than historic level of plummet petroleum imports from India have led to a fall in Nepal’s Indian rupee reserves. Total reserves in mid-October 2003 stood at NRs109.6bn. Of the total, NRs103.5bn was held in convertible currency and the remaining NRs6.1bn in non-convertible holdings—primarily rupees. In mid-October 2002, non- convertible reserves stood at about NRs22bn. Back in 1992, the Nepal Rastra Bank (NRB, the central bank) had allowed importers to pay in foreign currency for 30 goods imported from India. In an attempt to check the recent depletion of Indian rupee reserves, the NRB added six new goods to this list. Total foreign-exchange reserves stood at US$109.5bn in mid-October 2003, a 5.3% year on year increase. Convertible-currency reserves rose by 23.4% to NRs99.2bn, bolstered mainly by remittances.

An accounting change ensures Although the trade deficit widened by about 35% to NRs72.1bn in 2002/03, a current-account surplus Nepal recorded a current-account surplus of NRs8.4bn in 2002/03. The surplus resulted from a surge in transfer receipts: remittances from overseas workers grew by 14% to NRs54.2bn. Services receipts rose by 8% (after falling by about 18% in 2001/02) to NRs26.5bn, and travel receipts rose by 36% to NRs11.7bn, after dipping by about 26% in 2001/02. In May 2002, with IMF assistance, the NRB changed its accounting method to include trade in electricity and aviation fuel in the trade data. It also includes estimates of remittances coming to Nepal through informal channels.

Nepal: balance of payments (mid-Jul-mid-Jul; NRs m) 2001/02 2002/03 Goods: exports fob 57,984 50,076 Goods: imports fob -111,342 -122,203 Trade balance -53,359 -72,127 Services: credit 24,494 26,519 Travel/tourism 8,654 11,748 Services: debit -20,772 -20,872 Income: credit 4,297 4,487 Income: debit -4,902 -5,163 Current transfers: credit 70,157 77,765 Grants 12,651 13,842 Remittances 47,536 54,203 Pensions 8,270 7,327 Current transfers: debit -1,971 -2,232 Current-account balance 17,944 8,377

Nepal: balance of payments (mid-Jul-mid-Jul; NRs m) 2001/02 2002/03 Direct investment in Nepal -282 961 Other investment assets -35,137 -34,630 Other investment liabilities -1,914 17,995 Trade credits -5,279 16,899 Loans 2,900 -52 Currency and deposits 465 1,148 Capital-account balance 5,694 5,394 Net errors & omissions 10,817 8,252 Overall balance -3,343 5,201

Source: Nepal Rastra Bank.