Nepal Mongolia Bhutan

COUNTRY PROFILE 2001

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Comparative economic indicators, 2000

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Contents

Nepal 4 Basic data 5 Politics 5 Political development 9 Constitution, institutions and administration 9 Political forces 11 International relations and defence 12 Resources and infrastructure 12 Population 13 Education 14 Health 15 Natural resources and the environment 15 Transport, communications and the Internet 17 Energy provision 19 The economy 19 Economic structure 20 Economic policy 21 Economic performance 23 Economic sectors 23 Agriculture, forestry and fishing 24 Mining and semi-processing 24 Manufacturing 25 Construction 25 Financial services 26 Other services 27 The external sector 27 Trade in goods 29 Invisibles and the current account 30 Capital flows and foreign debt 31 Foreign reserves and the exchange rate 32 Appendices 32 Regional organisations 33 Sources of information 35 Reference tables 35 Population 35 Energy consumption 36 Government finances 36 Gross domestic product 36 Gross domestic product by expenditure 37 Gross domestic product by sector 37 Consumer prices, national data 37 Consumer prices, IMF data 38 Money supply and interest rates 38 Production index of manufacturing industries 39 Tourism 39 Foreign trade 40 Balance of payments, IMF series 40 External debt, World Bank estimates

41 Foreign reserves 41 Exchange rates Mongolia 42 Basic data 43 Politics 43 Political development 44 Constitution, institutions and administration 45 Political forces 46 International relations and defence 47 Resources and infrastructure 47 Population 48 Education and health 48 Natural resources and the environment 48 Transport, communications and the Internet 49 Energy provision 49 The economy 49 Economic structure 50 Economic policy 51 Economic performance 53 Economic sectors 53 Agriculture and forestry 53 Mining and semi-processing 53 Manufacturing 54 Construction 54 Financial services 54 Other services 55 The external sector 55 Trade in goods 56 Invisibles and the current account 56 Capital flows and foreign debt 57 Foreign reserves and the exchange rate 58 Appendices 58 Sources of information 59 Reference tables 59 Population 59 Labour force 60 Government finances 60 Government revenue 60 Government expenditure 61 Money supply and credit 61 Gross domestic product 61 Gross domestic product by expenditure 62 Gross domestic product by sector 62 Consumer prices 63 Crop production 63 Livestock numbers 63 Meat production 63 Mineral production 64 Output of selected industrial products 64 Main trading partners 65 Balance of payments, IMF estimates

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65 External debt 66 Net official development assistance 66 Foreign reserves 66 Exchange rates Bhutan 67 Basic data 68 Politics 68 Political development 69 Constitution, institutions and administration 70 Political forces 71 International relations and defence 71 Resources and infrastructure 71 Population 72 Education and health 72 Natural resources and the environment 73 Transport and communications and the Internet 73 Energy provision 74 The economy 74 Economic structure 74 Economic policy 75 Economic performance 76 Economic sectors 76 Agriculture, forestry and fishing 76 Mining and semi-processing 76 Manufacturing 76 Construction 77 Financial services 77 Other services 77 The external sector 77 Trade in goods 78 Invisibles and the current account 78 Capital flows and foreign debt 78 Foreign reserves and the exchange rate 79 Appendices 79 Regional organisations 79 Sources of information 80 Reference tables 80 Government finances 80 Interest rates 80 Gross domestic product by sector 81 Consumer price index 81 Agricultural production 81 Electricity production and exports 81 Exports to India by product 82 Imports from India 82 Trade data by country 83 Balance of payments, IMF series 83 External debt, World Bank estimates 84 External debt, national data 84 Foreign reserves 84 Exchange rates

Nepal

Basic data

Land area 147,181 sq km

Population 23.2m (preliminary estimate, 2001 census)

Main towns Population in ‘000, 1991 estimates (Central Bureau of Statistics)

Kathmandu (capital) 421.3 Biratnagar 129.4 Lalitpur 115.9 Pokhara 95.3

Climate Temperate (harsh with extreme cold at high altitude)

Weather in Kathmandu Hottest month, July, 20-29°C (average daily minimum and maximum); coldest (altitude 1,337 metres) month, January, 2-23°C; driest month, December, 3 mm average rainfall; wettest month, July, 373 mm average rainfall

Languages Nepali (official). English is widely used in commerce and there are many regional languages and dialects

Measures Metric system; local units also used include 1 seer=0.933 kg; 1 maund=40 seer; 1 ropani=0.05087 ha; one bigha= 0.6773 ha

Currency Nepalese rupee (NR)=100 paisa. Effectively pegged since 1993 to the Indian rupee at a rate of NRs1.6:Rs1. Annual average exchange rate in 2000: NRs71.1:US$1. Exchange rate on October 30th 2001: NRs76.3: US$1

Fiscal year July 16th-July 15th

Time 5 hours 45 minutes ahead of GMT

Public holidays National Unity Day, January 11th; Martyrs’ Memorial Day, January 29th; Spring Day, February; National Democracy Day, February 18th; Shiva Festival, February 21st; Holi Festival, March; Horse Festival, March 24th; Ram’s birthday, April 2nd; New Year’s Day, April 13th; Buddha’s birthday, May 18th; King Gyanendra’s birthday, July 7th; Rishi Panchami, Rakshya Bandhan and Cow Festival, August; Krishna’s birthday, August/September; Rain God Festival, Teej (women only), September/October; Ghatasthapana and Dasain, Festival of Lights, October/November; Constitution Day, November 8th; various regional holidays

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Politics

A constitutional monarchy Nepal is a constitutional monarchy with King Gyanendra as head of state and Hinduism as the state religion. There are no significant restrictions on political parties. After five years of unstable governments, the Nepali Congress (NC) won a firm majority in May 1999, marred since by party infighting. Nepal has had three prime ministers since the May 1999 election. Sher Bahadur Deuba is the current prime minister.

Political development

Nepal originates from the The modern history of Nepal dates from the second half of the 18th century, Gorkha principality when one of the many principalities of the region, Gorkha, began to expand under the leadership of Prithivi Narayan Shah. Before the expansion was halted by the British in 1814-16, more than 75 small hill principalities had succumbed to the Gorkha armies, which had brought all of the sub-Himalayan hill areas between Bhutan in the east and the Sutlej River in the west under Gorkha control.

A constitutional monarchy Nepal’s 233-year Shah Monarchy dates back to 1768 when Prithivi Narayan was formed in 1951 Shah conquered Kathmandu. The Shah dynasty retained its political prerogatives until 1846, when Jung Bahadur Rana gained political control, extracting a decree from the king that left only a nominal role for the monarch and transferred all sovereign powers to the Rana family, who ruled as hereditary prime ministers. This system endured for just over a century, with the Ranas presiding over an isolationist regime that kept most Nepalese in dire poverty. In 1950, however, King Tribhuvan fled to India, sparking a revolt against Rana rule. He returned to Nepal in January 1951 under an accord brokered by the Indian prime minister, Jawaharlal Nehru, that recognised the pre-eminent role of the monarch, legalised political parties and permitted non- Rana prime ministers.

“Party-less panchayat For eight years the king ruled the country as political parties developed and a democracy” constitution was drafted. King Mahendra (who reigned in 1953-72) issued Nepal’s first constitution in 1959 and the first democratic election for a national assembly was held that year, resulting in a victory for the Nepali Congress (NC) under Bishweshwar Prasad Koirala. In 1961 King Mahendra declared democracy a failure and dismissed the government. In 1962 he promulgated a new constitution establishing a new political structure, the “party-less panchayat” system. This system banned political parties and created “panchayats”, or councils, at the village, district and national levels. These panchayats advised the king, who regained absolute power.

Resentment of the panchayat system provoked a national protest in 1979 that led King Birendra (1972-2001) to hold a constitutional referendum in which voters were asked to decide between continuing the panchayat system with some reforms and reintroducing a multiparty system. A narrow majority voted in favour of a reformed panchayat system. Direct, but still non-party,

elections to the 140-member National Panchayat (parliament) were held in 1981 and 1986.

A constitutional monarchy In April 1990 the panchayat system at last collapsed. This was partly the result is established in 1990 of a year-long economic blockade imposed by India, as well as the inspiration provided by the downfall of authoritarian regimes in eastern Europe. From February 1990 the Movement for the Restoration of Democracy (MRD)— consisting of the NC and the United Left Front (ULF), a coalition of seven leading communist factions—organised popular demonstrations that led to the system’s disintegration.

The last panchayat prime minister, Lokendra Bahadur Chand, resigned on April 15th 1990. On November 9th King Birendra promulgated a new constitution under which he became a constitutional monarch and multiparty democracy was guaranteed.

Important recent events

1996: The Communist Party of Nepal-Maoist (CPN-M) disavows the political system and begins an armed insurgency in the western part of Nepal.

1997: The government of the prime minister, Sher Bahadur Deuba, collapses on March 6th. The National Democratic Party (NDP), the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) and the Nepal Sadbhavana Party (NSP) form a government led by the leader of the NDP, Lokendra Bahadur Chand. On October 7th a coalition government comprising the NDP, the Nepali Congress (NC) and the NSP is formed. The new prime minister is Surya Bahadur Thapa of the NDP.

1998: The NC forms a minority government on April 12th with the support of the Communist Party of Nepal-Marxist-Leninist (CPN-ML), a breakaway faction of the CPN-UML, and the NDP, with Girija Prasad Koirala as prime minister.

1999: The third parliamentary election on May 3rd and 17th gives the NC a firm majority with 111, later bolstered by election victories to 113, seats in the 205-seat National Assembly. Krishna Prasad Bhattarai becomes prime minister of the NC government.

2000: In March the NC president, Mr Koirala, ousts Mr Bhattarai and becomes prime minister.

2001: A shootout at the royal palace on June 1st leaves King Birendra and nine members of the royal family dead. Crown Prince Dipendra is said to have killed them before shooting himself. The late king’s brother, Gyanendra, becomes king on June 4th. Mr Koirala resigns on July 19th and Mr Deuba becomes prime minister on July 22nd. Violent attacks by Maoist insurgents led King Gyanendra to declare a state of emergency on November 26th. The government also declared the Communist Party of Nepal (Maoist) a terrorist organisation.

Democratic elections and The NC, led by Girija Prasad Koirala, won a majority of the seats in parliament coalition governments in the May 1991 election. But in July 1994 Mr Koirala resigned after he lost the parliamentary support of dissidents within his own party.

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A mid-term election in November 1994 returned a hung parliament; the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) won the largest number of seats (88 in the 205-seat parliament), and the NC came second with 83 seats. The following five years saw a succession of five unstable and unproductive coalition governments, preoccupied more with the arithmetic of staying in power and dealing with a growing Maoist insurgency than with the formulation of policy and governance.

The NC wins a majority In the third parliamentary election, held on May 3rd and 17th 1999, voters gave the NC a majority in parliament—the party won 111 seats in the 205-seat House of Representatives. The CPN-UML was second with 71 seats, and the conservative National Democratic Party (NDP), led by Surya Bahadur Thapa, won 11 seats. Krishna Prasad Bhattarai lasted as prime minister for ten months before being toppled by Mr Koirala, who became prime minister for the fourth time on March 20th 2000. With continual dissidence within his own party from Mr Bhattarai’s supporters, Mr Koirala’s position was weak and he resigned on July 19th 2001. Sher Bahadur Deuba, the current prime minister, was the leader of Mr Koirala’s opponents in the ruling NC. Immediately after his appointment Mr Deuba brokered a truce with the Maoist insurgents and invited them to talks.

King Birendra is murdered Crown Prince Dipendra is said to have shot dead his father, King Birendra, and nine other members of the royal family on June 1st 2001 at a routine family gathering. An early government statement pinned the blame on Prince Dipendra. The report by the investigative committee included eyewitness statements that strongly supported the official version of events but also conflicted with each other. The report did not therefore draw a line under the event and conspiracy theories abound, fuelled by Prince Dipendra’s popularity. Prince Dipendra became king while in a coma on June 2nd, but died the following day. King Birendra’s brother, Gyanendra, was crowned on June 4th as the 13th king of the Shah dynasty. On October 28th King Gyanendra declared his son, Paras, crown prince. The timing, during the king’s traditional address on Dasai, the most important Nepalese festival, seemed to be chosen to catch the political parties, which had been debating the role of the royal family, off guard.

King Gyanendra declares a Violent attacks by Maoist insurgents led King Gyanendra to declare a state of state of emergency emergency on November 26th 2001, embroiling the government in its second major crisis in less than six months. Intense fighting had broken out between government forces and the Maoists, claiming around 200 lives in fighting in late November.

The Maoist insurgency

Nepal’s decade of democracy has been marred by governments unable to meet the expectations of the masses, political horse-trading and corruption. A disturbing reaction to this has been the growth of an armed insurgency, led by the Communist Party of Nepal-Maoist (CPN-M). Hardcore Maoist guerrillas are said to number about 2,000; local militias and other armed groups add up to a further 3,000. The guerrillas have succeeded in terrorising villages across Nepal,

while urban campaigns are led by front organisations of women, students and trade unions. The Maoists have effectively neutralised central government administration in over 20 districts; at the end of August 2001 they announced the formation of “peoples’ governments” in 14 districts, forcing elected government officials to flee or abide by their rules.

The government’s efforts to contain the insurgency, which began in February 1996, have been futile. The early efforts mostly amounted to killing suspected Maoists in “encounters” with the police, although the government of Girija Prasad Koirala in August 1998 introduced a half-hearted amnesty programme for Maoist defectors. According to police statistics, 1,807 people had been killed in the insurgency by July 2001, comprising 1,060 rebels and 440 policemen and 307 civilians killed by the Maoists. The Maoists have looted around NRs237.4m (US$3.3m) from locals and over 100 rural banks. The Maoists are also said to have set up farming collectives and established local financial systems to provide low-interest loans to villagers in many districts where they wield influence.

Peace talks begin

The government of the current prime minister, Sher Bahadur Deuba, held the first round of peace talks with the Maoists on August 30th 2001. Mr Deuba had been trying to begin talks with the rebels since December 1999, but the process was scuttled by the toppling of the then prime minister, Krishna Prasad Bhattarai, in March 2000. Mr Koirala, as prime minister, also tried to get talks started. His interior affairs minister met a Maoist leader on October 27th 2000 and the government freed two top rebels from custody. The fighting, however, continued until Mr Deuba called for a ceasefire on August 23rd 2001. The Maoists responded immediately and called off all pre-planned attacks.

Maoist demands include forming an interim government and writing a new constitution that recognises Nepal as a republic—the rebels argue that a republic was inaugurated with the royal massacre in June 2001. The government says that it is ready to discuss constitutional changes—which might include changes to royal and prime ministerial powers—but not Nepal’s multiparty democracy and constitutional monarchy.

While the government has been training a new paramilitary force to fight the rebels since the passage of a special bill in August 2001, the Maoists have been activating their urban-based front organisations. The All-Nepal Free Students Union-Revolutionary (ANFSU-R) forced all schools to shut down for a week in December 2000 and May 2001 and for two days in September 2001. Their demands include the nationalisation of private schools, the scrapping of “unequal” treaties with India and the transformation of privately owned businesses into co-operatives. The All-Nepal Women’s Association-Revolutionary (ANWA-R) has made similarly extreme demands. The ANWA-R did, however, manage to force the government to declare four national “dry” (alcohol-free) days and enforce rules to control alcohol sales. Trade unions that are close to the Maoists are also pressing their demands in industrial establishments.

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Peace talks break down and fighting restarts

Amid signs of a deterioration of the relationship between the authorities and the rebels and after months of discussion, frustrated Maoist officials called off the talks on November 21st. Two days they later launched co-ordinated attacks on army and police stations. The government responded by authorising the army to join the police in countering the rebel assaults. King Gyanendra reflected the government’s concern on November 26th by declaring a state of emergency, which allows the authorities to suspend civil liberties and to restrict press freedoms.

Constitution, institutions and administration

The lower house holds the The 205-member House of Representatives, or lower house, is the effective power legislative body and is elected by universal suffrage (among those aged 18 years and above) every five years. The party with the majority of seats elects a leader, who is appointed prime minister by the king. The prime minister names the council of ministers, also appointed by the king.

The upper house of the legislature, the National Assembly, comprises 60 members, of whom 35 are elected by the House of Representatives, 15 are elected by the heads of local and regional development committees (local government units) and ten are appointed by the king. Members serve staggered six-year terms. The National Assembly has the right to initiate bills (except finance bills) and to review, amend and reject bills passed by the House of Representatives. The lower house may override, by a simple majority vote, any action taken by the upper house. Under certain conditions the king may declare a state of emergency, but the House of Representatives must ratify such a decision within three months.

After interim elections for the upper house on June 26th 2001, the CPN-UML emerged as the largest party in the National Assembly. The NC government will need the support of the king’s nine nominees and elements of the opposition to get any legislation through the National Assembly. The CPN- UML holds 23 of the 60 National Assembly seats, the NC has 21 and small parties occupy the remaining seats. The king has not yet appointed one of his nominees, so only 59 National Assembly seats are filled.

A fairly independent With the advent of the multiparty system in 1990, the judiciary has often been judiciary called upon to interpret the new constitution. Given the extent to which politics pervades public life in Nepal, it is encouraging to note that the judiciary has remained above the political fray. The judiciary has, however, been accused of corruption in the media.

Political forces

A handful of major national parties and some regional parties have been established. All of them, however, are plagued by factionalism.

The Nepali Congress The Nepali Congress (NC) was established in 1947 by Nepali activists in India, many of whom had close ties with the Indian National Congress. One of its early leaders was Bishweshwar Prasad Koirala (prime minister in 1959- 61) and the Koirala family still plays a dominant role in the party. The NC opposed Rana rule in the late 1940s and the panchayat system in the 1970s and 1980s. Since the restoration of democracy it has maintained itself as the “natural” party of government despite failing to develop a clear ideological identity. It advocates “democratic socialism” but has become Nepal’s champion of free-market liberalisation. The main factional division pits supporters of the septuagenarian leaders of the NC, Mr Koirala and Mr Bhattarai, against each other.

The communist parties The Communist Party of Nepal was established in the late 1940s, but the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) was formed only in 1990 as a result of the merger of the Communist Party of Nepal (Marxist-Leninist) and the Communist Party of Nepal (Marxist). The CPN-UML split in 1998 when a hardline faction led by Bam Dev Gautam formed the Communist Party of Nepal-Marxist-Leninist (CPN-ML). The CPN-UML has begun talks with the CPN-ML and other minor communist factions on the forming of a strategic partnership, if not reunification, as a strategy to prevent their grassroots cadre from marching into the Maoists’ ranks.

Main political figures

Sher Bahadur Deuba: Prime minister (September 1995-March 1997 and from July 2001 to present) and a leading member of the Nepali Congress (NC).

Girija Prasad Koirala: President of the NC and a former prime minister (1991-94, 1998-99 and March 2000-July 2001).

Krishna Prasad Bhattarai: A former NC prime minister (1990-91 and May 1999-March 2000).

Madhav Kumar Nepal: General secretary of the Communist Party of Nepal- Unified Marxist-Leninist (CPN-UML) and leader of the main opposition in parliament. Deputy prime minister from December 1994 to September 1995.

Bam Dev Gautam: Leader of the Communist Party of Nepal-Marxist-Leninist (CPN-ML). He was formerly deputy prime minister and CPN-UML general secretary. His party was voted out of the lower house in May 1999.

King Gyanendra: Head of state.

The Maoist insurgency that began in February 1996 has two main leaders. Puspa Kamal Dahal, who goes by the nom de guerre Comrade Prachanda, leads the Communist Party of Nepal-Maoist (CPN-M). Prachanda became chairman of the party in February 2001; he also heads the central military commission. The other influential leader is a former town planner, Baburam Bhattarai, who is president of the United People’s Front of Nepal (UPFN), essentially a front organisation for the CPN-M. There are no official estimates of the size of the rebel fighting force—the CPN-UML estimates it to be 5,000.

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Other parties Composed of politicians from the defunct panchayat system, the Rashtriya Prajatantra Party (National Democratic Party, NDP) played the role of kingmaker in the hung parliament of 1994-99. In 1998 it split into two, the NDP-Thapa and the NDP-Chand, led by its two most prominent leaders. After the 1999 election the NDP-Thapa became the third largest party in parliament whereas the NDP-Chand was voted out of parliament. The NDP-Thapa and a faction from NDP-Chand merged after the election, but the party’s influence in parliament is minimal.

Smaller parties in parliament, such as the Nepal Workers’ and Peasants’ Party (NeWPP), the National People’s Front (NPF), the UPFN and the Nepal Sadbhavana Party (NSP, popular in the Terai lowlands), have similarly been made redundant in the current power equation.

Election results

May 12th 1991 Nov 15th 1994 May 3rd & 17th 1999 Votes Seats Votes Seats Votes Seats No. % No. % No. % No. % No. % No. % Nepali Congress 2,752,452 37.7 110 53.6 2,545,287 33.4 83 40.5 3,214,068 37.3 111 54.1 CPN-UMLa 2,040,102 28.0 69 33.6 2,352,601 30.9 88 42.9 2,728,725 31.7 71 34.6 NDPb 871,103 12.0 4 2.0 1,367,148 17.9 20 9.8 899,511 10.4 11 5.4 NSPc 298,610 4.1 6 2.9 265,847 3.5 3 1.5 277,239 3.2 5 2.4 NPFd – – – – – – – – 121,394 1.4 5 2.4 UPFNe 351,904 4.8 9 4.4 100,285 1.3 0 0.0 70,119 0.8 1 0.5 NeWPPf 91,335 1.3 2 1.0 75,072 1.0 4 1.9 48,015 0.6 1 0.5 CPN-MLg – – – – – – – – 567,987 6.6 0 0.0 NDP-Chandh – – – – – – – – 293,952 3.4 0 0.0 Independents 303,723 4.2 3 1.5 471,324 6.2 7 3.4 242,877 2.8 0 0.0 Total incl others 7,291,984 100.0 205 100.0 7,625,348 100.0 205 100.0 8,618,896 100.0 205 100.0 a Communist Party of Nepal-Unified Marxist-Leninist. b National Democratic Party; in 1999 NDP-Thapa (Thapa faction). c Nepal Sadbhavana Party. d National People’s Front. e United People’s Front Nepal. f Nepal Workers’ and Peasants’ Party. g Communist Party of Nepal-Marxist- Leninist. h National Democratic Party, Chand faction.

Source: Election Commission.

International relations and defence

A minnow between Nepal’s geopolitical position as a small country sandwiched between two major regional giants regional powers, India and China, obliges it to conduct its external relations pragmatically. A policy of non-alignment—globally as well as regionally—has persisted but its close historical links with India have made it more susceptible to pressure from the south. It is a member of the seven-member South Asian Association for Regional Co-operation (SAARC), whose headquarters are in Kathmandu. SAARC has been in limbo after failing to hold its 11th annual summit in November 1999 after India refused to attend alongside the post- military coup leaders of Pakistan. Under SAARC rules—every decision is taken unanimously—any one country can request postponement of summits. It now seems that a SAARC summit will take place in Nepal early in 2002, depending on agreement among the member countries.

The relationship with India Relations with India revolve around the 1950 Peace and Friendship Treaty that dominates gives India an advantageous position in security matters, investment conditions and employment opportunities. Moreover, because of Nepal’s landlocked status, it is subject to Indian pressure when bilateral trade and transit agreements come up for renewal, as in 1989 when India refused to renew trade and transit treaties and blockaded all but two border trade points. Since then several trade and transit treaties have been agreed, as has a major treaty providing for joint development of the water resources of the Mahakali River. Nevertheless, disputes over border demarcation have persisted for over 20 years. There are also more recent disputes, caused especially by India’s construction of embankments near the border causing inundation and flooding in Nepal. Five years ago Nepal and India signed a preferential trade treaty, which is supposed to be renewed automatically in December 2001. On August 14th 2001, however, India notified Nepal that it wanted to “review and revise” the treaty and discuss the rules of origin and the “surge” of some Nepalese products. The Indian concern was that cheap Chinese products were being shipped through Nepal to India, undercutting local producers. Nepal’s merchandise exports to India grew almost fivefold to NRs27.3bn (US$384m) in fiscal year 2000/01 and merchandise imports from India have almost doubled to NRs46.6bn in the five years since the treaty was signed.

The role of China China has historically served as a counterweight to Indian influence in Nepal, but with severe limitations imposed by topography in the form of the Himalayan mountain range that separates the two countries. China supported the royalist regime in the early 1960s while India backed armed raids by NC supporters into Nepal from Indian territory. High-level visits in recent years have strengthened ties, and China has been a substantial aid provider. The Nepalese government upholds the “One China” policy and discourages the political activities of Tibetan exiles within its territory.

Nepal’s defence forces are small, numbering just 48,000 men. The Royal Nepalese Army and police personnel regularly participate in UN peacekeeping operations. The government is also setting up a paramilitary force, the Armed Police Force, that could comprise up to 15,000 men. Unlike the civilian police that have been fighting Maoist insurgents with second world war 303 Enfield rifles, the Armed Police Force will use automatic weapons.

Resources and infrastructure

Population

Rapid population growth According to the government census conducted in July 2001, the population is estimated at 23.2m people. There are at least 61 different ethnic and caste groups.

The population grew at an annual average rate of 2.3% between 1991 and 2001. This has been despite high rates of infant mortality (70 per 1,000 live

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births in 2000/01) and low life expectancy at birth (58.3 years in 2000/01). (Reference table 1 provides historical population data.)

Population distribution by age (% of total) Age range (years) 1996 2001a 0-14 41.3 40.3 15-24 19.2 19.0 25-34 13.8 14.5 35-44 10.2 10.2 45-54 7.4 7.4 55-64 4.8 4.9 65 & over 3.4 3.6

a Estimates.

Source: Central Bureau of Statistics: Statistical Year Book of Nepal.

Migration from the hills to There is steady migration from the impoverished hill and mountain areas to the plains the Kathmandu valley and to the Terai plains region abutting India. The growth rate has been especially high in Kathmandu, whose population rose by 4.8% in 2000 to reach 1.09m. The proportion of population living in the Terai region reached 48.5% in 2001, up from about 44% 20 years earlier.

Education

Slow progress in education Under Rana rule education was virtually non-existent, and in 1951 the literacy rate was just 5%. Since then the education system has been built from scratch, but progress has been agonisingly slow and the system remains patchy and of a low standard. The adult (above 15 years of age) literacy rate rose from about 22.5% in 1980 to 36.5% (19% for women) in 1995, according to the UN Children’s Fund (UNICEF). The National Planning Commission (NPC) estimates overall adult literacy in 2000/01 at 53% (about 26% for females), well below the 70% target to be achieved by the end of 2002.

The government is the major education provider. According to official figures, about 84% of primary and secondary school students were enrolled in government schools in 2000/01. Of 38,476 schools at the primary and secondary level, 25,087 are in the public sector. The 13,389 private schools have about one million students and higher teacher-student ratios. The average student-teacher ratio in public schools is 44 compared with 22 in private schools. The government spends about 7% of its development budget on education, most of which goes to primary education, which also receives additional funding from the multi-donor Basic and Primary Education Project (BPEP). The government has been trying to broaden access to higher secondary level education; in 2000/01 only 681 schools offered higher secondary level education.

The education system faces a new challenge in the pro-Maoist student union, the All-Nepal Free Students Union-Revolutionary (ANNFSU-R), which has threatened both teachers and school authorities, forcing many private schools

in the districts to shut down. Its other demand is to make education free, which the government says that it cannot afford. The ANNFSU-R also wants the government to nationalise the private schools, which, although expensive, provide better education.

Primary school enrolment The government aims to make primary education free and compulsory for all, statistics are overstated but by mid-1999 compulsory primary education had been enforced in just seven of the 40 administrative districts where the BPEP is under way. It is unclear how many children attend primary school. The official enrolment statistics are dated and not credible; the government claimed that 3.9m students aged 6-10 years attended primary school in October 1999, which is about 800,000 above the number of children between the ages of 5 and 9 years estimated to be in Nepal in 2001. The NPC estimates that 70.5% of children of primary school age attend school.

Even official statistics cannot disguise the fact that many students never make it past primary school. Drop-out rates are high because many children are forced to leave school and help with household chores. Total enrolment in secondary schools was 920,000 in 1999, about 25% of the claimed rate of enrolment for primary schools.

Problems in higher Nepal has five universities. The largest, Tribhuvan University (TU), enrols over education 97% of all undergraduates in Nepal in its 61 publicly funded campuses and 177 privately run affiliated campuses. In 2000/01 TU had 164,682 students but produced only 356 graduates in engineering, agriculture, animal science and medicine. TU suffers from administrative chaos and many students never obtain a degree. The privately run Kathmandu University enrolled 3,988 students in 2000/01, the Mahendra Sanskrit University 3,616 students and the other two institutions a total of 2,117 students.

Health

A multitude of health Nepal scores poorly on virtually every public health indicator. Life expectancy problems at birth is 58.3 years—one of the lowest in South Asia—up from 43.3 years in 1970-75. The NPC estimated infant mortality at 70 per 1,000 live births in 2000/01, an improvement from 165 per 1,000 in 1970 and 199 per 1,000 in 1960. According to the NPC, 68% of the population had access to safe drinking water in 2000/01. Diarrhoea and acute respiratory infections are the main killers of Nepalese children. In 1999 the government estimated the rate of HIV prevalence in adults to be 132 per 100,000 people.

The government is the The government is the main institutional health provider and does a woefully main healthcare provider inadequate job. In an efficiency drive in 1995 it closed nearly one-quarter of its hospitals. Since then the number of hospitals increased to 85 by 2000/01 and the number of hospital beds to 5,318. This is still far below Nepal’s needs. In 2000/01 there was only one government doctor for every 18,189 Nepalese.

Under a national health policy introduced in the early 1980s, hospitals are supposedly supplemented by village clinics that provide preventive and simple

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curative health services. The number of sub-health posts in villages increased from 2,579 in 1995/96 to 3,174 in 2000/01. The number of primary health centres is 180, and that of health posts 696. It is difficult to get trained medical staff to work in remote areas and the level of care available is basic. Another problem is financial: hospitals and clinics charge on a fee-for-service basis, and most Nepalese have neither insurance nor the ready cash to pay for health services.

Natural resources and the environment

A wide range of climates The topography of Nepal varies greatly. In the south are the plains of the Terai and the forest-clad slopes of the lower hills, which rise to about 1,200 metres; in the central region are a succession of mountains varying in height from 1,200 to 3,000 metres; and the Himalayan region consists of mountains ranging from 3,000 metres to the 8,848-metre Mount Everest. Nepal has five climatic zones—tropical, mesothermal, microthermal, taiga and tundra. Of Nepal’s 75 administrative districts, 16 lie in the mountain region, 39 in the middle hills and 20 in the Terai plains along the southern border with India. Most agricultural activity takes place in the Terai, which has about 70% of the total cultivated land, and the fertile valleys in the central hilly regions. The forested area has declined over the past 30 years because of the extensive use of firewood as fuel, uncontrolled grazing, the clearance of land for cultivation and overexploitation of forests for commercial purposes. Nepal’s forest cover in 1994 was 29% of the land area with a further 10.6% classed as shrub land. Deforestation, running at an annual rate of 1.7%, has been slowed by a 1993 policy that gives the ownership and management of forests to local communities. In March 2001 Nepal had 9,874 registered community forest user groups, which managed 748,000 ha of forests.

Transport, communications and the Internet

Roads In mid-July 2001 Nepal had just 15,458 km of roads, of which less than one- third were tarmacked. The remainder are gravelled or dirt roads, and wash out frequently during the June-September rainy season. Most hill and mountain trails are only suitable for pedestrians and pack animals.

The pace of road building, which stagnated in the 1980s, accelerated with the restoration of democracy. Total road mileage has more than doubled since 1990, although most of the increase has been in dirt roads. To build and maintain tarmacked highways Nepal still relies heavily on foreign aid. The main east-west highway in the Terai was built with aid money; the Chinese built the highway linking Kathmandu with Kodari on the Chinese border in 1967. A second road to China, linking Dhunche with Kyirong, north-west of Kathmandu, is being surveyed. A much-needed road through the hills from Kathmandu to Hetauda in the south, which would halve travel time to the Indian border, continues to be held up pending licensing, despite an early 2000 government decision to allow a private company to build it as a build-operate- transfer (BOT) project. Nepal had 263,516 registered motor vehicles in July

2000, of which about 56% were motorcycles. In 2000/01 58 of Nepal’s 75 districts were connected by road.

Nepal has a 5.3-km brand new, broad gauge railway connecting its new inland container depot (dry port) in Birgunj to India’s rail network, allowing the direct transport of cargo to Indian ports. The link was completed in February 2001, but did not enter use until October 2001 because Nepal and India could not agree on the modalities of operation, such as whether to check wagon locks at the border and revenue sharing between private terminal operators and India’s state-owned Indian Railways. Nepal’s other rail line is a 51-km spur (of which 22 km are in Nepal) connecting the eastern Terai town of Janakpur with the city of Jayanagar in Bihar, India. The line, built in 1936, carried 1.6m passengers and 13,470 tonnes of cargo in 1999/2000.

Air services Tribhuvan International Airport in Kathmandu is the only significant international airport. It handles fewer than a dozen international flights a day. The 1998 revision of the bilateral air agreement with India relieved some of the congestion on the major routes from Kathmandu to India, increasing the weekly seating capacity on routes to New Delhi from 4,000 to 6,000 and on routes to Mumbai (Bombay) from 600 to 1,200. Royal Nepal Airlines Corporation (RNAC), the national carrier, cancelled all flights to Europe in September 2001 to concentrate on regional routes. Most international air cargo comes either via Bangkok or directly from the Persian Gulf, but delays are common.

There are 44 domestic airfields, including Kathmandu, of which 32 are suitable only for short take-off and landing (STOL) by small aircraft. Nepal has over 120 helipads, which together with STOL airfields provide access to many remote mountain areas. The RNAC is poorly run and overstaffed, and faces increased competition from more than a dozen private airlines (allowed since 1992) on both domestic and foreign routes. The state-run airline is also highly indebted and cash-strapped. It has leased 18 aircraft since the early 1990s and politicians are said to have taken a cut in the deals. Nepal has issued air operator licences to 31 private companies, of which 19 were operating in mid-July 2001. The domestic air industry carried 1.7m passengers and 10,871 tonnes of cargo in 1999/2000.

Telecommunications Telephone links between Kathmandu and the rest of the world and within the country are reliable but expensive. The number of telephone lines distributed reached 275,558 in March 2001, whereas the telephone exchange system had an installed capacity of 317,296 lines. Most of the growth has taken place since 1996. Even so, telephone installation is far short of demand. The Nepal Telecommunications Corporation (NTC) faces a backlog of 277,600 applications. Moreover, most lines have been installed in the Kathmandu Valley, and services outside the valley are patchy. In mid-March 2001 only 1,729 of the 3,913 village development committees (VDCs, the village-level administrative units) had telephone lines. The government plans to connect all the VDCs by 2003. NTC began mobile telephone services in May 1999. It has about 13,000 mobile phone subscribers and plans to add another 50,000 connections in the near future.

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In theory, the telecoms sector has been liberalised, with the Nepal Telecommunications Authority (NTA) as the regulator. Licences for various services are auctioned to both private and government-owned firms. In practice, however, the state-owned NTC holds a monopoly on fixed-line services and has remained the sole licence-holder for mobile phone services. The NTA approved the bid for a second mobile operator in late 2000 but licensing has been delayed by litigation. The new operator is expected to begin services by end-2001. The NTA has licensed 15 Internet service providers, 33 satellite communication users and service providers and eight pager services. The NTA has also approved the bid of a private operator to run telecoms services using wireless local loop (WLL) technology.

The broadcast media The government is both the licensing and regulatory authority of the broadcast media and also runs national radio and television stations. About 80% of the population can receive the medium-wave broadcasts of Radio Nepal but only 55% can receive Nepal Television (NTV) broadcasts. NTV has begun to broadcast its signals via satellite, which has helped to improve signal quality but at least another five years and more relay stations are needed to achieve nationwide coverage. The government had licensed a television company, Spacetime Network, to broadcast via satellite in 1993, but cancelled the licence in early 2001 over a technicality. Spacetime Network has been concentrating on cable television, a market in which it is the leader. The government has issued FM radio licences to 20 private firms, of which 15 are operating. In October 2000 the government invited applications for private terrestrial television licences, but none has been issued so far.

The press The press is lively and unfettered. The government owns two major newspapers, one in Nepali and one in English, but several daily and weekly publications in both Nepali and English enjoy fairly wide circulation. There is a plethora of smaller newspapers and magazines, mostly in Nepali but also in some local languages; many of these are affiliated to political parties— including the Maoists. Most of the newspapers are weeklies with tiny circulations. In mid-April 2001 Nepal had 2,870 registered newspapers and magazines, but less than 185 were published regularly.

Energy provision

Heavy reliance on firewood Most of Nepal is heavily dependent on traditional energy sources, mostly firewood, but also farm and livestock residues. Energy consumption in 2000/01 was equivalent to 8m tonnes of oil. According to provisional official statistics, traditional energy sources accounted for 86% of energy use in 2000/01; this proportion is shrinking, but slowly. Firewood supplies 77% of energy needs; in the long run this heavy dependence on firewood could devastate Nepal’s hill and mountain regions through deforestation and subsequent erosion. The proportion of energy accounted for by other sources in 2000/01 was petroleum 9.5%, coal 2.8% and electricity 1.4%.

The development of an electricity industry has been hamstrung by the lack of a coherent national energy policy and, more importantly, a lack of investment

capital. Total installed capacity in mid-August 2001 was 440 mw, including power supplied by independent power producers (IPPs). The peak load of the state-owned Nepal Electricity Authority (NEA) in January 2001 was 391 mw. Among the IPPs, a Norwegian joint venture (between the Norwegian energy companies, Statkraft, Kvaerner Energy and ABB Kraft and the local Butwal Power Company) has a generating capacity of 60 mw and a US joint venture (between the US energy companies, Panda Energy and Harza Engineering, and the local firm, Himal International Power) that began operating in January 2001 has a generating capacity of 36 mw. Eight hydropower projects under construction will add a further 229 mw to the central grid over the next few years.

Hydropower potential Hydropower is the main source of electricity. Nepal could generate up to is enormous 83,000 mw of hydropower, but this potential has not been tapped for many reasons, some technical, some political. Water flows on many rivers are highly variable, and there is controversy over Nepal’s use of rivers that flow into India. In 1996 Nepal and India agreed on the joint development of the Mahakali River on Nepal’s western border but progress has been slow.

Investment capital is scarce The greatest obstacles are economic. Hydropower is far more capital-intensive than thermal power generation, and Nepal lacks the necessary capital for major hydropower projects. Nepal’s average electricity tariff (8.7 US cents/kwh) is already one of the highest in South Asia, mainly because it is hydropower- based and because of construction, and other public-sector, inefficiencies. Foreign investors have not been convinced of the financial viability of large projects. Domestic consumers could not absorb the extra capacity, while the only viable customers for Nepalese electricity exports are India’s state electricity boards, which are themselves cash-strapped.

Energy balance, 2000 (m tonnes oil equivalent) Oil Gas Coal Electricity Other Total Production 0.00 0.00 0.00 0.30a 7.10 7.40 Imports 0.70 0.00 0.18 0.08a 0.00 0.96 Exports 0.00 0.00 0.00 –0.02a 0.00 –0.02 Primary supply 0.70 0.00 0.18 0.36a 7.10 8.34 Losses & transfers –0.07 0.00 0.00 –0.40 0.00 –0.47 Transformation output 0.00 0.00 0.00 0.15b 0.00 0.15 Final consumption 0.63 0.00 0.18 0.11b 7.10 8.02 a Input basis. b Output basis.

Source: Energy Data Associates.

The largest government hydropower project under construction is the 144-mw Kaligandaki A project, being built with a US$453m multilateral loan. It is expected to come on line by March 2002, two years behind schedule. The IPPs running the Khimti and Bhote Kosi projects have 20-year power purchase agreements with the NEA, which will buy all the electricity generated. A Nepalese-Australian venture licensed to build the 750-mw West Seti hydroelectric project will not be able to secure the roughly US$1bn needed for

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construction until it finds buyers in India. One hurdle to a long-term sales deal with India is that Nepal’s parliament has not yet ratified a June 5th 1997 agreement on “electric power trade” with India. In mid-2000 the government invited another seven companies to build hydropower projects, at a total cost of about US$2.6bn, but none has come to the construction stage. In 2001 the NEA had 765,397 consumers, 17,650 of which were industrial. (See Reference table 2 for data on energy consumption.)

The economy

Economic structure

Most people rely on Around 81% of the economically active population live in rural areas and subsistence farming depend on subsistence farming. The contribution to real GDP of agriculture, forestry and fishing has slipped from about 70% in fiscal year 1974/75 to about 36.8% in 2000/01 (provisional), because of growth in public utilities, trade and hotels, transport and other services. Most agricultural production takes place in the Terai, which has 70% of the roughly 2.5m ha of cultivated land, and fertile valleys in the central hilly regions. Difficult topography—about 30% of Nepal is unfit for agriculture or forestry—complicates the transport and marketing of agricultural goods. Farming plots are highly fragmented—about 11% of cultivated plots are smaller than 0.5 ha.

Manufacturing is limited The manufacturing sector—carpets, garments and handicrafts are the main products—is tiny, accounting for 9.9% of GDP in 2000/01. Strong Indian competition, poor infrastructure, a limited local market and the lack of direct access to the sea hinders the development of this sector.

The services sector accounted for 40.9% of GDP in 2000/01. The largest component of this sector is tourism—with its spectacular mountain scenery, Nepal attracts mountaineers and hikers. Trade, restaurants and hotels made up 11.7% of GDP in 2000/01.

Levels of investment and The principal structural problem in the economy is the extremely low rates of savings are low savings and investment. Gross fixed investment rose steadily, if unspectacularly, through most of the 1990s and peaked at 27.3% of GDP in 1995/96. Since then, however, it has declined even in producer’s current-price terms, and in 2000/01 it accounted for 25.7% of GDP, according to the government’s estimate. Even this dismal figure stood well above the gross national savings rate of about 16.1% in 2000/01. The total fiscal revenue/GDP ratio stood at 11.3% in 1999/2000 and the tax revenue/GDP ratio—which excludes non-tax revenue such as various administrative fees, sale receipts and rents—was 8.7%.

Main economic indicators, 2000

GDP growth (%) 6.4a Consumer price inflation (%) 1.5 Current-account balance (US$ bn) 10.6b Foreign debt (US$ m) 2,970b Exchange rate (NRs:US$; av) 71.1

a Fiscal year ending July 15th 2000. b 1999.

Sources: IMF, International Financial Statistics; World Bank, Global Development Finance 2001.

Economic policy

Development programmes Nepal began modern development planning in the early 1950s. Low GDP and have not borne fruit high population growth rates have, however, resulted in only a marginal improvement in income per head. The level of dependence on foreign assistance remains high—over one-third of the government’s development budget is funded from foreign assistance. In the 1990s borrowing from abroad grew steadily whereas there was a slowdown in foreign grants. Even development programmes and projects funded through foreign aid have progressed slowly because of weak institutional capability, corruption and fragmented authority between ministries.

The reforms of the 1990s After an IMF-sponsored stabilisation programme in 1986 and World Bank structural adjustment loans in 1987 and 1989, a more systematic structural economic reform programme was instituted in 1992 by the Nepali Congress (NC) government, with IMF support. Reforms led to current-account convertibility for the Nepalese currency; the removal of licence or quota requirements on international trade; liberalised industrial and foreign investment regulations; a restructured tax system; lower tariff barriers; the privatisation of some public enterprises; and a reformed financial sector, including the restructuring of commercial banks. Progress in most areas has been slow, however, and the formal non-agricultural economy remains dominated by inefficient, state-run firms.

The government has invested over NRs105.5bn (US$1.5bn) in 39 of the 43 public enterprises for which it is responsible; it does not even have audit reports on the remaining four. The government expects total operating losses of the public enterprises to reach NRs746m (US$10.5m) in 2000/01, but this is optimistic given that losses were NRs2.4bn in 1999/2000. Weak governments have been unable to push on with privatisation.

Chronic government Government finances are in a mess, with ever-widening budget deficits budget deficits financed mainly by foreign grants and loans. (Reference table 3 provides historical data on government finances.) Virtually every government has sought to buy votes with pork barrel spending schemes. In September 2001 the Supreme Court ruled that one such spending scheme, which allowed each parliamentary representative to spend NRs1m on projects of his choosing every year, was illegal. Meanwhile the only significant widening of the domestic tax

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base has been the value-added tax (VAT), introduced in 1997 and fully implemented since August 1999. VAT collection for 2000/01 was NRs11.9bn, short of the budgeted target NRs13.5bn. Total central budget revenue for 2000/01 was NRs49.3bn, about 93% of the budget goal of NRs53bn.

The government and the economy (% of GDP) 1997/98 1998/99 1999/2000 2000/01 Total revenue 10.5 10.2 10.7 11.3 Total expenditure 16.8 15.4 15.5 18.2 Current expenditure 9.2 9.3 9.4 11.8 Capital expenditure & net lending 7.6 6.1 6.1 6.4 Overall deficit (after grants) 4.5 3.9 3.3 4.8

Source: IMF, Nepal: 2001 Article IV Consultation.

Heavy reliance on foreign Nepal’s continued dependence on foreign aid, and the scant results that aid has aid produced over the past quarter of a century, has raised the prospect of donor fatigue. In the past three years major donors, including Japan, the Asian Development Bank (ADB), the UN Development Programme (UNDP) and the World Bank, have called for greater administrative efficiency, accountability and transparency in the use of aid.

Summary of government finances, 2000/01a (NRs m) Total revenue 59,284 Grants 9,677 Other receipts 49,607 Total expenditure 83,225 Current expenditure 43,461 Development expenditure 39,764 Balance –23,941 of which: financed by foreign loans 15,941

a Revised official estimates.

Source: Ministry of Finance, Budget Speech of the Fiscal Year 2000/2001.

Economic performance

GDP growth remains By any measure, Nepal’s economic performance has been dispiriting. Annual sluggish GDP growth averaged 4.9% in 1995/96-1999/2000. That is little higher than the rate of population growth (see Reference tables 4-6 for historical GDP data) and falls short of the government’s target growth rate of 6% a year under the ninth five-year plan, which runs from 1997/98 to 2001/02. The economy grew by 5.8% in 2000/01, but in 1999 GDP per head remained a miserable US$220 using the current exchange-rate method, according to the World Bank. The UNDP’s Human Development Index, which measures development in three ways—longevity and health, knowledge and standard of living—ranked Nepal 129th out of 162 countries in 2001. Nepal was better off than only Bhutan and Bangladesh among the seven South Asian countries. The government estimates

that the number of people living in absolute poverty dropped to 38% of the population by mid-2001 from 42% in 1997. Nepal defines absolute poverty as having an annual income below NRs4,404 (US$75.90 using the 1997 average exchange rate of NRs58.01:US$1).

Agriculture lags behind Until 1990 average growth rates in the agricultural and non-agricultural sectors were roughly comparable. Since then, however, agriculture has lagged well behind non-agricultural activity. Between 1990/91 and 1999/2000 annual average growth in agricultural production was 2.5% in constant-price terms, compared with 7% for the non-agricultural sector. In the first four years of the ninth five-year plan, 1997/98-2000/01, the annual average rate of agricultural growth was 3.2% (compared with the target of 4.2%) and non-agricultural growth was 6.3% (compared with the targeted 8%), according to the National Planning Commission.

Gross domestic product (% real change) Annual average 2000/01a 1990/91-2000/01 GDP (at factor cost) 5.8 4.9

a Preliminary estimate.

Source: Ministry of Finance, Economic Survey.

Inflation is a recurrent Consumer price inflation averaged 6.5% in 1996-2000 (calendar years, using problem IMF data), after peaking at 17% in 1991 in response to shocks caused by liberalisation measures including the move to partial convertibility of the Nepalese rupee, food shortages caused by poor harvests and, most importantly, high inflation rates in India (historical inflation data are set out in Reference tables 7 and 8). Of the two long-term factors driving inflation in Nepal, one (inflation in India) is exogenous, whereas the other (domestic liquidity) has in the past been increased by the practice of partly monetising the government’s fiscal deficit. Money supply (M2) expanded at an annual average rate of 18.3% during 1996-99. (See Reference table 9 for data on money supply and interest rates.) Consumer price inflation was restrained in 2000, mainly because of low food and beverages prices, dragged down by a bumper harvest and cheap imports from India.

Inflation (% change) Annual average 2000 1996-2000 Consumer prices 1.5 6.5 Source: IMF, International Financial Statistics.

“Semi-employment” is Wage data are scanty, though it is generally believed that wages have risen widespread roughly in line with inflation. Similarly, there is little reliable information on urban unemployment. The government estimates that the seasonal nature of agricultural work and the lack of alternative employment options mean that

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47% of the total labour force is “underemployed”. Every year about 300,000 people enter the employment market, although few jobs are created. The government estimates that 4.9% of the 11.7m labour pool is unemployed. Nepalese are able to seek work in 17 foreign countries; 34,591 were employed abroad in 1999/2000.

The minimum wage The minimum agricultural daily wage is NRs70 (US$1), which provides a basis for determining the minimum for other sectors. The minimum daily wage in industry is NRs74 for adults and NRs60 for workers under 18 years of age. Nepal prohibits the employment of children under 14 years old. Since 1996 Nepal has had a labour court to deal with industrial disputes. In 2000 there were 2,054 registered trade unions in Nepal, of which 1,759 were active.

Economic sectors

Agriculture, forestry and fishing

Constraints on agriculture Agriculture employed over 80% of Nepal’s economically active population in 1999. The sector contributed 39.1% of GDP in 1999/2000. Agriculture suffers from several disadvantages—unpredictable weather; the poor performance of irrigation projects; a dwindling rate of capital formation; and a feudal land tenure system characterised by concentrated ownership and exorbitant rates of rent. The land reform programme carried out in 1964 only managed to redistribute 1.2%—32,000 ha—of all agricultural land. On August 16th 2001 the government announced its plan to implement another round of land reforms. The parliament is debating a new law to fix land ownership ceilings. In 1991 Nepal’s total cultivated area was 2.6m hectares, of which about 1.4m were in the southern plains.

Non-subsistence agriculture is mainly practised in the plains. But the surpluses of food in the Terai plains do not compensate for chronic food deficits in the mountainous districts. The government imports NRs6bn (US$84m) of food grains and other foods each year to supplement supplies in 55 of the 75 districts. The burgeoning population has extended cultivation on marginal land and steep slopes, leading to deforestation, soil erosion and landslides on an alarming scale.

Slow growth in grain Production of cereal crops—mainly rice (59% of the total), maize (21%) and production wheat (16%)—has grown at a sluggish average annual rate of 2.2% over the past quarter of a century. Cash crops—principally sugarcane, potatoes, oilseeds, jute and tobacco—have fared better, recording annual average production growth of 6.5% over the same period. Jute, formerly the main cash crop, has undergone a decline in the planted area, production and yield since 1986/87. Sugarcane and potatoes have recorded the most substantial gains in production and yields. Despite favourable terrain and climate, Nepal has failed to realise its potential as a major tea-growing nation. In 1999/2000 it produced 5.1m kg of tea, of which 1m kg were produced by 5,090 small growers.

The government began removing fertiliser subsidies in 1997 and liberalised fertiliser imports in November 1997. The subsidy on urea was fully removed in late 1999. The government, however, does subsidise the transport of fertiliser and seeds to 21 remote districts. Inorganic fertiliser use is low. Nepal does not produce fertilisers and relies fully on imports. In 1999/2000 Nepal imported 175,800 tonnes of fertiliser, mainly urea and diammonium phosphate, which was almost twice the volume imported in 1997/98. Despite the presence of numerous major river systems, Nepal’s crops are largely rain-fed and only around 21% of land has year-round irrigation.

In 1998/99 Nepal’s food grain deficit was 1.8m tonnes. Nepal has been implementing a 20-year Agriculture Perspective Plan (APP) since 1995 and aims to raise the annual growth rate of agricultural production from roughly 3% to 5% by 2015. The APP also aims to raise food availability per head from 270 kg to 426 kg over the 20-year period.

Mining and semi-processing

Nepal has few mineral Mining and quarrying accounted for 0.5% of GDP in 2000/01. The major reserves known exploitable mineral reserves include oil, lead, zinc, iron ore, limestone, marble and magnesite. In general, however, discovered deposits are not considered commercially exploitable.

Processing of limestone for cement is carried out in Kathmandu and Hetauda. In 1999/2000 Nepal extracted 244,586 tonnes of cement-grade limestone. About 10m tonnes of high-grade deposits of lead and zinc exist in the Ganesh Himal region. Oil reserves are estimated at 300m-700m barrels. Magnesite reserves are estimated at 180m tonnes, of which about 70m tonnes is of refractory grade.

Manufacturing

Industrialisation policies The manufacturing sector is severely constrained by the small domestic have not succeeded market, Indian competition, the impracticality of import restrictions along the open southern border and the landlocked position of Nepal. A further hindrance to industrial development is a lack of infrastructure, skills and capital. Although governments have pursued a policy of planned industrialisation since the 1960s, in 2000/01 manufacturing accounted for just 9.9% of GDP.

Successive governments have attempted to encourage private investment in industry, beginning with the 1991/92 budget. But the industrial sector has yet to attract large amounts of domestic investment (domestic capital is mainly invested in traditional sources of wealth, such as land, gold and gems, as well as in the services sector). India is the most important foreign investor, with about 170 joint ventures in operation.

Production is mostly in low Manufacturing firms tend to be quite small and are concentrated in the value-added sectors Kathmandu Valley and the eastern Terai. Manufacturing activity is largely

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concentrated in three low value-added sectors—food and beverages, tobacco and textiles. (Historical data on the production index of manufacturing industries are shown in Reference table 10). The only sector generating much export earnings is textiles, consisting mostly of ready-made garments and woollen carpets (see The external sector: trade in goods).

Industrial relations, 2000/01

Number of enterprises 4,296 Number of workers 394,541 Complaints lodged 725 Disputes settled 623 Days lost to strikes & lockouts 30,656 Source: Department of Labour.

Construction

Building is constrained by The construction industry is relatively underdeveloped, even though urban a lack of materials centres, like the Kathmandu Valley, have witnessed a surge in building construction in recent years. In 2000/01 the sector contributed 10% of GDP.

Despite high demands on the construction industry, domestic production of basic materials has been inadequate. The three main cement factories (in Kathmandu, Hetauda and Udaipur) meet only about one-half of domestic demand. In recent years private industries have taken the initiative in manufacturing steel bars, galvanised sheets and angle-irons—some of which have qualified for international standardisation—but the manufacture of these items depends entirely on raw materials imported from India. Laws governing the construction sector mainly focus on the public sector, while the private sector has not been the focus of government policy.

Financial services

The state still plays a big The financial sector, although theoretically deregulated during the 1990s, is role in banking still subject to tight state control. Nepal has two main types of banks: commercial banks, of which there were 15 in July 2001, and development banks, of which there were two large and 12 small ones. Non-bank financial intermediaries include 48 finance companies, 13 insurance companies, 34 savings and credit co-operatives and 13 non-governmental organisations (NGOs) that have central bank approval to carry out financial transactions. In mid-July 2000 commercial banks accounted for almost 90% of all loans and advances and finance companies for 8.4%. The government owns Rastriya Banijya Bank (RBB) and controls 41% of Nepal Bank Limited (NBL). These two banks account for about 60% of all lending and roughly 50% of deposits in the banking system. In practice, therefore, credit remains a state monopoly. In mid-July 2000 total deposits in the banks and non-bank institutions stood at NRs164.3bn (US$2.3bn).

Foreign joint-venture banks Since 1984 foreign banks have been allowed to establish joint-venture banks, are permitted but not until 2001 was majority ownership of the ventures permitted. Seven of the 15 commercial banks are foreign-invested joint ventures. In 2001 the government decided to allow foreign banks to own up to two-thirds of joint ventures. The decision was aimed at convincing Nepal Indosuez Bank, which set up a joint venture in 1986 in which a French bank, Credit Agricole, has since invested, not to pull out. Indosuez began looking for buyers for its 50% holding in July 2001.

The government has been trying to find external management consultants to manage the ailing and technically insolvent RBB and NBL, but has not yet succeeded, mainly because of resistance from NBL’s private owners. Reforming the two banks is a condition set by both the World Bank and the IMF for future borrowing. In 1998, according to a study by the international auditors, KPMG Barents Group, net negative worth (assets minus liabilities) at NBL and RBB amounted to the equivalent of about 8% of GDP.

A moribund stock The Security Exchange Centre (SEC), set up in 1981 under the control of the exchange Nepal Rastra Bank (NRB, the central bank) and a major development bank, the Nepal Industrial Development Corporation (NIDC), became the Nepal Stock Exchange (NEPSE) in 1993. The performance of the exchange has, however, been poor, because of weak management, the lack of a corporate culture in Nepal, the poor financial performance of listed companies (particularly manufacturing companies) and the lack of understanding of the share market by companies. By mid-2001 112 companies were listed on the NEPSE with a total market value of NRs50.2bn. But only the shares of financial institutions and a few well performing manufacturing companies are actually traded. Listed category-A companies are required to have minimum paid-up capital of NRs20m (US$280,000) and a minimum of 1,000 shareholders holding shares worth NRs100 (US$1.40) or more. In 2000/01 only 23 companies qualified for the category-A listing.

Other services

Tourist arrivals grow faster Tourist arrivals rose from 163,000 in 1980 to 447,000 in 2000. Although than foreign earnings tourism was boosted by the Visit Nepal Year in 1998, the sector has taken a turn for the worse since late 1999. Indian Airlines flights were suspended for five months after the hijacking in December 1999 of an Indian Airlines flight after take-off from Kathmandu. In late 2000 many hotels were closed because of labour disputes and there were anti-Indian riots. Consequently, tourist arrivals fell by 9.1% in 2000. The downward trend, especially in arrivals from India, continued in 2001 as visitors were deterred by the royal family massacre and the poor law and order situation. The terrorist attacks on the US in September led to the arrival of fewer US tourists, who normally make up about one-tenth of visitors to Nepal.

Tourism is one of Nepal’s most reliable sources of foreign currency. Earnings in 2000 were US$166.8m, slightly less than the value of Nepal’s highest-value merchandise export, that of ready-made garments. Despite the long-term rise

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in the number of tourists and the increase in the average duration of visits from 10.5 days in 1997 to 12 days in 2000, spending per head has grown slowly. In 1999/2000 earnings from tourism represented 3.1% of GDP. (Reference table 11 provides tourism statistics.)

Tourism infrastructure is Tourism’s declining relative importance as a foreign-exchange earner in part stretched reflects the growth in other sources of foreign exchange (exports and increased foreign aid). It also arises from structural constraints on the sector’s expansion capacity, including inadequate infrastructure, limited internal air capacity and domestic transport services, poor waste and water services in urban areas, and the dilapidation of trekking routes. (There is, however, hotel overcapacity in both the Kathmandu Valley and the other main tourist centre of Pokhara.)

The government recognises the importance of developing the sector to meet employment and foreign-exchange goals. Targets include the extension of trekking to remote areas to create employment opportunities for the rural population and better management of solid waste and pollution in the Kathmandu Valley. Lack of investment capital is an obstacle. A major challenge is to achieve rapid tourism growth in mountain areas while minimising the environmental damage that high-intensity trekking can cause.

Nepal is preparing to welcome Chinese tourists. In 2000 China recognised Nepal as an “outbound destination” for its citizens. The two governments are working on how to implement the idea.

The external sector

Trade in goods

Foreign trade, 1999/2000 (NRs m) Exports (fob) To India 13,860 To other countries 27,152 of which: of which: pashmina 3,201 garments 13,925 vegetable ghee 2,711 carpets 9,841 toothpaste 2,263 pashmina 2,665 jute goods 1,104 gold, silverware & ornaments 229 soap 1,082 handicrafts 209 Imports (cif) From India 23,120 From other countries 42,937 of which: of which: cotton fabrics 3,449 petroleum products 8,123 medicine 3,009 gold & silver 7,696 rice 2,705 threads 3,762 machinery & parts 2,540 machinery & parts 3,485 chemicals 2,082 chemical fertiliser 2,753 Source: Nepal Rastra Bank, Economic Report, 1999/2000.

A widening trade deficit As Nepal is landlocked, merchandise trade is a difficult sector to develop. India’s protectionism and its control over the main transit routes are a perennial

problem. Nepal’s low level of development, and consequent reliance on imported capital goods, as well as its dependence on imported oil for energy, means that it runs a chronic trade deficit. Moreover, problems with the accuracy of trade data mean that the value of capital goods imports is likely to be larger than is indicated by official data. However, gold smuggling from Nepal to India is huge. Official data record large gold imports and low exports, but it is well known that most of the imports are destined for India and the domestic market is small. The recorded trade deficit has widened sharply over the last decade (quadrupling between 1990/91 and 1997/98), as the demand for imports in a liberalising economy has not been matched by strong growth in export industries.

India is the leading trade Over the past three decades Nepal has opened up substantially to trade with partner the rest of the world, although the range of both imports and exports remains narrow. Trade with India fell from 92% of total trade in 1970/71 to 22% in 1989/90, when India blockaded most ground border crossings in a trade dispute. Since then the synchronised liberalisation of the Indian and Nepalese economies has strengthened trade ties, and in 1999/2000 India accounted for about 38% of Nepal’s total trade. India is an increasingly important source of machinery and vehicles, as well as consumer products.

Main trading partners, 1999/2000 (NRs m) Exports to: Imports from: India 21,221 India 39,660 US 13,678 China 12,530 Germany 7,511 Switzerland 10,193 UK 1,192 Singapore 8,013 Belgium 812 Hong Kong 6,801 France 736 Kuwait 2,975 Japan 705 Japan 2,892 Source: Federation of Nepalese Chambers of Commerce & Industry, Nepal and the World: A Statistical Profile.

Carpets and garments are Although carpets and ready-made garments have historically dominated the main exports exports, this dominance may be on the wane. The combined share of these two exports fell from 79% in 1993/94 to 58% in 1999/2000. Nonetheless, garment exports after stagnating in the mid-1990s grew rapidly from around NRs5.6bn (US$98m) in 1996/97 to NRs13.9bn in 1999/2000. The rate of growth was lower in 2000/01, after the US opened its market to poor African countries, and may dip further after export quotas are abolished when the World Trade Organisation (WTO) regime takes effect. In the 1990s carpet exports averaged about NRs8.5bn a year, rising to NRs9.8bn in 1999/2000. Carpet exports have stagnated as a result of the saturation of the traditional European markets and Nepal’s inability to break into other markets.

Nepal’s dependence on two products and a few markets makes its export performance extremely vulnerable to shifts in demand and tastes. In the 1980s and early 1990s Germany was the prime market for Nepal’s carpets, but exports to this market have stagnated because of scandals over the use of child labour, the saturation of the market and a fall in production standards. Similarly, the garment industry is hostage to external factors. In the early 1990s the garment

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Nepal 29

industry grew rapidly as Indian producers shifted production to Nepal to avoid the Indian floor price system and to bypass US textile quotas on India. Later in the 1990s India’s removal of its floor price system and intensified Maoist insurgency in Nepal made Nepal relatively less attractive. Nepal’s garment exports nonetheless continued to rise as local entrepreneurs moved into the lucrative business of using up Nepal’s export quotas to the US and the EU.

A newly significant export item in 1999/2000 was pashmina shawls, worth NRs5.9bn that year and NRs6.8bn in 2000/01. But pashmina sales began to taper off in late 2001 mainly because of oversupply, poor quality and changing fashion trends abroad. Nepal’s new pashmina industry rode the international fashion trends throughout 2000. In mid-July 2000 1,022 registered pashmina factories employed around 50,000 people.

Nepal’s hydrogenated vegetable oil exports to India recorded 99% growth between 1997/98 and 1998/99, but sales fell by 13.8% in 1999/2000, mainly because of growing opposition from Indian producers. Indian producers disrupted the supply of the raw material, palm oil, to Nepalese producers at Indian ports and instigated transport strikes in districts through which the palm oil travelled to Nepal. As a compromise, the Nepalese government imposed an export service charge of 3% and in early 2000 the Indian government placed a special additional duty on all imports of 4%, but this was removed within the year. Indian raw material import duties remain high (75% on palm oil) and Indian traders blame the low import duties in Nepal for their inability to compete with Nepal’s exports.

India’s gold policy The major variable affecting Nepal’s import bill is India’s policy on gold influences imports imports. When India restricts gold imports, smugglers use Nepal as a conduit for illegal imports to India’s insatiable gold market. The fluctuations can be enormous. In 1996/97 gold imports to Nepal rose by 138%, to NRs30.5bn; the following year gold imports fell by 47%, to NRs16bn. Gold imports fell to NRs7.6bn in 1999/2000. Preliminary central bank estimates show that gold imports dropped to NRs5.8bn in 2000/01, owing to a change in government policy in 1999/2000 to restrict imports.

Among regular imports, the major items are machinery, vehicles (including aircraft spares), manufactured goods, chemicals and drugs. In 1999/2000 these items amounted to NRs69.1bn, or 65% of the total import bill. (Reference table 12 provides data on foreign trade.)

Invisibles and the current account

Current account, 1999/2000 (US$ m) Merchandise exports fob 971 Merchandise imports cif –1,713 Trade balance –742 Services balance (incl investment income) 273 Private transfers balance 497 Current-account balance 28

Source: IMF, Nepal: 2001 Article IV Consultation.

Income from services The surplus on the invisibles balance rose sharply in the 1990s until late in increases rapidly the decade. Receipts from tourism, the most obvious element of the service economy, did not account for this increase; rather it was the explosive growth in unspecified “other” services that drove the growth of the services balance from NRs3.2bn in 1990/91 to NRs42.8bn in 1996/97. Since then receipts from other services have fallen back, to NRs26.4bn in 1999/2000, reflecting an improvement in the compilation of the national accounts, and the overall invisibles surplus has contracted accordingly.

The current account Despite the strong services surplus and steadily rising net transfers—the result of strengthens the rising local-currency value of private remittances—the current account was persistently in deficit in the 1990s, mainly because of the ballooning trade deficit caused by a liberalised merchandise trade regime. According to the IMF, the current-account deficit more than doubled between 1992 and 1997 from US$181m to US$388m. This alarming trend was reversed in 1998, when a reduced trade deficit and an increase in transfers led to a current-account deficit of just US$67m. The current-account balance turned positive in 1999 because of a dramatic increase in net transfers. According to government figures, remittances from Nepalese resident abroad in 1999/2000 amounted to NRs6bn, of which NRs1.3bn came from Nepalese serving in the UK’s Gurkha regiment.

Capital flows and foreign debt

Foreign aid supports the Despite the current-account deficits, Nepal has generally managed to record a balance of payments positive overall balance of payments, attributable almost entirely to foreign aid in the form of grants and concessional (low interest-rate) loans from donor governments and multilateral agencies. Foreign direct investment (FDI) is minimal, averaging just US$14.7m a year in 1996-99. (Reference table 13 provides IMF balance-of-payments data.)

Foreign aid funds most Foreign aid has had a pervasive influence on Nepal’s development. The first development expenditure five-year plan, introduced in 1956, was totally financed by foreign aid. The share of foreign aid in public-sector development expenditure declined gradually to 45% by the fourth plan (1970-75), but increased again to 75% in the seventh (1985-90), before falling back to 65% in the eighth (1992-97). In the ninth plan (1997-2002) Nepal aims to reduce further its dependence on foreign assistance to 58% of development expenditure.

There was a surge in foreign assistance in the early 1990s as donors sought to support Nepal’s new democratic system. In the past few years donors have publicly lamented the ineffectiveness of aid in alleviating Nepal’s structural economic problems, but so far this has not led to a major decline in aid.

Bilateral and multilateral During the 1990s about 60% of aid was bilateral, coming mainly from Japan, aid is important Germany, the US, the UK and Denmark. China has also been a substantial aid donor. The balance comes from multilateral agencies, mostly in the form of concessional loans. The main multilateral lenders are the Asian Development Bank (ADB), the World Bank through its International Development Association (IDA) lending arm and the various UN agencies.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Nepal 31

Donor countries and agencies co-ordinate their aid policies at meetings of the Nepal Aid Group, established in 1976 and now called the Nepal Development Forum (NDF). The NDF, convened by the World Bank once every two years, includes donors that together provide almost 90% of foreign aid to Nepal. The government has been unable to draw up a foreign aid policy after spending a year considering a draft proposal. At the last NDF meeting, in April 2000, Nepal agreed to push financial sector reforms and private-sector development and also promised to improve aid effectiveness and governance.

External debt is high The increasing use of foreign loans to finance the government’s budget deficit raised the external debt burden dramatically between the mid-1970s and mid-1990s. According to World Bank data, the ratio of external debt to GNP rose from 10.4% in 1980 to 57.6% in 1999. (See Reference table 14 for data on external debt.) The debt/GDP ratio has risen in recent years despite political instability, and plans for investments in infrastructure—some of which are now on the drawing board—show the potential for further increases.

Foreign reserves and the exchange rate

Foreign-exchange reserves Foreign-exchange reserves, minimal until the late 1980s, increased after are sound structural adjustment loans from the World Bank began in 1986/87. Foreign aid has offset the chronic current-account deficit and enabled Nepal to increase its reserves (excluding gold) from US$571.3m in 1996 to US$946.9m in 2000 (see Reference table 15). Aside from foreign aid, an improved current account in the last two years and remittances from Nepalese working abroad have also boosted reserves. The central bank’s estimate of reserves in July 2001 was US$1.4bn.

A de facto peg to the Indian The US dollar and the Indian rupee are the two main currencies for Nepal’s rupee trade transactions. Since 1983 the Nepalese rupee has been tied, in principle, to a basket weighted according to the importance of each main trading currency, with the US dollar as the intervention currency. In practice, however, the exchange rate is pegged to the Indian rupee—a reflection of the high degree of integration between the Indian and Nepalese economies. Since 1993 the exchange rate against the Indian rupee has remained constant at NRs1.6:Rs1. The exchange rate against the US dollar has gradually depreciated in line with the fall of the Indian rupee. A period of volatility followed the deterioration in external sentiment towards India following India’s nuclear tests in 1998, causing the Nepalese rupee to fall from an annual average of NRs58:US$1 in 1997 to NRs71.1:US$1 in 2000. The Nepalese rupee depreciated further in 2001 (Reference table 16 contains historical exchange-rate data).

Appendices

Regional organisations

The South Asian Association The South Asian Association for Regional Co-operation (SAARC), for Regional Co-operation which comprises India, Pakistan, Sri Lanka, Bangladesh, Nepal, the Maldives and Bhutan, was established in 1985 at a meeting in Bangladesh. SAARC’s aims include promoting welfare, accelerating economic growth, eradicating poverty and improving relations between member states.

Summit meetings are intended to be held annually and are complemented by technical committees, meetings of foreign ministers and a standing committee, which comprises the foreign secretaries (civil servants) of each country. An under-resourced secretariat, established in 1987, based in Kathmandu and led by the secretary-general, Nihal Rodrigo, co-ordinates SAARC’s activities.

In the early years agreements were made to establish a food security reserve (an agreement that has never been implemented), to establish a meteorological centre, to combat terrorism and to create various cultural exchanges between member states. Along with micro-level issues, SAARC has also proposed the creation of a South Asian Free-Trade Area (SAFTA). SAFTA, seen as a replacement for the South Asian Preferential Trading Arrangement, which was agreed in 1995 and which had, by 1996, identified more than 2,000 products as eligible for preferential treatment, was initially to be put in place by the ambitious target of 2001. After the 1997 SAARC conference, an eminent persons group was constituted to plot the way forward for the association. The group argued that closer economic ties were the key to the future, and proposed that a free-trade area should be in place by 2008 (2010 for the least developed member states), a customs union in place by 2015 and an economic union by 2020. Political factors weigh against even this prolonged timetable.

India’s refusal to participate in the SAARC summit of 1999, in protest at the military coup in Pakistan, led to the cancellation of summits in 1999 and 2000, although a summit may take place early in 2002. Tensions between India and Pakistan have continually hampered SAARC’s progress on wider issues, although it has been relatively effective in providing a forum for meetings of non-governmental organisations and professional groupings. There is pressure on SAARC from the smaller countries for the association to deal with bilateral issues—much of this pressure stems from the problematic relationship between India and Pakistan. There is a growing feeling that this problem prevents multilateral progress, thus leading to a growing emphasis on bilateral trading relationships. India has signed bilateral free-trade agreements, effectively bypassing SAARC, with Sri Lanka (2000) and Nepal (1996). Bhutan and India also have a free-trade agreement. Much of SAARC’s work is also likely to be superseded by World Trade Organisation (WTO) regulations.

SAARC’s ability to reposition itself as the preferred conduit for bilateral relationships within South Asia is likely to determine the success, or otherwise, of the organisation. SAARC’s success in arranging greater civil society linkages within South Asia contrasts strongly with its failure to boost government-level

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Nepal 33

ties. With the largest members of SAARC, India and Pakistan, engaged in persistent low-level warfare, it is perhaps unsurprising that SAARC has performed poorly on this front.

Sources of information

National statistical sources Economic data on Nepal have improved much in recent years, but still lack full credibility. The first five-year plan (1956-61) failed to use even half of the budget owing to the paucity of data. In the late 1950s Nepal Rastra Bank (the central bank) established a research wing to gather information on various aspects of the economy.

The Department of Census, the first institution to produce data on population in the late 1940s, was renamed the Central Bureau of Statistics and its role expanded during the 1960s to incorporate data on the economy and the social sectors. In the early 1970s the Trade Promotion Centre was established to keep track of Nepal’s trade with the outside world. Today all the important ministries, and the various departments under them, function as conduits of data to the National Planning Commission and the Ministry of Finance. Data collection techniques and analysis models do not always tally between different sources. Data provided by the central bank are considered the most accurate.

The Economic Survey, published annually by the Ministry of Finance at the end of the financial year in July, provides the fullest range of official data. In 2001 this contained 74 tables covering the following: national accounts; agriculture; industry, public enterprises and tourism; energy; transport and communications; trade, the balance of payments and foreign-exchange reserves; money, banking, credit and financial institutions; public finances; consumer prices; and social services. The data are mainly sourced from government ministries and the central bank. The Ministry of Finance also publishes an annual report on targets and performances of public enterprises. The Central Bureau of Statistics publishes biannually a Statistical Year Book of Nepal, which gives information not included in the Economic Survey. In alternate years it publishes the Statistical Pocket Book.

Other national statistical sources include the following.

Central Bureau of Statistics, Census of Manufacturing, 1995, Kathmandu

Central Bureau of Statistics, National Accounts of Nepal, 2000, Kathmandu

Central Bureau of Statistics, Nepal: Living Standards Survey Report, 1996

Civil Aviation Authority of Nepal, Civil Aviation Report 1998, December 1999

Gorkhapatra (official daily), Kathmandu

Himal Khabarpatrika (fortnightly), Kathmandu

Ministry of Finance, Budget Speech (annual), Kathmandu

Ministry of Tourism and Culture, Summary of Tourism Statistics (annual), Kathmandu

National Planning Commission, Five Year Plan, various years, Kathmandu

Nepal Press Digest (weekly), Kathmandu

Nepal Rastra Bank, Economic Report (annual)

Nepal Rastra Bank, Main Economic Indicators (monthly), Kathmandu

Nepal Rastra Bank, Quarterly Economic Bulletin, Kathmandu

Press Council Nepal, 25th Annual Report, 2000

The Kathmandu Post (daily), Kathmandu

The Rising Nepal (official daily), Kathmandu

Internet home pages Asian Development Bank, Nepal page, with links to Key Indicators and economic reports: http://www.adb.org/Nepal

Election Commission: http://www.election-commission.org.np

IMF, Nepal page: http://www.imf.org/external/country/NPL/index.htm

Info-Nepal, a general directory on Nepal: http://www.info-nepal.com

Ministry of Finance, Foreign Aid Co-ordination Division, including the Economic Survey, with extensive data, budget speeches and information on public expenditure: http://www.facd.gov.np

Ministry of Population and Environment, with up-to-date demographic and environmental reports: http://www.mope.gov.np

National Planning Commission (in Nepali and English): http://www.npc.gov.np

Nepal Rastra Bank, the central bank: http://www.nrb.org.np

Nepali Times, an English-language daily: http://www.nepalnews.com

Trade Promotion Centre, with some trade statistics: http://www.tpcnepal.org.np

World Bank, Nepal page: http://lnweb18.worldbank.org/sar/sa.nsf/Nepal

International statistical Asian Development Bank, Country Report on Nepal (annual), Manila sources Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries (annual), Manila

Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner, Middlesex, HA5 5PJ

IMF, IMF Economic Review: Nepal, Washington DC

IMF, Nepal: Recent Economic Developments, Washington DC

IMF, Nepal: 2001 Article IV Consultation, Washington DC

World Bank, Nepal: Poverty and Incomes, Washington DC, 1991

World Bank, Nepal 2000 Economic Update, Kathmandu, March 2000

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Nepal 35

Select bibliography Pradyumna P Karan and Hiroshi Ishii, Nepal: Himalayan Kingdom in Transition, UN University Press, 1996

N Manandhar, Labour Relations Problems and Issues in Nepal, in collaboration with the Friedrich Naumann Foundation, Germany, and the Industrial Relations Forum, July 2001

R D Pant, The Flow of Funds in Nepal, Institute for Economic and Social Studies, Kathmandu, 1995

S R Poudyal, Foreign Trade, Aid and Development in Nepal, Commonwealth Publishers, New Delhi, 1988

Reference tables

These reference tables provide the most up-to-date statistics available at the time of publication.

Reference table 1 Population

1995 1996 1997 1998 1999 Mid-year estimates (m) 20.34 20.83 21.33 21.84 22.37 % change, year on year 2.4 2.4 2.4 2.4 2.4 Source: IMF, International Financial Statistics.

Reference table 2 Energy consumptiona (‘000 tonnes oil equivalent) 1996/97 1997/98 1998/99 1999/2000 2000/01 Traditional 6,185 6,321 6,458 6,473 6,900 Firewood 5,525 5,646 5,769 6,023 6,165 Animal dung 412 421 430 448 457 Agri-waste 248 254 259 272 278 Commercial 677 791 892 1,003 1,087 Petroleum 533 554 635 709 756 Coal 72 160 174 205 223 Electricity72778389108

a Fiscal years July 16th-July 15th.

Source: Ministry of Finance, Economic Survey.

Reference table 3 Government financesa (NRs m) 1996/97 1997/98 1998/99 1999/2000 2000/01b Total revenue 36,362 38,341 41,588 48,303 59,284 Foreign grants 5,988 5,403 4,337 5,720 9,677 Other receipts 30,374 32,938 37,251 42,583 49,607 Total expenditure 50,724 56,118 59,579 67,564 83,225 Current expenditure 24,181 27,174 31,048 34,272 43,461 Development expenditure 26,543 28,944 28,531 33,291 39,764 Fiscal balance –14,362 –17,777 –17,991 –19,261 –23,941 Financed by: Foreign loans 9,044 11,055 11,852 13,650 15,941 Domestic borrowings 3,000 3,400 4,710 5,500 7,000 Banking system 1,500 1,600 2,850 3,300 n/a Non-banking system 1,500 1,800 1,860 2,200 n/a Cash balance (– indicates surplus)c 2,318 3,323 1,429 111 999 a Fiscal years July 16th-July 15th. b Estimates. c Increase in net credit from central bank (monetised deficit).

Sources: Ministry of Finance, Economic Survey; Ministry of Finance, Budget Speech of the Fiscal Year 2000/2001.

Reference table 4 Gross domestic product (factor cost) 1995/96 1996/97 1997/98 1998/99 1999/2000 NRs m At current prices 239,388 269,570 289,798 329,960 365,465 At constant (1984/85) prices 75,773 79,388 82,116 85,789 91,317 % change, year on year 5.7 4.8 3.4 4.5 6.4 Per head (NRs) At current prices 11,769 12,941 13,586 15,108 16,337 At constant (1984/85) prices 3,725 3,811 3,849 3,928 4,082 % change, year on year n/a 2.3 1.0 2.1 3.9 Sources: Ministry of Finance, Economic Survey; IMF, International Financial Statistics.

Reference table 5 Gross domestic product by expenditure (NRs m unless otherwise indicated) 1996 1997 1998 1999 2000 Private consumption 191,469 216,364 231,905 261,693 291,679 Government consumption 23,018 24,987 27,481 32,584 35,188 Gross fixed capital formation 56,081 60,794 66,568 73,554 77,451 Change in stocks 11,936 10,290 8,129 –4,949 1,359 Exports of goods & services 55,405 73,853 68,659 78,150 100,495 Imports of goods & services –88,996 –105,775 –101,941 –101,648 -129,739 GDP 248,913 280,513 300,801 339,384 376,433 Source: IMF, International Financial Statistics.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Nepal 37

Reference table 6 Gross domestic product by sectora (NRs m at current prices; % of total in brackets) 1996/97 1997/98 1998/99 1999/2000 2000/01 Agriculture 108,785 112,495 132,373 142,908 144,420 (40.3) (38.8) (40.1) (39.1) (36.8) Mining & quarrying 1,495 1,553 1,685 1,815 1,981 (0.6) (0.5) (0.5) (0.5) (0.5) Manufacturing 24,816 26,987 30,337 35,387 38,714 (9.2) (9.3) (9.2) (9.7) (9.9) Electricity, gas & water 4,457 4,383 4,574 5,895 7,715 (1.7) (1.5) (1.4) (1.6) (1.96) Construction 29,263 30,483 33,262 36,127 39,331 (10.9) (10.5) (10.1) (9.9) (10.0) Trade, hotels, etc 30,551 33,687 39,313 43,109 45,862 (11.3) (11.6) (11.9) (11.8) (11.7) Transport & communications 19,315 22,598 24,631 29,281 33,322 (7.2) (7.8) (7.5) (8.0) (8.5) Finance & real estate 27,157 29,778 33,203 36,919 40,507 (10.1) (10.3) (10.1) (10.1) (10.3) Social services 23,731 27,782 30,582 34,024 40,680 (8.8) (9.6) (9.3) (9.3) (10.4) GDP at factor costb 269,570 289,746 329,960 365,465 392,532 a Fiscal years July 16th-July 15th. b Before deducting imputed value of bank charges.

Source: Ministry of Finance, Economic Survey.

Reference table 7 Consumer prices, national data (1995/96=100 unless otherwise indicated; period averages) 1995/96 1996/97 1997/98 1998/99 1999/2000a Food & beverages 100.0 108.2 116.6 135.5 136.1 % change n/a 8.2 7.8 16.2 0.4 Non-food items & services 100.0 108.0 117.8 124.6 133.4 % change n/a 8.0 9.1 5.8 7.1 All items 100.0 108.1 117.1 130.4 134.8 % change n/a 8.1 8.3 11.4 3.4 a July 16th-April 15th.

Source: Central Bureau of Statistics, Statistical Year Book of Nepal.

Reference table 8 Consumer prices, IMF data (1995=100 unless otherwise indicated; period averages) 1996 1997 1998 1999 2000 Index 109.2 113.6 125.0 135.1 137.1 % change 9.2 4.0 10.0 8.1 1.5 Source: IMF, International Financial Statistics.

Reference table 9 Money supply and interest rates (%) 1996 1997 1998 1999 2000 Money (M1) 35,544 38,596 45,509 55,107 n/a Quasi-money 58,744 70,555 89,850 109,521 128,068 Money supply (M2) 94,288 109,151 135,359 164,628 n/a % change 12.2 15.8 24.0 21.6 n/a Discount rate (end-period) 11.0 9.0 9.0 9.0 7.5 Treasury-bill rate 11.51 2.52 3.70 4.3 5.3 Lending rate 12.88 14.54 14.00 11.33 9.46 Government bond yield 9.0 9.0 9.0 8.8 8.5 Source: IMF, International Financial Statistics.

Reference table 10 Production index of manufacturing industriesa (1986/87=100 unless otherwise indicated; % change year on year in brackets) Weight (%) 1996/97 1997/98 1998/99 1999/2000 2000/01 Food manufacturing 19.3 309.5 684.4 865.5 944.8 1,052 – (2.3) (121.1) (26.5) (9.2) (11.3) Beverage industries 3.9 257.5 243.3 271.7 305.7 333.2 – (10.2) (–5.5) (11.7) (12.5) (8.9) Tobacco manufacturing 20.1 133.2 136.8 126.1 111.8 100.0 – (–1.7) (2.7) (–7.8) (–11.3) (–10.6) Textiles 18.1 146.4 166.7 158.2 160.7 98.9 – (10.9) (13.9) (–5.1) (1.6) (–38.5) Leather & leather products 2.3 86.5 91.5 79.2 24.2 21.3 – (–2.0) (5.8) (–13.4) (–69.4) (–11.9) Footwear 0.4 454.6 454.6 500.0 537.2 687.6 – (–15.3) (0.0) (10.0) (7.4) (28.0) Wood & wood products 2.0 35.7 18.3 19.7 41.6 43.9 – (12.2) (–48.8) (7.7) (111.2) (5.5) Paper & paper products 0.9 498.5 582.0 714.6 1,471.4 1,518.6 – (17.4) (16.8) (22.8) (106) (3.2) Chemicals 6.1 230.6 265.0 279.6 316.8 325.2 – (7.7) (14.9) (5.5) (13.3) (2.7) Rubber products 0.7 99.9 120.8 131.6 113.7 126.2 – (1.8) (20.9) (8.9) (–13.6) (11.0) Plastic products 1.3 226.6 191.2 201.7 117.2 111.4 – (3.5) (–15.6) (5.4) (–41.9) (–4.9) Non-metallic mineral products 16.9 121.9 87.5 95.9 104.2 113.9 – (–12.1) (–28.2) (9.6) (8.7) (9.3) Iron & steel 3.1 310.7 264.2 308.7 380.2 414.4 – (17.2) (–15.0) (16.8) (23.2) (9.0) Cutlery & hand tools 3.2 56.0 22.1 18.4 12.2 13.5 – (3.4) (–60.6) (–16.7) (–33.7) (10.7) Electrical & industrial machinery 1.9 219.4 209.6 207.4 273.1 219.2 – (28.8) (–4.5) (–1.0) (31.7) (–19.7) Overall index 100.0 185.4 255.1 292.5 317.8 329.3 – (3.0) (37.6) (14.7) (8.6) (3.6) a Fiscal years July 16th-July 15th.

Source: Ministry of Finance, Economic Survey.

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Nepal 39

Reference table 11 Tourism

1996 1997 1998 1999 2000a Arrivals by land (‘000) 50.3 50.8 65.7 70.3 70.4 Arrivals by air (‘000) 343.3 371.1 398.0 421.2 376.5 Tourist arrivals (‘000) 393.6 421.9 463.7 491.5 447.0 % change 8.3 7.2 9.9 6.0 –9.1 Average length of stay (days) 13.5 10.5 10.8 12.8 12.0 Tourist expenditure (NRs m)b 9,521 8,523 9,882 12,168 12,074

a Calendar-year estimates. b Fiscal year ending July 15th.

Source: Ministry of Finance, Economic Survey.

Reference table 12 Foreign tradea (NRs m; current prices) 1995/96 1996/97 1997/98 1998/99 1999/2000 Exports 19,881.1 22,636.5 27,467.7 35,676.3 51,623.0 Food & live animals 1,946.6 2,661.7 3,197.6 3,724.5 5,390.9 Tobacco & beverages 9.7 14.9 27.3 50.0 110.4 Raw materials & inedible oils 768.7 663.5 525.9 469.9 526.8 Mineral fuels & lubricants 1.3 1.4 20.9 0.5 2.0 Animal & vegetable oils & fats 251.3 312.6 1,933.8 3,597.2 3605.6 Chemicals & drugs 640.4 1,353.4 2,108.6 2,804.0 4075.8 Manufactured goods classified by materials 10,455.7 11,028.6 11,522.1 13,539.6 16,013.7 Machinery & transport equipment 35.2 59.6 58.0 97.8 384.2 Miscellaneous manufactured articles 5,772.2 6,540.3 8073.7 11,392.8 21,513.6 Commodities & transactions not classified 0.0 0.5 0.0 0.0 0.0 Imports 74,454.5 93,553.4 88,796.5 87,525.3 106,966.8 Food & live animals 4,785.8 5,400.5 5,303.9 7,619.5 10,734.7 Tobacco & beverages 508.6 590.7 733.3 846.1 941.2 Raw materials & inedible oils 4,865.9 5,487.1 6,912.3 6,246.7 7,232.0 Mineral fuels & lubricants 5,549.3 7,160.3 9,552.6 8,737.5 9,113.9 Animal & vegetable oils & fats 2,830.9 2,327.6 2,023.0 3,329.0 4445.9 Chemicals & drugs 8,686.8 8,504.2 10,567.2 12,476.4 15,464.6 Manufactured goods classified by materials 28,129.7 44,741.9 32,409.4 25,638.0 33,408.8 Machinery & transport equipment 15,301.1 13,794.9 16,831.9 18,063.7 20,227.4 Miscellaneous manufactured articles 3,794.6 4,016.4 4,116.3 4,302.4 5,320.2 Commodities & transactions not classified 1.8 1,529.8 346.6 266 78.1 a Fiscal years July 16th-July15th.

Source: Ministry of Finance, Economic Survey.

Reference table 13 Balance of payments, IMF series (US$ m) 1995 1996 1997 1998 1999 Goods: exports fob 349.9 388.7 413.8 482.0 708.8 Goods: imports fob –1,310.8 –1,494.7 –1,691.9 –1,239.1 –1589.5 Trade balance –960.9 –1,106.0 –1,278.1 –757.1 –880.7 Services: credit 679.0 757.5 865.7 565.1 499.5 Services: debit –313.3 –242.8 –224.5 –196.2 –212.5 Income: credit 43.6 33.1 31.9 45.4 55.8 Income: debit –34.9 –32.0 –28.6 –26.5 –28.4 Current transfers: credit 239.2 281.6 267.4 326.0 603.8 Current transfers: debit –9.1 –18.0 –21.8 –24.1 –26.9 Current-account balance –356.4 –326.6 –388.1 –67.2 10.6 Direct investment abroad ––––– Direct investment in Nepal – 19.2 23.1 12.0 4.4 Portfolio investment assets––––– Portfolio investment liabilities––––– Other investment assets 264.4 91.6 89.4 90.8 –83.6 Other investment liabilities 104.1 164.5 227.8 110.0 113.1 Financial balance 368.5 275.2 340.3 212.9 33.8 Capital-account balance ––––111.2 Net errors & omissions 2.8 82.3 216.6 134.0 –25.4 Overall balance 15.0 30.9 168.8 279.7 130.2 Memorandum item Total change in reserve assets (– indicates inflow) –15.0 –30.9 –168.8 –279.7 –130.2 Source: IMF, International Financial Statistics.

Reference table 14 External debt, World Bank estimates (US$ m unless otherwise indicated) 1995 1996 1997 1998 1999 Total external debt 2,418 2,411 2,390 2,646 2,970 Long-term debta 2,347 2,346 2,332 2,591 2,910 Short-term debt 23 26 28 31 43 Use of IMF credit 48 39 30 24 18 Public & publicly guaranteed long-term debt 2,347 2,346 2,332 2,591 2,910 Official creditors 2,281 2,285 2,285 2,555 2,891 Multilateral 1,952 1,986 1,989 2,233 2,541 Bilateral 329 299 296 322 350 Private creditors 65 60 47 36 19 Commercial banks 0 0 0 0 0 Other private 6560473619 Total debt service 84789888107 Principal 53 47 70 61 75 Interest 32 31 28 27 32 of which: short-term debt 2 1 1 2 2 continued

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Nepal 41

1995 1996 1997 1998 1999 Ratios (%) Total external debt/GNP 53.9 52.7 47.8 53.5 57.6 Debt-service ratiob 7.0 7.0 6.9 7.0 7.9 Short-term debt/total external debt 1.0 1.1 1.2 1.2 1.4 Concessional long-term loans/ long-term debt 94.2 94.7 95.5 96.5 97.3

a Original maturity of more than one year. b Debt service as a percentage of exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 15 Foreign reserves (US$ m unless otherwise indicated) 1996 1997 1998 1999 2000 SDRs –0.1–0.2– Reserve position at the IMF 8.2 7.7 8.1 7.9 7.5 Foreign exchange 563.1 618.4 748.2 834.9 939.4 Total reserves excl gold 571.3 626.2 756.3 843.1 946.9 Gold (national valuation) 6.6 6.6 48.3 48.1 45.5 Total reserves incl gold 577.9 632.8 804.6 891.2 992.4 Source: IMF, International Financial Statistics.

Reference table 16 Exchange rates

1996 1997 1998 1999 2000 NRs:US$ (end-period) 57.03 63.30 67.68 68.73 74.30 NRs:US$ (av) 56.69 58.01 65.98 68.24 71.09 NRs:Rs 1.60 1.60 1.60 1.60 1.60 NRs:SDR 82.01 85.41 95.29 94.33 96.81 Source: IMF, International Financial Statistics.

Mongolia

Basic data

Land area 1,566,500 sq km

Population 2.4m (2000)

Main towns Population (2000)

Ulaanbaatar (capital) 786,500 Darkhan 84,800 Erdenet 76,000

Climate Continental, with extremes of temperature

Weather in Ulaanbaatar Rainy season, June-August; mean winter temperature, –20°C; mean summer (altitude 1,350 metres) temperature, 15°C but with wide daily fluctuations

Language Mongolian

Measures Metric system

Currency Togrog. Average free market rate in 2000: Tg1,077:US$1. Exchange rate on October 30th 2001: Tg1,099:US$1

Fiscal year January-December

Time Eight hours ahead of GMT

Public holidays New Year’s Day, January 1st; Mongolian Lunar New Year, three days in January or February; Women and Children’s Day, June 1st; National Days, Naadam, July 11th-13th; Republic Day, November 26th; New Year’s Eve, December 31st

Politics

An immature democracy In 1990 the Soviet-backed, one-party state gave way to a more democratic political system. The transition has, however, not been easy. The Democratic Coalition came to power in 1996 but the unity of its member parties was shaky and easily undermined by the former communists, who remain a strong force in Mongolian politics. Three prime ministers have resigned since 1996, and the Democratic Coalition collapsed in early 2000. The former communists went on to win the 2000 election and the 2001 presidential election.

Political development

The MPRP rules a Soviet- In 1911 Mongolia separated from China and established a theocracy. In 1921 style state the Mongolian People’s Party (renamed the Mongolian People’s Revolutionary Party, or MPRP, in 1925) took power with the backing of the Soviet Union and Mongolia became a republic in 1924. The MPRP was the only party permitted until 1990. It was heavily influenced by the Communist Party of the Soviet Union and modelled Mongolia’s political and economic systems on those of the Soviet Union. Soviet aid helped to transform and modernise Mongolia.

Single party rule gives way A series of pro-democracy demonstrations from December 1989 forced the to democracy MPRP to surrender its “guiding role” in Mongolia. The constitution was amended and a free election for the national assembly, the People’s Great Khural, was held in July 1990. Although the MPRP gained 80% of the seats, four new parties and some independents were also represented. The Great Khural elected Punsalmaagiin Ochirbat, a former member of the MPRP, as Mongolia’s first democratic president.

Democrats win the 1996 A new constitution was adopted in February 1992, replacing the People’s Great election Khural with a unicameral, 76-seat State Great Khural as parliament. In the election for the new body in June 1992, the MPRP won 70 seats. The MPRP government subsequently clashed with the president, Mr Ochirbat, when he vetoed legislation that he regarded as unconstitutional. Mr Ochirbat lost the backing of the ruling party but won Mongolia’s first direct presidential election in June 1993 as the opposition candidate. In June 1996 the Democratic Coalition of the Mongolian National Democratic Party (MNDP) and the Mongolian Social Democratic Party (MSDP) won 49 of the 76 seats in parliament, one short of the quorum required to pass laws. The leader of the MNDP, Mendsaikhany Enkhsaikhan, became prime minister.

Unstable governments In 1997 the MPRP made a come-back when its candidate, Natsagiin Bagabandi, won the presidential election and the MPRP leader, Nambaryn Enkhbayar, won a parliamentary by-election. The MPRP mounted an aggressive opposition and, by boycotting parliament, thus preventing the formation of a quorum, was able to block legislation. In a bid to increase its power, parliament in 1998 amended the government law to allow parliamentary representatives to serve as ministers. In April 1998 Mr Enkhsaikhan was replaced as prime minister by

the parliamentary leader of the MNDP, Tsakhiagiin Elbegdorj, whose government lasted only until July, when the MPRP managed to bring it down over a controversial bank merger. For the next five months there was no proper government because the president refused to accept any prime ministerial candidate proposed by the Democratic Coalition on the grounds that they were all parliamentary representatives.

The constitutional crisis The Constitutional Court ruled that the government law amendments were continues unconstitutional and the mayor of Ulaanbaatar and the leader of the MNDP, Janlavyn Narantsatsralt, who was not a parliamentary representative, became prime minister in December 1998. He, however, was forced to resign in July 1999 for approving the sale at “fire sale” prices of Russian shares in Erdenet, a Mongolian-Russian joint venture. A parliamentary representative, Rinchinnyamyn Amarjargal, of the MNDP, gave up his seat to become prime minister and saw out the rest of the term, which ended in June 2000. In December 1999 parliament, in a rare show of consensus, amended the constitution to allow parliamentary representatives to serve as ministers.

The Democratic Coalition The political crises of 1998 and 1999 and MPRP opposition weakened the unity disintegrates of the Democratic Coalition. In early 2000 some MNDP members left the party to form two new parties, while the MSDP split from the MNDP to fight the 2000 election independently. The MPRP, campaigning as the party of unity and experience, won 72 of the 76 seats, allowing its leader, Mr Enkhbayar, to form a government in July 2000. In December 2000 five democratic parties, including the MNDP and the MSDP, merged to form the Democratic Party (DP). So far, however, the DP has been unable to gain public confidence and has had little influence. The popular Enkhbayar government, which includes some parliamentary representatives, seemed in jeopardy when the Constitutional Court ruled against the December 1999 constitutional amendments that allowed parliamentary representatives to serve in government. The president, Mr Bagabandi, had initially sided with the Constitutional Court, but gave his approval to the amendments in May 2001 after winning a second presidential term as the candidate of the MPRP.

Constitution, institutions and administration

President, legislature and Under the constitution of February 1992 the head of state is a directly Constitutional Court elected president who serves a four-year term. The president also presides over the National Security Council and the armed forces. The legislature is the State Great Khural, a unicameral body of 76 members, elected for a four- year term. The president has the power to veto legislation but can be overruled by a two-thirds majority in the State Great Khural. Under the constitution, the judiciary is independent of both the legislature and the president. In practice, the political parties are thought to have some influence over the judiciary through their role in appointing judges. A separate Constitutional Court rules on questions of the legality of legislation and the activities of members of the government.

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Administratively, Mongolia is divided into 21 aimags (provinces), which include three urban areas, the capital, Ulaanbaatar, Darkhan-Uul and Orkhon (Erdenet). The aimags are divided into sums and sums into bags, each with elected assemblies. All families have a right to be represented at the bag assembly. The bag assemblies elect the sum assemblies and the sum assemblies elects the aimag assembly. Aimag governors are proposed by the aimag assemblies and approved by the prime minister.

Important recent events

1997: The incumbent, Punsalmaagiin Ochirbat, is defeated by the presidential candidate of the Mongolian People’s Revolutionary Party (MPRP), Natsagiin Bagabandi, in the May presidential election.

1998: The government law is amended to allow parliamentary representatives to serve as ministers. Consequently, Mendsaikhany Enkhsaikhan is replaced as prime minister by the leader of the parliamentary caucus of the Mongolian National Democratic Party (MNDP), Tsakhiagiin Elbegdorj, in April. The new government is forced to resign in July after a vote of no-confidence following a controversial bank merger. The amendment is subsequently overturned. In December the new MNDP leader, Janlavyn Narantsatsralt, takes office as prime minister.

1999: The Narantsatsralt government falls in July because of a Russian share sale scandal. Rinchinnyamyn Amarjargal becomes prime minister at end-July and the previous cabinet is reappointed. In October three democratic parliamentary representatives are jailed for corruption. The constitution is amended in December to allow parliamentary representatives to serve as ministers.

2000: Members of the MNDP resign to form the Mongolian Democratic Party and the Civil Courage Party, causing the collapse of the Democratic Coalition government (of which the MNDP was a member). The Constitutional Court declares the constitutional amendments illegal. The MPRP wins a landslide general election in July and Nambaryn Enkhbayar becomes prime minister. In November the Constitutional Court again rules against the constitutional amendments. Five democratic parties including the MNDP and the MSDP merge to form the Democratic Party.

2001: Natsagiin Bagabandi wins a second term of office in May and signs the constitutional amendments allowing parliamentary representatives to serve in government.

Political forces

The former communists are The MPRP, founded in 1920 as the Mongolian People’s Party, was the only still a powerful force political party in Mongolia until the 1990s. Initially communist, the MPRP now regards itself as a social democratic party. In 1990 the formation of other parties was legalised. The Mongolian National Democratic Party (MNDP) and the Mongolian Social Democratic Party (MSDP), which made up the Democratic Coalition, were the most important of the other parties until their

defeat in the 2000 election. In December 2000 they merged with three other parties to form the Democratic Party, with an estimated membership of 130,000 and two seats in parliament.

Lobby groups and NGOs In addition to the political parties, there are also pressure groups, such as the play a role Mongolian Democratic Union, which spearheaded demands for reform in 1989-1990. A law on non-governmental organisations (NGOs), in force since 1997, has improved the status of lobby groups and NGOs are active in promoting human rights within civil society. Women’s NGOs are working to improve social and economic conditions for women, whose presence in national politics is small.

Main political figures

Natsagiin Bagabandi: The current president and the chairman of the State Great Khural (parliament) in 1992-96. He won the 1997 presidential election as the Mongolian People’s Revolutionary Party (MPRP) candidate. His repeated opposition to legislation allowing parliamentary representatives to serve in government led to the charge that he was seeking to expand the presidential role. This charge looks less salient since he agreed to such constitutional amendments, after being re-elected in May 2001.

Nambaryn Enkhbayar: The prime minister since July 2000 and the leader of the MPRP since 1996, he was formerly an official of the Writers’ Union and minister of culture in 1992-96. He was a fierce opponent of the Democratic Coalition and its reform programme. He led MPRP boycotts of parliament, staying away for eight weeks before the fall of the government of the former prime minister, Tsakhiagiin Elbegdorj.

Chultemiin Ulaan: Minister of finance and economics since 2000 and a parliamentary representative since 1996, he trained as an engineer and in economics and management. He was chairman of the National Development Board in 1992-96, is experienced in government and parliament and wields influence within the MPRP.

Dambyn Dorligjav: He became the first chairman of the Mongolian National Democratic Party (MNDP) in December 2000 and was re-elected to the post in September 2001. He was deputy prime minister in 1990-92, minister of defence in 1996-98 and general director of Erdenet, a Russian- Mongolian mining venture in 1998-2000.

Sanjbegziin Tomorchir: The chairman of the State Great Khural from October 2001 and a member of the MPRP, he was minister of education in 1992-96.

International relations and defence

Traditional relations are Until the early 1990s Mongolian foreign relations were conducted almost shifting exclusively with the Soviet Union and other countries of the Council for Mutual Economic Assistance (Comecon, the communist states’ economic bloc). The end of the cold war and subsequent withdrawal of Soviet troops

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Mongolia 47

from the Sino-Mongolian border have allowed the development of a new foreign policy based on pragmatic economic considerations rather than ideology. Mongolia has sought to balance its relations with China and Russia. It has also built up relations with countries such as Japan, South Korea and the US, as well as with the EU, all of which are major aid donors. Membership of regional organisations is also an objective. Mongolia joined the Association of South-East Asian Nations (ASEAN) Regional Forum in 1998 and is seeking membership of the Asia-Pacific Economic Co-operation (APEC) forum.

Armed forces, 2000/01

Defence forces 9,100 of which: army 7,500 air force 800 Paramilitary (mainly border guards) 7,200 Reserves 140,000 Source: International Institute for Strategic Studies, The Military Balance 2000/2001.

Resources and infrastructure

Population

Sparsely settled and Mongolia’s population doubled between 1960 and 1990, and as a result one- urbanising third of the population is under 15 years of age. Population density is low at 1.5 people per sq km. Population growth has averaged 1.4% per year since 1989, compared with the government target of 1.8%. Migration from rural to urban areas is a significant trend and 32% of the population now lives in Ulaanbaatar. (See Reference table 1 for historical population data.)

Real unemployment, including underemployment, is estimated at about 20% of the working population and is higher in urban than in rural areas. Of the unemployed, 60% are under 35 years of age. Poverty increased in the 1990s, stabilising at around 36% of the population in 1999. (See Reference table 2 for historical labour force data.)

Population and health indicators, 2000 (per 1,000 population unless otherwise indicated) Total population (m) 2.4 Population growth rate (%) 1.4 Life expectancy (years) 61.9 Crude birth rate 20.4 Crude death rate 6.5 Infant mortality (per 1,000 live births) 32.8 Maternal mortality (per 100,000 live births)a 150

a 1999.

Sources: National Statistical Office of Mongolia, Mongolian Statistical Yearbook 2000; UN Development Programme, Human Development Report 2001.

Education and health

Education is being Under communism, both education and health were fully funded by the state. restructured Hence, Mongolia has a pool of highly literate and well educated people. Education is now provided by both the state and the private sector. The proportion of the state budget spent on education rose from 14.8% in 1996 to 19.1% in 2000. The increased expenditure reflects a restructuring programme being carried out with the support of the Asian Development Bank (ADB) that aims to improve education provision in rural areas, rationalise the use of personnel and cut school drop-out rates. Free state education is available at primary and secondary levels, and vocational and tertiary education is partly state funded.

Health reforms are External humanitarian aid, combined with the government’s Poverty under way Alleviation Programme, ensured that the basic indicators of health improved in the 1990s. By 2000 infant mortality had fallen to 32.8 per 1,000 live births from 64.4 in 1990, and the overall death rate fell to 6.5 per 1,000 people from 8.5 over the same period. Government spending on health fell in the first half of the 1990s and, as a consequence, rural health services declined while many poor people found health insurance unaffordable. Between 1996 and 2000 health expenditure rose as a percentage of government expenditure from 10% to 10.6%. But as total government expenditure grew rapidly over the period, health expenditure more than doubled in nominal terms as consumer prices rose by about 60%. The increased health expenditure in the late 1990s financed reforms to provide more primary care and preventive medicine and make better use of health workers.

Natural resources and the environment

Mineral rich but water is Mongolia’s 1.6m-sq km land area includes mountain, forest, steppe and semi- scarce desert regions. Mongolia is rich in mineral, with oil reserves and deposits of other ores. Of the land area, 81% is designated pasture land, where camels, horses, cattle, sheep and goats are reared. The severe continental climate restricts other agricultural activities. Water is scarce and the growing season lasts no more than 100 days. Land quality is also limited by desertification, which affects 30% of pasture, and by overgrazing, especially by goats.

Transport, communications and the Internet

Aid improves transport The most crucial transportation link is the Ulaanbaatar Railway, which carries infrastructure freight and passengers into Russia, China and beyond. It serves the three largest industrial conurbations, Ulaanbaatar, Darkhan and Erdenet. Transport within Mongolia is limited by a poor road network (only 1,471 km of roads were paved in 1996), limited supplies of imported fuel and the indebtedness of the national air carrier, Mongolian Civil Air Transport (MIAT, according to the Mongolian abbreviation). The transport network is being refurbished with external aid and the construction of an east-west arterial road began in 2001. The government is preparing MIAT for privatisation.

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Internet links are extended Telecommunications improved considerably in the 1990s. Direct international to some provinces calls can be made to and from many parts of Mongolia and fax machines are becoming increasingly available. Ulaanbaatar established its first Internet link in 1996 and other areas gained access in 1999. State control of the media has been banned since January 1st 1999. But the transition of the state press to the private sector and the formation of a public broadcasting corporation are not yet complete.

Energy provision

Coal-fired power stations A grid powered by five coal-fired power stations supplies the main industrial undergo refurbishment region with electricity and heat. A new grid serves the three western aimags and both grids are linked to the Russian electricity network. Hydroelectric power stations and renewable energy systems are beginning to replace some of the small provincial diesel stations. The whole system is, however, in debt and power cuts are common. The government is preparing to preparing to privatise the production and supply of power but will retain control of transmission. Communities without electricity still use wood or dried dung as fuel.

Energy balance, 2000 (m tonnes oil equivalent) Oil Gas Coal Electricity Other Total Primary production 0.01 0.00 1.90 0.00 0.10 2.01 Imports 0.45 0.00 0.01 0.07a 0.00 0.53 Exports –0.01 0.00 0.00 0.00 0.00 –0.01 Primary supply 0.45 0.00 1.91 0.07a 0.10 2.53 Losses & transfers –0.12 0.00 –0.70 –0.12 0.00 –0.94 Net transformation 0.00 0.00 0.00 0.26b 0.00 0.26 Final consumption 0.33 0.00 1.21 0.21b 0.10 1.85 a Expressed as input equivalents, on an assumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

The economy

Economic structure

Main economic indicators, 2000

Real GDP growth (% change, year on year) 1.1 Consumer price inflation (av; %) 11.8 Current-account balance (US$ m)a –112.2 Exchange rate (av; Tg:US$) 1,076.7 Population (m) 2.4

a 1999.

Sources: IMF, International Financial Statistics; EIU.

Agriculture is more Mongolia depended almost exclusively on livestock herding until the 1960s. important than industry An industrial sector developed from 1960 to 1980 with Council for Mutual Economic Assistance (Comecon, the communist states’ economic bloc) aid, and by the mid-1970s industrial production had overtaken agricultural output. By 1990 industry (excluding construction) accounted for 35.6% of GDP and agriculture for 19.5%. In 1991 the assets of herding collectives and state farms were privatised and prices liberalised. Herds grew from 25.5m head in 1991 to 33.5m in 1999. Agriculture accounted for 40% of real GDP in 1998, but adverse weather conditions, particularly in early 2000, caused the sector to decline to account for 33.2% of GDP in 2000.

Comparative economic indicators, 2000

Mongolia China Malaysia Russia Thailand GDP (US$ bn) 1.0 1,100.5 89.3 251.1 122.2 GDP per head (US$) 406 870 3,840 1,729 1,966 Consumer prices (av; % change) 11.8 0.4 1.5 20.8 1.6 Exports of goods (US$ m) 466.1 249.1 98.1 105.6 67.9 Imports of goods (US$ m) 614.5 214.7 76.9 –44.9 57.2 Current-account balance (% of GDP) –6.3 1.9 9.6 18.4 7.5 Sources: EIU; national sources; Asian Development Bank (ADB), Key Indicators.

Economic policy

Central planning Until the early 1990s the economy was managed using a central planning dominates until the 1990s model similar to that of the Soviet Union and co-ordinated with the plans of other Comecon countries. Modernisation had already begun with Soviet and Chinese aid in the 1950s and collectivisation was completed in 1959. From the 1960s Comecon aid promoted the rapid expansion of industry, infrastructure and urbanisation. In the 1970s mining developed through joint ventures with the Soviet Union, Czechoslovakia and Bulgaria.

The move to a market-led In 1990 Mongolia turned its back on the command economy and opted for a system market-led system. A rapid transition was to be achieved by “shock therapy” through three main mechanisms—privatisation, currency reform and price and wage liberalisation. In 1991 Mongolia joined the World Bank, the IMF and the Asian Development Bank (ADB), which agreed to help the country to overcome the difficulties created by the loss of Soviet aid and the guaranteed deliveries and external markets that Comecon had provided.

Government finances In the 1980s the Soviet Union covered up to one-third of Mongolia’s budget remain firmly in deficit deficit, equivalent to 17.6% of GDP in 1986-90. From 1991 the government began to cut spending and from 1993 the IMF supported the budget as revenue reforms helped to reduce the deficit to 5.5% of GDP in 1993-97. In 1997 the ruling Democratic Coalition made further cuts, simplified taxes and introduced value-added tax (VAT). At the same time the government introduced a radical, new privatisation programme to raise additional revenue. It was widely opposed both in parliament and elsewhere on the grounds that it would damage national security, but the programme is now going ahead. In addition,

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Mongolia 51

Mongolia was adversely affected by the Asian financial crisis of 1997-98 and suffered a further loss of income as a result of the Russian crisis in 1999. (See Reference tables 3-5 for data on government finances.)

Government finances, 2000 (Tg m) Total revenue 350,202 Current revenue 339,664 Tax 274,109 Non-tax 65,556 Capital revenue 7,470 Grants 3,068 Total expenditure 412,927 Current expenditure 305,055 Capital expenditure 36,573 Net lending 71,298 Budget balance –62,725 % of GDP –6.0 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook 2000.

The central bank restrains In the early years of the reform period growth in money supply was rapid. In money supply growth 1993 broad money supply (M2) grew by 228% year on year. The Bank of Mongolia (the central bank) has had some success in taming this rapid growth, partly through the imposition of credit controls. In 1996-2000 M2 growth averaged 20.5%. But the rate of M2 growth has been volatile, fluctuating between –1.7% in 1998, when it was pulled down as a consequence of the Asian financial crisis, and 42.2% in 1997. In 1999 the Bank of Mongolia established monetary policy guidelines consistent with IMF agreements aimed at stabilising the togrog, holding down inflation and increasing net reserves to enable Mongolia to manage external shocks better and reduce poverty. As a consequence, the rate of M2 growth slowed from 31.6% in 1999 to 17.6% in 2000.

Major tax reforms

1997: The government introduces new income tax rates and a simplified and progressive business tax, and abolishes most customs tariffs.

1998: On July 1st the government introduces a 10% value-added tax, but quickly raises it to 13% in an attempt to close the widening budget deficit. The government imposes a 10% gold export tax on November 6th.

1999: The government reinstates a 10% customs duty on all imported goods, except medical equipment.

Economic performance

A severe contraction in the According to ADB figures, GDP grew at an annual average rate of 6.2% during early 1990s the 1980s. The collapse of Comecon in 1990-91 had a severe impact on Mongolia’s economy, ending investments and subsidised deliveries of raw materials, spare parts and consumer goods. A shortage of foreign exchange

reduced oil deliveries and damaged transport and energy production. As a result, GDP contracted by 9.5% in 1992.

Gross domestic product (% real change) Annual average 2000 1996-2000 GDP 1.1 2.8 Regional comparisons China 7.9 8.3 Russia 8.3 1.1 Kazakhstan 9.6 2.4 Sources: ADB; EIU, CountryData.

GDP grows steadily in GDP has risen in real terms every year from 1996 to 2000 at an annual average the late 1990s rate of 2.8%. Output in the livestock sector soared after privatisation. Industries producing for export, especially the copper, gold and cashmere industries, benefited from high export prices in the mid-1990s. Meanwhile, medium-term aid for infrastructure strengthened transport and communications. By 1996 the private sector was contributing around two-thirds of GDP. Recovery was mixed, however, and state-sector industries in need of renovation, especially those based on agricultural inputs, were still struggling. Falling world prices for Mongolia’s exports, a slowdown in the privatisation programme and the loss of livestock in harsh weather in early 2000 and 2001 held real GDP growth to 1.1% in 2000. (See Reference tables 7-9 for GDP data).

Inflation (% change, year on year) Annual average 2000 1996-2000 Consumer prices 11.8 15.8a Regional comparisons China 0.4 1.8 Russia 20.8 37.1 Kazakhstan 13.5 16.6

a 1997-2000.

Sources: IMF, International Financial Statistics; ADB, Key Indicators; EIU, CountryData.

Inflation falls Inflation soared to 325% in early 1993 because of price and wage liberalisation and the rapid fall in the value of the togrog Thereafter, price increases slowed to an annual average of 9.6% in 1998-2000. (See Reference table 10 for historical inflation data.)

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Economic sectors

Agriculture and forestry

The agricultural sector is The government has progressively liberalised the agricultural sector since the progressively liberalised early 1990s. Privatisation of negdel (herding collectives) assets began in September 1991. By the latter part of 1992 most government procurement had ceased; the exception was meat, which was still rationed. During this period many herdsmen reverted to a subsistence economy, discouraged from selling livestock products by low domestic prices. As a result, there was a slump in the agro-processing industry.

The government has also liberalised the arable sector. It disposed of the assets of state farms in 1991 to create over 300 small farms. Arable production then fell because farmers lacked access to funds and the management skills needed to operate the new enterprises. The area of land under cultivation fell steadily. Cereal yields per hectare fell from 1,100 kg/ha in 1990 to 730 kg/ha in 1995, according to the National Statistical Office, and remained at the same level in 2000. A similar trend is evident in potato yields, which have still not recovered to 1990 levels. Since 1997 family vegetable gardens set up under the Green Revolution programme have provided additional produce. (See Reference tables 11-13 for historical data on crop, livestock and meat production.)

Mining and semi-processing

The government is The government has been keen to push for further development of the mining promoting mining sector. A new mining law, passed in June 1997, simplifies the procedure for mining exploration and reduces licence fees. Mongolia has an estimated 100bn tonnes of coal reserves and about 17 productive but loss-making mines. The Erdenet Company, owned by Mongolian and Russian interests, produces copper concentrates and molybdenum. Together with related processing concerns, Erdenet generates the majority of Mongolia’s export earnings. Other mining joint ventures include six fluorspar mines. Gold extraction has risen dramatically since 1993 to reach 11.8 tonnes in 2000. Mongolia also has an estimated 5bn barrels of oil reserves. Mongolia began exporting oil to China in 1998 and began construction of a refinery in 2000. (See Reference table 14 for data on mineral production.)

Manufacturing

Privatisation is slow Until the 1990s most industries were state-owned and the pattern of industrial development was based on trade relations with the Soviet Union and the Council for Mutual Economic Assistance (Comecon, the communist states’ economic bloc). The collapse of Comecon inflicted much damage on Mongolian industry in 1991-93. Since then the industrial sector has begun to recover in real terms. Reform of industry began in 1991 with the break-up of large enterprises and some privatisation, although the state has usually

retained a majority share in privatised entities. Two major problems for industry are the inability to procure enough raw materials to run large production lines and insufficient investment. The privatisation programme of 1997-2000 set out to boost investment, but widespread opposition has delayed results. (See Reference table 15 for output data of selected industrial products.)

Construction

Heavily dependent on Much construction was carried out by Soviet and Mongolian teams during the foreign aid 1970s and 1980s. In the 1990s the Soviet builders departed and the Mongolian teams were split up into smaller construction companies. But a shortage of funds and materials resulted in unfinished buildings, which were rapidly stripped, and high rates of unemployment. The start of projects financed with foreign aid—almost half of all building work in 1996—is now helping to regenerate the construction industry. About 50% of the work is carried out by Mongolian companies.

Financial services

Reforms are in progress Since 1990 successive governments have progressively reformed the monolithic banking system. In 1991 the central and commercial functions of the Bank of Mongolia (the central bank) were separated. Initially, two commercial banks were created to provide loans and hold the accounts of individuals and companies. More commercial banks opened but the system was weak, and by 1996 over 50% of loans were classified as non-performing. Under a new banking law that came into force in 1996 minimum reserve requirements were raised and credit ceilings enforced. Financial restructuring is now under way with the help of the World Bank and the IMF. Seven insolvent banks had their licences revoked in 1999. The remaining 12 comprise six state-owned and six private banks. The government is preparing some of the state-owned banks for privatisation. Non-bank financial institutions, such as savings and credit unions, are emerging to provide services for smaller enterprises and individuals.

Other services

Tourism In spite of limited accommodation and transport facilities, Mongolia’s popularity as a tourist venue is growing. In 2000 158,205 people visited Mongolia, including 33,232 tourists, 81,535 business visitors and 17,794 official visitors. In 1998 tourism accounted for 3.7% of GDP. A National Tourism Development Plan is running from 2000 to 2015.

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The external sector

Trade in goods

Foreign trade, 2000 (US$ m; customs basis) Merchandise exports fob 466.1 Merchandise imports cif 614.5 Trade balance –148.4 Source: Asian Development Bank.

Poor export performance According to figures from the Asian Development Bank (ADB), Mongolia results in trade deficits recorded trade deficits throughout the 1980s. The deficit lessened with the collapse of the Council for Mutual Economic Assistance (Comecon, the communist states’ economic bloc) in 1990-91 and a surplus was recorded in the early 1990s. This was, however, largely a result of a collapse in imports rather than an improvement in exports. In the second half of the 1990s the trade balance deteriorated, and a deficit of US$148.4m was recorded in 2000.

The renewed trade deficit has been partly the result of poor export performance. Mongolia is heavily dependent on commodity exports. Mineral products, of which copper concentrate is the largest single item, accounted for 41% of total export earnings in 2000. This makes the economy vulnerable to shifts in world commodity prices. The volume of mineral exports has increased: copper concentrate exports rose to 496,000 tonnes in 2000 from 347,500 tonnes in 1990. But the share of mineral exports in total export earnings has fallen from the 65.5% recorded in 1995. Mongolia also exports agricultural commodity goods, such as cashmere—Mongolia accounts for 30% of worldwide cashmere production—textiles, and meat and meat products.

Recent changes in the In 2000 Russia, previously Mongolia’s principal export market, purchased only direction of trade 9.7% of Mongolian exports. China has become an increasingly important trade partner since 1990, accounting for 58.9% of Mongolian exports in 2000 and supplying 20.5% of its imports. Other important trading partners include Japan, South Korea and the EU. (See Reference table 16 for data on main trading partners.)

Main trading partners, 2000

Exports fob to: % Imports cif from: % China 58.9 Russia 33.6 US 19.9 China 20.5 Russia 9.7 Japan 12.0 Italy 3.1 South Korea 9.0 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook 2000.

Changes in trade regulations

1994: The government reduces import duty on 33 staple food items and manufacturing inputs from 10% to zero. It imposes a 100% rate of import duty on luxury items such as alcohol, and bans the export of a small number of commodities, including rare species and gold.

1997: Mongolia joins the World Trade Organisation (WTO). The government abolishes import duty on all but a few items, such as alcohol, tobacco, oil products and motor vehicles.

1998: The government reimposes a seasonal 15% import duty on all flour and vegetable imports.

1999: The government reimposes an import duty of 5% on all goods except medical equipment.

2000: The government increases the general import duty rate to 7%.

Invisibles and the current account

Chronic current-account The current account was chronically in deficit in the 1980s, because of deficits persistent imbalances in trade with Comecon countries. The changes of the early 1990s, which helped to reduce the trade deficit (balance-of-payments basis), helped to push the current account into surplus in 1993. However, the deterioration in the trade balance after 1994 and the fall in official transfers caused the current account to move back into deficit from 1996. The Asian financial crisis of 1998 and the Russian crisis of 1999 contributed to the trade deficit. However, in 1999 a 15.9% fall in the value of the togrog against the US dollar helped to improve the balance of trade. (For IMF balance-of-payments data see Reference table 17.)

Current account, 1999 (US$ m) Exports: goods fob 454.3 Imports: goods cif –510.7 Trade balance –56.4 Services balance –69.9 Net unrequited transfers 14.0 Current-account balance –112.2 Source: IMF, International Financial Statistics.

Capital flows and foreign debt

Mongolia has benefited In the first two years after the collapse of Comecon, capital inflows were from aid inflows predominantly emergency aid. This has since been replaced by more project aid for infrastructure renovation and development, and short- and medium- term development. In 1991-2001 US$2.6bn of aid was pledged through donor conferences called by the UN Development Programme (UNDP), Japan and the

EIU Country Profile 2001 © The Economist Intelligence Unit Limited 2001 Mongolia 57

World Bank. (See Reference table 18 for a breakdown of external debt; see Reference table 19 for net official development assistance.)

Foreign reserves and the exchange rate

The pegged currency is Total reserves (excluding gold) rose from US$81.4m at the end of 1994 to devalued several times US$175.7m at the end of 1997. In 1998 they fell to US$94.1m as the government intervened in the foreign-exchange markets to support the togrog after a widening of the merchandise trade deficit. They have since recovered to stand at US$178.8m at the end of 2000. (See Reference table 20 for data on foreign reserves.)

The togrog was pegged to the transferable rouble from 1973 to 1990, at different rates for commercial and non-commercial transactions. In 1990 the government pegged the currency to the US dollar at a rate of Tg5.6:US$1. Since then it has been devalued several times. In June 1991 the commercial and non- commercial rates were unified at Tg40:US$1. In May 1993 the currency was allowed to float, and since then it has fallen steadily, reaching Tg1,097:US$1 by the end of 2000. (See Reference table 21 for historical exchange-rate data.)

Appendices

Sources of information

National statistical sources Bank of Mongolia, Annual Report, 2000

Mongol Messenger (weekly), Ulaanbaatar

National Statistical Office of Mongolia, Mongolian Statistical Yearbook 2000, Ulaanbaatar, 2001

State Statistical Office of Mongolia, National Economy of the MPR for 70 Years: Anniversary Statistical Yearbook, Ulaanbaatar, 1991

Internet home pages Asian Development Bank, Mongolia page, with links to Key Indicators: http://www.adb.org/mongolia

Bank of Mongolia, the central bank: http://mongolbank.mn

IMF, Mongolia page: http://www.imf.org/external/country/MNG/index.htm

Ministry of Foreign Affairs: http://extmin.mn

Mongolia Online (mainly in Mongolian): http://www.mol.mn

mongoliathisweek, comprehensive English-language newspaper (subscription required): http://www.mongoliathisweek.mn

Mongol Messenger, English-language weekly published by the Montsame news agency: http://www.mongolnet.mn/mglmsg

Montsame, state news agency (in English, Russian and Mongolian): http://web.mol.mn/~montsame

National Statistics Office: http://nso.mn

International statistical Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries sources (annual)

Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner, Middlesex HA5 5PJ

IMF, International Financial Statistics (monthly)

World Bank, Global Development Finance (annual)

World Bank, World Development Report (annual)

Select bibliography Asian Development Bank, Mongolia: A Centrally Planned Economy in Transition, Oxford University Press, New York, 1992

Ole Bruun and Ole Odgaard, Mongolia in Transition: Old Patterns, New Challenges, Curzon, Richmond, Surrey, 1996

Keith Griffin, Poverty and the Transition to a Market Economy in Mongolia, Macmillan, London, 1995

Frederick Nixson et al, The Mongolian Economy, Edward Elgar, Cheltenham, 2000

UN Development Programme, Human Development Report Mongolia 2000: Reorienting the State, Government of Mongolia and UNDP, Ulaanbaatar, 2000

World Bank, Mongolia, Toward a Market Economy, Washington DC, 1992

Reference tables

These reference tables provide the most up-to-date statistics available at the time of publication.

Reference table 1 Population (‘000 unless otherwise indicated) 1996 1997 1998 1999 2000 Urban 1,226.3 1,252.3 1,236.6 1,390.5 1,377.0 Rural 1,127.0 1,134.7 1,183.9 983.0 1,030.5 Total (m) 2,353.3 2,387.0 2,420.5 2,373.5 2,407.5 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 2 Labour force (‘000) 1996 1997 1998 1999 2000 Labour force 1,212.8 1,229.6 1,256.8 1,279.3 1,374.4 of which: economically active n/a n/a n/a 853.4 847.6 Employed n/a n/a 792.6 813.6 809.0 of which: agriculture n/a n/a 394.2 402.6 393.5 mining n/a n/a 18.6 19.0 18.6 manufacturing n/a n/a 57.1 58.5 54.6 electricity, gas & water supply n/a n/a 22.2 21.3 17.8 construction n/a n/a 27.5 27.6 23.4 trade n/a n/a 74.5 83.1 83.9 hotels & catering n/a n/a 15.3 16.1 13.3 transport, storage & communication n/a n/a 33.4 34.9 34.1 financial intermediation n/a n/a 7.4 7.7 6.8 property & business activities n/a n/a 5.1 5.0 7.2 public administration & defence n/a n/a 30.9 31.5 34.7 education n/a n/a 42.5 43.2 54.4 health & social security n/a n/a 35.6 34.8 33.5 community, social & personal services n/a n/a 25.1 25.2 29.0 others n/a n/a 3.2 3.1 4.2 Unemployed n/a n/a n/a 39.8 38.6 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 3 Government finances (Tg m) 1996 1997 1998 1999 2000 Current revenue 155,933 206,001 216,834 247,859 339,665 Tax 120,978 163,971 154,004 181,233 274,109 Non-tax 34,955 42,030 62,830 66,627 65,556 Capital revenue 2,582 10,488 14,614 11,745 7,470 Grants 4,409 6,039 8,550 6,891 3,068 Total revenue 162,924 222,528 239,998 266,495 350,202 Current expenditure 129782 192,602 222,420 250,860 305,055 Capital expenditure 22873 29,412 33,968 28,313 36,573 Net lending 23,943 65,625 85,756 85,520 71,298 Total expenditure 176,598 287,639 342,145 364,694 412,927 Budget balance –13,674 –65,111 –102,147 –98,199 –62,725 % of GDP –2.1 –7.8 –12.5 –10.6 –6.0 Sources: National Statistical Office of Mongolia, Mongolian Statistical Yearbook; EIU.

Reference table 4 Government revenue (Tg m) 1996 1997 1998 1999 2000 Tax revenue 120,978 163,971 154,004 181,233 274,109 Income tax 45,608 62,620 41,481 39,044 74,089 Social security contributions 18,474 21,242 26,059 29,785 38,692 Property tax – 78 240 299 289 Domestic taxes on goods & services 37,231 63,307 84,715 93,924 117,562 Value-added tax 21,528 38,134 46,066 60,360 74,975 Excise tax 11,120 20,338 24,484 26,731 35,741 Other taxes 4,583 4,836 14,165 6,832 6,847 Taxes on international trade & transactions 13,917 8,791 1,509 9,013 31,932 Other taxes & fees 5,748 7,933 – 9,167.2 11,456 Non-tax revenue 34,955 42,030 62,830 66,627 65,556 Capital revenue 2,582 10,488 14,614 11,745 7,470 Grants 4,409 6,039 8,550 6,891 3,068 Total revenue 162,924 222,528 239,998 266,495 350,202 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 5 Government expenditure (Tg m) 1996 1997 1998 1999 2000 General public services 19,045 23,233 31,883 32,986 39,351 Education 31,188 42,161 58,383 64,811 78,815 Health 21,044 26,314 32,915 35,658 43,580 Social security & welfare 28,571 42,727 51,688 59,929 77,168 Housing & community amenities 2,323 3,378 3,794 4,729 6,997 Agriculture & forestry 4,255 5,263 5,089 5,039 7,491 Industry, construction & mining 2,739 1,998 2,771 1250 1,411 Fuel and energy 8,184 8,042 9,203 4,830 6,512 Transport & communications 4,542 5,240 6,766 6,836 8,650 Other economic services 7,895 2,545 4,752 4,453 4,731 Total expenditure incl others 211,265 287,649 342,145 364,694 412,927 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 6 Money supply and credit (Tg m unless otherwise indicated; end-period) 1996 1997 1998 1999 2000 Demand deposits 20,702 26,341 26,136 27,544 29,842 Money (M1) 60,838 76,109 82,582 114,826 130,775 M1 growth (%) 42.7 25.1 8.5 39.0 13.9 Quasi-moneya 58,757 93,957 84,668 105,341 128,068 Money (M2) 119,595 170,066 167,250 220,167 258,843 M2 growth (%) 17.2 42.2 –1.7 31.6 17.6 Domestic credit 93,206 69,479 137,864 119,603 87,916

a Time, savings & foreign-currency deposits.

Source: IMF, International Financial Statistics.

Reference table 7 Gross domestic product (market prices) 1996 1997 1998 1999 2000 Total (Tg m) At current prices 646,559 832,636 817,393 925,346 1,044,581 At constant (1995) prices 563,201 585,720 606,410 625,910 632,641 Real change (%) 2.4 4.0 3.5 3.2 1.1 Per head (Tg) At current prices 267,307 351,323 351,127 392,261 436,972 At constant (1995) prices 240,684 247,139 260,495 265,328 246,648 Real change (%) – 2.7 5.4 1.9 –7.0 Sources: National Statistical Office of Mongolia, Mongolian Statistical Yearbook; Asian Development Bank (ADB), Key Indicators.

Reference table 8 Gross domestic product by expenditure (%) 1998 1999 2000 Total consumption 79.7 78.8 85.3 Private consumption 63.0 62.9 69.0 Government & NPISHa consumption 16.7 15.9 16.3 Gross fixed capital formation 32.9 34.0 28.2 of which: investments 23.7 25.7 23.6 Net exports of goods & services –12.6 –12.8 –13.5 Total 100.0 100.0 100.0

a Non-profit institutions serving households

Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 9 Gross domestic product by sector (Tg m; constant 1995 prices; % change year on year in brackets) 1996 1997 1998 1999 2000 Agriculture 218,277 227,707 242,248 252,443 210,093 (4.4) (4.3) (6.4) (4.2) (–16.8) Mining & quarrying 70,048 74,000 77,632 80,115 87,353 (6.0) (5.6) (4.9) (3.2) (9.0) Manufacturing 57,218 48,661 50,230 48,825 51,820 (–13.8) (–15.0) (3.2) (–2.8) (6.1) Electricity, gas & water 9,734 9770 10,082 10,544 10,739 (0.7) (0.4) (3.2) (4.6) (1.8) Construction 9,479 9,224 9,125 9,268 9,805 (2.6) (–2.7) (–1.1) (1.6) (5.8) Trade 93,853 109,884 106,458 107,807 133,238 (0.3) (17.1) (–3.1) (1.3) (23.6) Hotels & catering 4,087 4,094 4,114 4,472 4,874 (0.2) (0.2) (0.5) (8.7) (9.0) Transport, storage & communications 38,990 41,253 44,319 47,030 55,200 (11.2) (5.8) (7.4) (6.1) (17.4) Financial intermediation 9,535 6,984 4,682 6,552 8,730 (42.2) (–26.8) (–33.0) (39.9) (33.2) Property & business activities 3,610 3,525 3,823 3,642 3,501 (4.2) (–2.4) (8.5) (–4.7) (–3.9) Public administration, defence & social security 17,234 17,613 17,948 18,217 18,873 (3.5) (2.2) (1.9) (1.5) (3.6) Education 21,474 22,364 23,881 24,970 26,068 (4.0) (4.1) (6.8) (4.6) (4.4) Health & social work 15,160 15,613 15,825 16,317 16,888 (4.4) (3.0) (1.4) (3.1) (3.5) Other community, social & personal services 830 881 928 933 890 (0.7) (6.1) (5.3) (0.5) (–4.6) FISIMa –6,327 –5,853 –4,883 –5,223 –5,431 (–15.6) (–7.5) (–16.6) (7.0) (4.0) Total 563,201 585,720 606,410 625,910 632,641 (2.4) (4.0) (3.5) (3.2) (1.1)

a Financial intermediation services, indirectly measured.

Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 10 Consumer prices

1997 1998 1999 2000 Consumer price index (Dec 1995=100) 168.8 184.6 198.5 222.0 % change, year on yea 36.6 9.4 7.5 11.8 Source: ADB, Key Indicators.

Reference table 11 Crop production (‘000 tonnes) 1996 1997 1998 1999 2000 Cereals 220.1 240.4 194.9 169.5 142.1 of which: wheat 215.3 237.7 191.8 166.7 138.7 Fodder crops 18.8 14.3 14.7 5.3 4.1 Potatoes 46.0 54.6 65.2 63.8 58.9 Vegetables 23.8 34.0 45.7 39.0 44.0 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 12 Livestock numbers (‘000 head) 1996 1997 1998 1999 2000 Camels 357.9 355.4 356.5 355.6 322.9 Horses 2,770.5 2,893.2 3,059.1 3,163.5 2,660.7 Cattle 3,476.3 3.612.8 3,725.8 3,824.7 3,097.6 Sheep 13,560.6 14,165.6 14,694.2 15,191.3 13,876.4 Goats 9,134.8 10,265.3 11,061.9 11,033.9 10,269.8 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 13 Meat production (‘000 tonnes) 1996 1997 1998 1999 2000 Meat, slaughter weight 259.9 240.5 268.3 289.0 310.6 of which: beef 90.0 86.6 99.3 104.6 113.4 mutton & goat 121.3 104.4 120.2 128.9 120.0 pork 0.3 0.2 0.2 0.3 0.9 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 14 Mineral production (‘000 tonnes unless otherwise indicated) 1996 1997 1998 1999 2000 Coal 5,110.6 4,924.0 5,057.0 4,964.0 5,185.0 Copper concentrate 351.5 357.9 358.4 361.9 357.8 Molybdenum concentrate (tonnes) 4,684.0 4,238.3 4,240.0 4,157.0 2,843.0 Gold (kg) 6,967.4 8,451.0 9,531.4 10,246.2 11,808.1 Fluorspar 565.1 567.1 612.0 597.1 733.5 Oil (barrels) – – 44,791.4 71,914.7 65,522.0 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 15 Output of selected industrial products (‘000 tonnes unless otherwise indicated) 1996 1997 1998 1999 2000 Meat excl canned meat 8.5 7.5 6.7 4.3 4.5 Sausage (tonnes) 674.0 793.2 662.5 439.1 754.7 Flour 92.3 63.6 65.7 67.3 40.2 Bakery goods 30.0 19.7 19.4 14.7 20.2 Milk & milk products (m litres) 1.7 1.6 2.6 1.6 1.5 Alcohol (‘000 litres) 3,583 4,399 4,989 5,511 6,596 Carpets (‘000 sq metres) 667.0 643.6 587.7 628.6 704.8 Cashmere (tonnes) 517.0 432.2 609.7 612.5 450.9 Camel-wool blankets (‘000 metres) 31.4 23.6 22.1 21.2 28.5 Scoured wool 0.8 0.8 0.5 1.3 1.4 Leather boots (‘000 pairs) 86.6 41.7 33.1 6.6 5.6 Porcelain goods (‘000 pieces) 150.6 49.3 24.2 6.1 – Cement 106.0 111.6 109.0 103.5 91.7 Doors & windows (‘000 sq metres) 3.4 5.2 2.9 1.8 1.8 Electricity (m kwh) 2,614 2,662 2,675 2,842 2,946 Source: National Statistical Office of Mongolia, Mongolian Statistical Yearbook.

Reference table 16 Main trading partners (US$ m) 1996 1997 1998 1999 2000 Exports fob to: China 114.9 101.6 95.3 176.7 195.1 Japan 80.7 37.7 12.2 11.8 6.7 Russia 76.3 46.6 38.4 40.7 36.7 US 30.4 25.4 25.6 61.6 110.3 UK 16.6 23.9 12.2 7.0 8.0 Italy 15.8 11.4 9.0 14.4 18.1 Germany 4.1 6.3 2.1 5.4 4.9 Switzerland 0.7 139.8 68 1.1 1.2 South Korea – 44.3 30.8 4.4 4.9 Imports cif from: Russia 210.7 165.9 144.6 124.2 200.7 China 79.6 63.3 63.0 75.7 109.1 Japan 65.8 34.7 55.2 63.1 40.0 Germany 51.9 20.4 24.0 30.2 32.4 Singapore 23.3 17.6 16.4 12.1 13.9 US 4.7 36.6 32.6 7.9 18.7 Hong Kong 4.0 2.8 – 11.2 14.6 France 2.0 10.8 20.8 4.0 10.1 South Korea – 20.6 35.5 43.6 49.0 Source: ADB, Key Economic Indicators.

Reference table 17 Balance of payments, IMF estimates (US$ m) 1995 1996 1997 1998 1999 Goods: exports fob 451.0 423.4 568.5 462.4 454.3 Goods: imports fob –425.7 –459.7 –453.1 –524.2 –510.7 Trade balance 25.3 –36.3 115.4 –61.8 –56.4 Services: credit 57.3 55.7 52.7 77.8 75.8 Services: debit –95.4 –112.8 –105.1 –146.8 –145.7 Income: credit 3.0 13.4 6.1 10.1 6.7 Income: debit –28.4 –26.7 –18.1 –9.7 –6.6 Current transfers: credit 77.1 6.2 4.2 5.5 17.6 Current transfers: debit 0 0 0 –3.6 –3.6 Current-account balance 38.9 –100.5 55.2 –128.5 –112.2 Capital-account balance 00000 Direct investment abroad00000 Direct investment in Mongolia 9.8 15.9 25.0 18.9 30.4 Portfolio investment abroad00000 Portfolio investment in Mongolia1.00000 Other investment assets –49.2 –76.4 –108.1 –54.8 –51.8 Other investment liabilities 22.5 101.8 110.1 162.1 91.0 Financial balance –15.9 41.3 27.0 126.2 69.6 Errors & omissions 9.1 –28.1 –75.6 –50.2 23.6 Overall balance 32.1 –87.3 6.6 –52.5 –19.0 Memorandum items Financing movement of reserves (– indicates inflow) –22.6 19.6 –61.2 –6.3 –40.6 Use of IMF credit & loans –9.5 –1.8 6.7 –1.3 4.2 Exceptional financing 0 69.5 47.9 60.2 55.5 Total change in reserve assets –32.1 87.3 –6.6 52.5 19.0 Source: IMF, International Financial Statistics.

Reference table 18 External debt (US$ m unless otherwise indicated; debt stock at year-end) 1995 1996 1997 1998 1999 Public medium- & long-term debta 464.9 481.0 532.6 631.7 816.3 Official creditors 386.9 428.4 495.3 606.0 795.0 Multilateral 169.9 204.3 289.2 358.7 438.0 Bilateral 217.0 224.1 206.1 247.3 357.0 Private creditors 78.0 52.5 37.3 25.7 21.3 of which: banks 14.6 10.3 6.0 2.4 1.9 bonds 0.0 0.0 0.0 0.0 0.0 Use of IMF credit 47.0 43.6 47.6 48.3 51.4 Short-term debt 13.7 6.8 27.5 30.6 23.2 of which: interest arrears on long-term debt 2.5 2.5 2.5 2.5 2.6 Total external debt 525.5 531.3 607.7 710.6 890.9 continued

1995 1996 1997 1998 1999 Total debt service paid 51.8 52.9 66.4 34.5 26.2 Principal 41.6 44.1 54.1 25.9 15.7 Interest 10.1 8.8 12.4 8.6 10.5 of which: short-term debt 0.4 0.2 0.6 1.5 1.3 Ratios (%) Total external debt/GNP 55.7 50.4 67.0 71.9 103.4 Debt-service ratio, paidb 10.1 10.7 10.6 6.2 4.8 Short-term debt/total external debt 2.6 1.3 4.5 4.3 2.6 Concessional long-term debt/total long-term debt 65.7 74.3 79.4 84.3 88.8 a Long-term debt is defined as having original maturity of more than one year. b Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 19 Net official development assistance (US$ m) 1995 1996 1997 1998 1999 Bilateral 70.1 126.6 112.7 135.1 128.3 of which: Japan 93.3 103.7 68.5 84.3 97.6 Germany –34.2 21.6 17.5 17.1 16.2 US – 6.0 12.0 17.7 12.5 Multilateral 78.7 63.6 128.1 60.2 79.4 of which: Asian Development Bank 55.8 34.8 67.4 31.9 46.9 International Development Association 8.4 11.0 33.8 16.7 14.2 IMF 0.0 8.1 7.7 0.0 4.2 Total 148.8 190.2 240.8 195.3 208.7 Source: OECD Development Assistance Committee, Geographical Distribution of Financial Flows to Aid Recipients.

Reference table 20 Foreign reserves (US$ m unless otherwise indicated; end-period) 1996 1997 1998 1999 2000 Foreign exchange 107.00 175.00 93.60 136.30 178.70 SDRs 0.43 0.70 0.48 0.16 0.01 Reserve position in the IMF 0.01 0.01 0.01 0.03 0.05 Total reserves excl gold 107.44 175.71 94.09 136.49 178.77 Gold (national valuation) 53.60 24.60 9.10 0.40 23.31 Total reserves incl gold 161.04 200.31 103.19 136.89 202.08 Source: IMF, International Financial Statistics.

Reference table 21 Exchange rates (Tg:US$) 1996 1997 1998 1999 2000 End-period 693.5 813.2 902.0 1,072.4 1,097.0 Period average 548.4 790.0 840.8 1,021.9 1,076.7 Source: IMF, International Financial Statistics.

Bhutan

Basic data

Land area 46,500 sq km

Population 677,979 (2000 official estimate)

Thimpu district (incl capital) 177,718a

a Mid-1985 estimate, based on the 1980 census.

Climate Tropical in southern Bhutan with permanent snow in the northern Himalayan region

Weather in Thimpu Hottest month, June, 15° to 26°C (average daily minimum and maximum); (altitude 2,320 metres) coldest month, January, –4° to 16°C; driest month, January, negligible average monthly rainfall; wettest month, August, 220mm average rainfall

Languages Dzongkha is the official language. There are numerous other languages and dialects. Nepali is spoken in the south, and English is widely understood

Measures Metric system

Currency Ngultrum=100 chetrum. The ngultrum is pegged at parity to the Indian rupee. Average 2000 exchange rate: Nu44.9:US$1. Exchange rate on October 30th 2001: Nu47.9:US$1

Time Six hours ahead of GMT

Fiscal year July 1st-June 30th

Public holidays The king’s birthday, November 11th; National Day, December 17th; various Buddhist festivals are observed, the precise dates of which are confirmed by astrologers nearer the time

Politics

Bhutan has attempted to Until relatively recently Bhutan was largely isolated from the rest of the world. preserve its culture Partly because of its remote geographical position, Bhutan has attempted to manage economic development while protecting its environment and customs. Although King Jigme Singye Wangchuck is the head of state, he has gradually devolved powers to the Council of Ministers and stood down as the head of government in 1998.

Political development

Tibetan lama rule and Bhutan is thought to have been inhabited from around 1500 BC, and British influence Buddhism was introduced in the seventh century AD. From the seventeenth century an independent theocracy emerged under the rule of a Tibetan lama, who took the title of Shabdrung. Under his rule, a code of law was instituted, various powerful families brought together and numerous Tibetan invasion attempts were repelled. After his death, internal disorder broke out, and the situation was worsened by gradual British domination of the neighbouring regions of north-east India. In the nineteenth century boundary disputes in southern Bhutan resulted in two British missions to Bhutan, primarily seeking trading rights for Britain. Bhutan rejected a draft treaty in 1838, and Britain annexed part of southern Bhutan, paying annual compensation to Bhutan, in 1841. The Sinchula agreement of 1865, following a war against Bhutan, led Bhutan to cede some territory.

A kingdom is established Internally, central power declined as provincial governors consolidated their in 1907 positions. As, after the death of a later Shabdrung in 1903, no reincarnation of the Shabdrung had been found by 1906, in 1907 Sir Ugyen Wangchuck, was elected as King of Bhutan by an assembly. In the early twentieth century Chinese claims on Bhutan led the government to sign the treaty of Punakha in 1910, whereby the British guided Bhutan’s foreign policy, but undertook not to interfere domestically in Bhutan. India took over Britain’s role in guiding Bhutan’s foreign policy in 1949 when it renewed the treaty.

The “Lhotshampa” problem

Migration by Nepalese into southern Bhutan has taken place since the late nineteenth century. The majority of Nepalese are Hindus and culturally distinct from the Drukpa (native Bhutanese) community. Since the 1950s some Nepalese have claimed that they are subject to discrimination. In the late 1980s the government’s focus on preserving Bhutan’s national identity led to Nepali being dropped as the third language taught in schools and the implementation of a policy of traditional values whereby citizens had to wear the national dress at government offices and in schools. At the same time, in India, the Nepalese were agitating for a homeland in West Bengal. Bhutanese- Nepalese resentment was exacerbated by a census, held in 1988, aimed in part at uncovering illegal immigrants. Many Nepalese lacked documentation and a

series of violent attacks took place in the south against families loyal to the Bhutanese government.

Between 1988 and 1993 thousands of Nepali-speakers left Bhutan for refugee camps in Nepal. But the number of Nepalese in Bhutan has been swelled by poor Nepalese from Nepal, as well as Nepalese from Assam and other parts of India. By 1993 Nepal hosted around 85,000 refugees and there are now around 100,000 living in seven camps.

Nepal and Bhutan have attempted to resolve the issue bilaterally, but Nepal’s demand that Bhutan accept all of those living in refugee camps has been consistently rejected by Bhutan. Several rounds of ministerial meetings have taken place, and in March 2001 a Joint Verification Team began assessing the claims of the refugees, with the refugees being divided into four categories— genuine Bhutanese, Bhutanese who willingly left Bhutan, Bhutanese with criminal backgrounds and non-Bhutanese. The claims are being dealt with on a family basis (Bhutan had previously argued for an individual assessment of claims). The rate of progress has, however, been slow and at the current rate will last around eight years.

The fourth king continues The current king, Jigme Singye Wangchuck, was enthroned in 1972 upon the to modernise Bhutan death of his father, the third king, who had begun moves to modernise the country. The previous king had aligned Bhutan with India and, in 1960, had begun a modernisation drive, building roads to India and within Bhutan. The king has faced two main political problems during his reign: the protests by ethnic Nepalese in southern Bhutan and the use of southern Bhutan by north- east Indian militant groups fighting against India (see International relations and defence).

Important recent events

June 1998: The king grants the Council of Ministers full executive power.

November 1998: India and Bhutan undertake a joint military operation against Assamese and Bodo militants originating from India after an attack on a Bhutanese army convoy in which four soldiers died.

December 1998: Bhutan and China sign a peaceful co-existence agreement.

March 2001: A Bhutanese and Nepalese Joint Verification Team begins to assess the claims of alleged Bhutanese refugees living in camps in Nepal.

Constitution, institutions and administration

The National Assembly can Bhutan is a monarchy with no formal constitution. Under the Indo-Bhutan replace the king Treaty, signed in 1949, Bhutan agreed to be guided by India in its foreign policy. The treaty also ensures free trade and passage between the two countries. Bhutan closed its borders with Tibet in 1959 after Tibet fell under the sway of China and its relationship with India dominates its external affairs. Internally, the redistribution of power by the monarch began during the reign of the previous king, Jigme Dorji Wangchuck, who ruled from 1952 until 1972. In 1953 the Tshogdu Chenmo (National Assembly) was established. The

assembly has a three-year term and meets at least once a year, usually in June or July. The assembly has 154 chimis, or members; 105 chimis represent the 20 dzongkhags (districts), regional religious bodies elect 12 members and the king nominates senior civil servants to fill the remaining 37 seats. Each family has one vote in National Assembly elections. The National Assembly has the power to replace the king by a two-thirds vote.

A Royal Advisory Council (RAC) was established in 1965. The RAC, which is permanently in session, has nine members. The chairman is nominated by the king, two monks represent the central and district monastic bodies and six people’s representatives are chosen by the national assembly from nominees of each of the 20 districts. Members of the RAC sit on the council of ministers, which also includes the ministers of the eight ministries (Home Affairs, Trade and Industry, Health and Education, Finance, Foreign Affairs, Planning, Agriculture and Communications). In June 1998 the king relinquished his position as the head of government, placing executive power with the council of ministers.

Powers are increasingly The districts play an important role in administration and are likely to provide devolved to districts the basis for the forthcoming ninth five-year plan (2002-07). Each district has a district administrator, who is responsible to the home minister. Beneath the district level are “blocks”, each presided over by an elected official. The National Assembly in its 2001 session passed a legal code with reforms designed to strengthen the rule of law, improve transparency, accountability and accessibility. The establishment of the written legal code represents a modernisation of the complex Bhutanese legal system, based upon Buddhist and Indian laws and English common law.

Political forces

Levels of political Political parties are banned in Bhutan, although a number of groups consciousness are low representing ethnic Nepalese are based in Nepal. Of these groups, the Bhutan People’s Party, founded in 1990, claims to be pressing Bhutan’s government to democratise but, along with the Bhutan National Democratic Party, primarily aims to represent the Nepalese and has little support within Bhutan. The Nepalese community is itself faction-ridden. Within Bhutan, levels of political consciousness are generally low, owing in part to Bhutan’s isolation from political forces elsewhere in the region. Low levels of education, accompanied by the consensual nature of Bhutanese society, have also prevented the development of factional party politics. The decision by the king in 1998 to devolve all executive power to the cabinet may eventually result in a more factional system.

Main political figures

King Jigme Singye Wangchuck: King of Bhutan since 1972, he has continued his father’s drive to make Bhutan modern and economically self- reliant. He has pushed for improvements in health and education and has been at the forefront of moves to preserve Bhutan’s environment.

Khandu Wangchuk: The chairman of the council of ministers since August 2001 and the minister for trade and industry. The chairmanship is not a role equivalent to that of a prime minister. Members of the council of ministers assume the chairmanship on a revolving basis for a year at a time and policy tends to be determined collectively.

Yeshey Zimba: The finance minister and former chairman of the council of ministers.

International relations and defence

Militants threaten relations Bhutan’s international relations are dominated by its two giant neighbours, with India India and China. Under article two of the Indo-Bhutan friendship treaty of 1949, the government of Bhutan agreed that its external affairs would be guided by India. Bhutan’s relationship with India is good. For instance, trade links that before the 1960s were largely with Tibet have been refocused on India, which now receives around 94% of Bhutan’s merchandise exports and is the source of more than 70% of Bhutan’s merchandise imports. There are, however, concerns in Bhutan about the preservation of national sovereignty, given the vast disparity in size between the two countries. These sovereignty concerns are illustrated by Bhutan’s fear of Indian intervention against anti- Indian militants based in southern Bhutan. The presence of militants from the United Liberation Front of Assam (ULFA) and the National Democratic Front of Bodoland (NDFB), is currently Bhutan’s greatest foreign policy challenge. The ULFA has reportedly offered to close some of its camps in Bhutan by the end of 2001, but the NDFB has made no such offer. Bhutan’s armed forces are estimated to be around 6,000 strong and would face difficulties in attempting to evict the militant groups from their bases.

Bhutan’s relationship with China is improving, although they do not have formal diplomatic relations. Bhutan does not deem itself ready for direct relations and allows India to handle its relations with China. China and Bhutan have, however, conducted border talks since 1984 and in 1998 signed the Agreement to Maintain Peace and Tranquillity on the Sino-Bhutanese border. A small part of the border remains unresolved and is strategically important. In a visit to China in July 2001 led by Bhutan’s foreign secretary, Dasho Ugyen Tshering, both sides expressed their satisfaction with the friendly bilateral relationship and the progress of border talks.

Resources and infrastructure

Population

Population estimates A census in 1995 estimated Bhutan’s population at 582,000. Assuming an differ vastly annual growth rate of 3.1%, the population in 2001 would be just under 700,000. A previous census in 1969 had reported that the population was 931,514, and the 1980 census put the population at 1,165,000. Using these

earlier figures, several multilateral institutions, including the IMF and the UN, have estimated Bhutan’s population at 2.1m in 1999. Some efforts are under way to reconcile the divergent estimates. Bhutan is predominantly rural. It is estimated that 80% of the population live more than one hour’s walk from the nearest road. The population of Thimpu, the capital city, was estimated at only 27,000 in 1990, although it is likely to have grown at a faster rate than the national average since then. There are three main ethnic groups in Bhutan: the original inhabitants, the Sharchops; the descendants of Tibetan immigrants, the Ngalongs; and the Lhotshampa. Lhotshampa, a term referring to the southern Bhutanese, has become synonymous with Nepali-speakers. There are many smaller groups with their own languages. The term Drukpa refers to the dominant cultural identity of Bhutan and in theory includes all ethnic groups, but in practice many Lhotshampa feel excluded.

Education and health

Social indicators have Bhutan’s recent achievements in health and education have been impressive. improved rapidly The UN Development Programme estimated life expectancy in 1998 at 61.2 years and the adult literacy rate in 1999 at 41.2%. According to Bhutan’s Planning Commission secretariat, life expectancy at birth rose to 66 years in 1994 from over 47 years in 1984. In 1995 primary health care covered 90% of the population, although there was a shortage of trained medical staff. In rural Bhutan, basic health units provide health care and there are hospitals in the headquarters of each of Bhutan’s districts.

In 1996 72% of primary school age children were enrolled in school. Since 1961 English has been the medium of education whereas Dzongkha is taught as a second language. Many teachers are hired from India. One of the problems facing the education system is that, because employment in the public sector is desirable, there has been too much emphasis on academic education at the expense of technical education. As employment opportunities in the public sector fall, the number of educated Bhutanese failing to find work is likely to grow.

Natural resources and the environment

Environmental Environmental protection is the key to the Bhutanese goal of improving “gross conservation is important national happiness”, in part stemming from the country’s Buddhist values. In 1992 the Bhutan Trust Fund for Environmental Protection was established with contributions from donor countries and agencies. The fund uses its income to finance environmentally useful projects. The National Assembly ruled in 1995 that at least 60% of Bhutan should remain forested. The government is attempting to forgo the economic benefits of rapid expansion of the tourism or mining sectors in the hope that slower development will be more sustainable.

Transport and communications and the Internet

Levels of infrastructure are Bhutan has neither railways nor a domestic air service. There is one main road, poor the National Highway. Around two-thirds of roads are paved. In 1997 total road length was 3,375 km. Road density is estimated at 73 km per 1,000 sq km. There is a national weekly newspaper, Kuensel, which became an autonomous corporation in 1992. The Bhutan Broadcasting Service (BBS) began as a radio station, broadcasting in Dzongkha, Sharchopkha, Nepali and English, and in 1999 BBS began a television service that runs for three hours a day. By March 2000 the two cable television operators provided 25 channels. Bhutan has one Internet service provider, Druknet, which was formed in 1999, and its own Internet suffix, .bt.

Energy provision

Hydroelectric potential is In mid-1996 total installed power generating capacity stood at 342 mw, to being tapped which the Chhukha hydroelectric project contributed 325 mw. In March 1996 Bhutan and India agreed to proceed with the Tala hydroelectric project, which will have a capacity of 1,020 mw and is intended to be completed in late 2004. Other bilateral joint ventures not yet at the construction stage are the Wangchu reservoir scheme (900 mw), Bunakha (180 mw) and Sankosh (4,000 mw). This expansion of power generation (the vast majority of which is for export to India) was initially expected to boost domestic demand for electricity, as the new energy capacity would facilitate the growth of industry. This effect has been limited so far. Some power is reimported into southern Bhutan through the Indian grid but maximum domestic demand in 1996 stood at only 20 mw.

Energy balance, 2000 (m tonnes oil equivalent) Oil Coal Electricity Other Total Primary production – 0.03 0.49a 0.41 0.93 Imports 0.05 0.03 0.00a –0.08 Exports – –0.02 –0.39a ––0.41 Primary supply 0.05 0.04 0.10a 0.41 0.60 Losses & transfers 0.00 – –0.11 – –0.11 Transformation output – – 0.04b –0.04 Final consumption 0.05 0.04 0.03b 0.41 0.53 a Input basis. b Output basis.

Source: Energy Data Associates.

The economy

Economic structure

Main economic indicators, 2000

GDP (US$ m) 436.8a Real GDP growth (%) 6.1 Consumer price inflation (av; %) 4.4 Population (mid-year; ‘000) 678 Exports fob (Nu m) 4,455.6b Imports cif (Nu m) 5,516.4b Reserves excl gold (US$ m) 295.4 Total external debt (US$ m) 183.8a Exchange rate (av; Nu:US$) 44.9

a 1999. b 1998.

Sources: IMF, International Financial Statistics; Planning Commission; Asian Development Bank, Key Indicators; World Bank, Global Development Finance.

Agriculture dominates the Bhutan is a largely agrarian society. Agriculture accounts for around 94% of economy employment and more than 30% of nominal GDP. Although poor in terms of income per head, poverty is less evident than in most countries of similar income levels. Electricity generation as well as trade, restaurants and hotels are becoming increasingly important contributors to GDP. Electricity generation was estimated to have accounted for 11% of GDP in 1998 and trade, restaurants and hotels for 7%. Construction has also become increasingly important, its contribution to GDP rising from 9% in 1996 to 11% in 1998. This share is likely to have increased further in recent years because of infrastructure development envisaged for the later years of the eighth five-year plan, which ends in 2002. One of the main challenges for the government is to encourage young, educated Bhutanese to enter the private sector rather than seeking to enter the civil service, which is unlikely to expand sufficiently to provide employment for the growing educated population.

Economic policy

Five-year plans promote The development agenda has been driven by the need to protect the managed development environment and Bhutan’s culture; uncontrolled development, the government fears, could undermine Bhutanese traditions and damage the environment. Policy has been guided by a number of five-year plans, of which the ninth is due to begin in 2002. The eighth plan (1997-2002) began by focusing on developing social services, such as health and education but later shifted towards infrastructure improvements, such as roads and the development of hydroelectric power. The ninth plan is intended to be bottom- up, rather than top-down. Districts and sectors will have their own targets and budget allocations. Bhutan’s environmental policies have allowed it to benefit

from overseas support. Grants usually cover development expenditure, although in some years, particularly when hydroelectric projects are under construction, overall budget deficits have been recorded.

Bhutan has attempted to raise “gross national happiness”, thereby avoiding the social dislocation and related problems stemming from a narrower focus on GDP. But measuring happiness has proved problematic. In 1999 the foreign minister, Jigmi Thinley, suggested the use of the UN Development Programme’s human development index, which assesses health, education and income per head, but adding indicators of environmental protection, governance and culture. The government has followed a prudent fiscal policy, and current revenue has exceeded current expenditure since 1994/95.

Government budget 1997/98 (Nu m) Revenue & grants 5,234 Domestic revenue 3,079 Tax revenue 1,246 N o n - t a x r e v e n u e 1 , 8 3 2 Grants 2,155 of which: F r o m I n d i a 1,335 Expenditure & net lending 4,745 Current expenditure 2,576 Capital expenditure 1,938 Net lending 231 Overall balance 489 Source: IMF, Bhutan: Statistical Annex.

Economic performance

GDP per head remains low The ending of Bhutan’s self-imposed isolation in the 1960s led to a dramatic improvement in real GDP. Real gross national product per head rose from an estimated US$80 in 1980 to US$470 in 1996-98, according to the World Bank, which used the higher population estimate (see Resources and infrastructure: population). Real GDP grew by an annual average of 7.5% between 1980 and 1990, and growth rates remained around 6% through the 1990s. GDP figures are artificially low because they do not record subsistence agriculture, an important economic activity in Bhutan.

Despite strong progress since the economy opened up, numerous challenges remain. Physical and social infrastructure needs improvement, and the education system is poor at providing vocational skills. Industrial production is narrow, confined by the skills base, weak infrastructure and government concerns about the dangers of unmanaged development.

Economic sectors

Agriculture, forestry and fishing

The government aims to Agriculture dominates the economy. In 2000 agriculture, forestry and fishing maintain forest cover at 60% accounted for 33.2% of nominal GDP. In 1981/82 around 94% of the working population worked in agriculture, according to UN estimates, although presumably the proportion is much less now. The main crops produced are paddy rice, maize, potatoes and apples. According to the Ministry of Agriculture, in 1996 only 7.7% of Bhutan’s land area was used for agriculture, and only 1% of the total was irrigated. By 1998 the Ministry of Agriculture had achieved its target of food security by balancing the costs of importing staple foods against export earnings from cash crops. The ministry said that it would continue to attempt to increase domestic self-sufficiency. Much of Bhutan is covered in forest, and the Forestry Services Division is charged with maintaining forest cover at 60% of Bhutan’s area. Since 1990 smugglers and anti-government militants have indiscriminately or illegally felled many plantations in southern Bhutan.

Mining and semi-processing

Mining is a minor activity In 2000 mining represented less than 2% of nominal GDP (just under US$8m). By volume, limestone, dolomite, gypsum and coal were the main products mined. Smaller quantities of quartzite, talc and iron ore were also produced.

Manufacturing

The manufacturing sector The manufacturing sector is small, technologically backward and dominated is small but growing by the state. Most private enterprise is involved in cottage industries. In 1981/82 only 6,000 people were employed in industry, according to UN estimates. The industrial sector received a boost after the Chhukha power project was commissioned, allowing the development of more power- intensive industries. After 1987/88 the manufacturing sector witnessed a decade of double-digit growth, in large part because of higher output by Penden Cement Authority (the sole supplier of cement), Bhutan Chemicals and Carbide, Bhutan Board Products, which manufactures wood-particle board, and Bhutan Ferro Alloys. In constant prices, manufacturing’s share of GDP trebled between 1985 and 1995, although its share was still only 10% of current-price GDP in 2000.

Construction

Hydroelectric projects The importance of the construction sector is primarily related to the dominate construction of hydroelectric projects. In 1998 and 1999 the sector grew in real terms by 14.1% and 25.3%, respectively, largely as a result of the Kurichu hydro project, the Tala hydro power project and the Basochu hydro power

project. As a result, construction’s share of GDP increased to 11.7% in 1999 from 8.1% in 1990. The importance of hydroelectric projects is evident in the turnover of the Penden Cement Authority, which almost trebled between 1996 and 1998.

Financial services

The financial sector is A Royal Securities Exchange was established in 1993 by the Royal Monetary being developed Authority (the central bank). The exchange was capitalised by the four financial institutions: the sole commercial bank, the Bank of Bhutan; the Royal Insurance Corporation of Bhutan; the Unit Trust of Bhutan; and the Bhutan Development Finance Corporation. Auctions of government securities began in 1996 and in the same year, with the assistance of the Asian Development Bank (ADB), the Unit Trust of Bhutan was converted into the Bhutan National Bank, becoming Bhutan’s second commercial bank. The two banks offer different savings rates. But, given the economy’s reliance on subsistence agriculture, the potential for encouraging new savings is small and therefore increased savings at one bank largely reflect decreased savings at the other. Multilateral donors are engaged in strengthening the four financial institutions. There may be excess liquidity in the financial system. According to the ADB, money supply grew by 41.7% in 1998 and by 21.4% in both 1999 and 2000.

Other services

Tourism is an important Bhutan is attempting to manage the growth of tourism, adopting a low- source of foreign exchange volume, high-value strategy. Bhutan’s image as an unspoilt “Shangri-La” has assisted this intention. In 1999 7,158 tourists visited Bhutan. Tourist receipts in 1998 totalled US$7.8m, or more than US$1,250 per tourist. In 1998 there were estimated to be 560 hotel rooms in Bhutan. The retail sector remains underdeveloped.

The external sector

Trade in goods

India is Bhutan’s dominant India is by far Bhutan’s most important trading partner. In 1997 94.6% of trading partner Bhutan’s merchandise exports went to India and 69.4% of merchandise imports came from India. Accurate assessments of the composition of exports and imports are not available; 74% of Bhutan’s imports from India are classified as “miscellaneous” and 38% of exports to India are classified as “other”. By and large, however, Bhutan’s exports reflect the wider economy. Timber and agricultural products are major exports but electricity is by far the most important export. In terms of imports, Bhutan has to import all of its petroleum requirements. A large proportion of imports comprises products

required for the construction of hydroelectricity projects. Demand for these fluctuates according to what various projects need at different stages of construction. In 1999, according to the Asian Development Bank (ADB), import values in dollars rose by 20.5% in US dollar terms, because of the requirements of hydroelectric and large industrial projects.

Invisibles and the current account

Foreign grants cover the Bhutan runs a permanent current-account deficit, with deficits on both the current-account deficit trade and services accounts. In 1998/99 the overall deficit stood at US$86.9m. The deficit on services and transfers was US$30.5m. Financing this deficit, however, is unproblematic as, almost without exception, Bhutan receives foreign grants in excess of the current-account deficit, thus allowing foreign- exchange reserves to build up.

Capital flows and foreign debt

Foreign-exchange reserves According to the World Bank, Bhutan’s foreign debt stood at US$183.8m at the exceed external debt end of 1999. Of this, US$2m was short-term debt and the remainder long-term public and publicly guaranteed debt. Long-term debt disbursements rose dramatically in 1998, to U$53.4m, but fell back in 1999. Disbursements in 1998 were mainly related to hydroelectric projects. Given the concessional nature of Bhutan’s borrowing, the effective interest rate is low. In 1999 Bhutan paid only US$2.1m of interest on its entire external debt stock. The debt- service ratio in 1999 was only around 4.8%. However, grace periods on much of the concessional debt will shortly begin to expire, after which it will become harder to meet debt-service payments. However, Bhutan has a negative net debt position owing to relatively high levels of foreign-exchange reserves.

Foreign reserves and the exchange rate

The currency is tied to the Bhutan has a high level of reserves in relation to the size of the economy, At Indian rupee the end of 2000 total reserves (excluding gold) stood at US$295.4m, of which US$293.8m was held in foreign exchange. This provided around 19 months of import cover. The rise in reserves from only around US$115m at the end of 1994 is a consequence of capital inflows (largely grants) that have continually covered the current-account deficit. Bhutan’s currency, the ngultrum, is fixed at parity to the Indian rupee and the Indian rupee is accepted in Bhutan. Because of the fixed exchange rate, the ngultrum has depreciated steadily in line with the Indian rupee against the US dollar.

Appendices

Regional organisations

Bhutan is a member of the South Asian Association for Regional Co-operation (SAARC). See the Nepal country profile.

Sources of information

National statistical sources Planning Commission, Bhutan at a Glance 2000

Planning Commission, National Accounts Statistics Report 1980-1999

Planning Commission, National Human Development Report 2000

Planning Commission, Statistical Yearbook of Bhutan 1999

Internet home pages Asian Development Bank, Bhutan page: http://www.adb.org/Bhutan

Bhutan Broadcasting Service (BBS): http://www.bbs.com.bt

IMF, Bhutan page: http://www.imf.org/external/country/BTN/index.htm

Kuensel, the national daily newspaper: http://www.kuenselonline.com

Ministry of Agriculture: http://www.moa.gov.bt

Planning Commission: http://www.pcs.gov.bt

International statistical Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries sources (annual) Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner, Middlesex, HA5 5PJ

IMF, Bhutan: Statistical Annex, July 1999

IMF, International Financial Statistics (monthly), Washington

World Bank, Global Development Finance (annual), Washington

Select bibliography Michael Aris, The Raven Crown: the origins of Buddhist monarchy in Bhutan, Serindia publications, 1994

Europa, The Far East and Australasia 2001

Lonely Planet, Bhutan, 1998

Reference tables

Reference table 1 Government finances (Nu m) 1994/95 1995/96 1996/97 1997/98 Revenue (incl grants) 3,650 4,491 4,657 5,234 of which: tax revenue 650 844 869 1,246 non-tax revenue 1,227 1,283 1,556 1,832 grants from India 728 1,169 948 1,335 other grants 1,045 1,195 1,284 820 Expenditure (incl lending) 3,643 4,253 4,958 4,745 of which: current expenditure 1,906 1,969 2,342 2,576 capital expenditure 1,750 2,184 2,289 1,938 net lending –13 100 327 231 Balance (incl grants) 7 238 –302 489

a Budget.

Source IMF, Bhutan: Statistical Annex.

Reference table 2 Interest rates (rates offered by the Bank of Bhutan; %) 1996 1997 1998 1999 2000 Savings 5.0 5.0 5.0 5.0 6.0 Time deposits, 3-6 months 8.0 8.0 8.0 8.0 7.5 Time deposits, 9-12 months 10.0 10.0 10.0 10.0 9.5 Lending rate (commerce) 16.0 16.0 16.0 n/a n/a Lending rate (exports) 13.0 13.0 13.0 n/a n/a Sources : Asian Development Bank (ADB), Key Indicators; IMF, Bhutan: Statistical Annex.

Reference table 3 Gross domestic product by sector (market prices, Nu m) 1996 1997 1998 1999 2000 Agriculture, forestry & fishing 4,538.0 5,276.0 5,786.9 6,300.5 6,877.7 Mining & quarrying 269.8 308.7 262.3 325.9 351.5 Manufacturing 1,393.4 1,588.5 1,742.4 1,929.0 2,102.6 Electricity, gas & water 1,101.6 1,729.5 1,937.1 2,336.7 2,687.2 Construction 1,040.0 1,466.4 1,687.0 2,128.4 2,566.9 Trade, restaurants & hotels 903.5 1,014.3 1,159.7 1,318.2 1,495.3 Transport, storage & communications 855.8 1,022.6 1,369.5 1,699.1 2,138.0 Finance 441.9 729.2 1,004.0 1,069.7 1,306.1 Community, social & services 1,013.7 1,362.7 1,436.9 1,653.3 1,736.0 Imputed bank service charges –203.0 –526.9 –458.3 –559.0 –575.8 GDP 11,354.7 13,971.0 15,927.5 18,201.8 20,685.5 Source: Planning Commission, National Accounts Statistics Report 1980-1999.

Reference table 4 Consumer price index (Year-end; 1979=100) 1996 1997 1998 1999 2000 CPI 474.1 501.2 561.7 587.0 612.9 % change, year on year 8.3 5.7 12.1 4.5 4.4 Source: Planning Commission, Consumer Price Index Bulletin.

Reference table 5 Agricultural production (‘000 tonnes unless otherwise stated) 1996 1997 1998 1999 2000 Rice (paddy) 50 50 50 50 50 Maize 80 85 85 70 70 Potatoes 34 34 34 34 34 Millet 7 7 7 7 7 Apples 66666 Wheat 5 5 5 5 20 Agriculture production (1989/91=100) 115 117 117 114 114 Source : ADB, Key Indicators.

Reference table 6 Electricity production and exports (m kwh unless otherwise indicated) 1993/94 1994/95 1995/96 1996/97 1997/98 Domestic generation 1,685.8 1,630.0 1,972.2 1,838.4 1,800.0 Hydroelectric 1,684.7 1,629.8 1,972.1 1,838.3 1,799.9 Diesel 1.1 0.2 0.1 0.1 0.1 Purchases from India 4.6 5.3 7.2 7.0 7.5 Total electricity supply 1,690.4 1,635.3 1,979.4 1,845.4 1,807.5 Exports to India (Nu m) 538.7 522.3 772.1 870.6 1,351.1 Export tariff to India (Nu/kwh) 0.37 0.50 0.50 1.00 1.00 Source: IMF, Bhutan: Statistical Annex.

Reference table 7 Exports to India by product (US$ m) 1994 1995 1996 1997 Agricultural products 9.41 12.82 12.80 12.12 Fruit 5.45 7.56 8.30 6.70 Cardamom 2.70 2.30 1.93 1.02 Potatoes 0.75 1.91 2.03 1.18 Oranges 0.25 0.40 0.31 1.54 Resin 0.19 0.49 0.23 0.36 Apples 0.06 0.15 0 1.32 Wood & wood products 7.81 17.15 12.10 14.94 Timber 5.24 6.94 3.91 5.84 Processed wood 2.58 10.21 8.19 9.10 continued

1994 1995 1996 1997 Mining & quarrying 0.17 0.20 0.74 0.60 Cement 8.45 8.57 7.14 10.19 Electricity 16.35 22.23 21.11 35.47 Other 28.00 42.32 47.14 44.84 Total 70.20 103.29 100.36 117.70

Note: Totals may not add owing to rounding.

Source: Derived from IMF, Bhutan: Statistical Annex.

Reference table 8 Imports from India (Nu m) 1994 1995 1996 1997 Rice 190 217 209 215 Hydrocarbons 203 220 234 282 Diesel oil 125 136 139 163 Gasoline62737684 Bitumen16111935 Transport equipment 140 122 135 247 Other manufactured goods 106 117 97 127 Electricity 5 11 8 27 Miscellaneous 2,107 1,943 2,214 2,557 Total 2,751 2,630 2,897 3,455 Source: IMF, Bhutan: Statistical Annex.

Reference table 9 Trade data by country (US$ m) 1994 1995 1996 1997 Total exports 70.8 106.7 109.7 120.7 India 66.5 98.1 99.6 114.2 Bangladesh 4.1 6.4 8.1 5.1 Other 0.3 2.2 2.0 1.5 Total imports 113.4 116.0 139.7 140.6 India 87.6 83.8 89.4 97.6 Japan 12.7 13.1 18.6 23.8 UK 2.5 1.8 1.3 0.5 Germany 2.0 2.3 2.1 1.3 Singapore 1.2 6.2 10.6 4.0 US 1.2 0.4 0.7 0.8 Other 6.3 8.4 17.0 12.7 Source: IMF, Bhutan: Statistical Annex.

Reference table 10 Balance of payments, IMF series (US$ m) 1994/95 1995/96 1996/97 1997/98 1998/99 Goods: exports fob 70.0 97.6 99.3 111.3 108.8 Goods: imports cif –97.2 –110.9 –131.2 –136.1 –165.2 Trade balance –27.3 –13.2 –31.9 –24.8 –56.4 Services & transfers: credit 28.2 29.0 27.8 45.2 47.7 Services & transfers: debit –35.1 –52.9 –52.2 –66.9 –78.2 Current-account balance (excl grants) –34.1 –37.1 –56.4 –46.5 –86.9 Foreign direct investment 0 0 0 0 1.1 Grants 51.8 79.7 74.4 85.4 124.8 Loans (net) –0.1 –12.1 5.4 4.4 2.3 Net errors & omissions –3.5 –5.6 –1.2 2.1 0 Overall balance 14.0 24.9 22.2 45.4 41.4 Financing (– indicates inflow) Change in net reserves –14.0 –24.9 –22.2 –45.4 –41.4

Note: Totals may not add owing to rounding.

Source: IMF, Bhutan: Statistical Annex.

Reference table 11 External debt, World Bank estimates

1995 1996 1997 1998 1999 Public medium- & long-term 105.2 112.9 117.6 171.0 181.8 Private medium- & long-term 0 0 0 0 0 Total medium- & long-term 105.2 112.9 117.6 171.0 181.8 Official creditors 98.4 108.4 115.4 171.0 181.8 Bilateral 30.2 38.8 41.8 89.8 88.4 Multilateral 68.2 69.7 73.5 81.2 93.4 Short-term debt 0.6 0.1 2.0 0.0 2.0 of which: interest arrears 0.6 0.0 0.0 0.0 0.0 Use of IMF credit 0.0 0.0 0.0 0.0 0.0 Total external debt 105.8 113.0 119.6 171.0 183.8 Principal repayments 7.2 4.3 4.9 7.0 4.9 Interest payments 2.6 2.6 2.3 2.1 2.1 of which: short-term debt 0.0 0.0 0.1 0.0 0.1 Total debt service 9.8 6.9 7.2 9.2 7.0 Ratios (%) Debt/GDP 39.2 38.3 32.6 45.9 44.4 Debt-service ratio paid 10.9 5.7 5.9 6.3 4.8 Source: World Bank, Global Development Finance.

Reference table 12 External debt, national data (US$ m, end-period) 1993/94 1994/95 1995/96 1996/97 1997/98 Total concessional debt 70.2 72.0 73.7 79.8 88.4 Asian Development Bank 25.9 27.7 30.6 35.7 39.8 International Development Association 18.3 19.1 20.2 21.0 21.8 International Fund of Agricultural Development 9.3 9.8 10.9 11.4 12.2 Kuwait Fund for Arab Economic Development 16.0 14.6 11.2 11.0 9.7 Others 0.8 0.8 0.8 0.8 4.9 Commercial debt 10.0 7.7 5.4 3.2 0.9 Non-convertible debt 49.4 49.9 35.8 34.7 26.5 Total debt 129.6 129.6 115.0 117.7 115.8 Total interest payments 9.1 7.7 6.6 5.5 2.6 Concessional debt interest payments 0.9 1.0 1.2 1.3 0.9 Commercial debt interest payments 0.9 0.7 0.6 0.4 0.2 Non-convertible debt interest payments 7.3 6.0 4.9 3.8 1.5 Total principal repayments 7.9 5.1 18.1 4.8 6.9 Concessional debt principal repayments 2.5 2.4 4.9 2.2 2.4 Commercial debt principal repayments 2.3 2.3 2.3 2.3 2.3 Non-convertible debt principal repayments 3.1 0.4 11.0 0.4 2.2 Source: IMF, Bhutan: Statistical Annex.

Reference table 13 Foreign reserves (US$ m, end-period) 1996 1997 1998 1999 2000 Foreign exchange 182.49 179.73 248.07 272.82 293.79 SDRs 0.68 0.68 0.76 0.18 0.23 Reserve position in IMF 0.82 0.77 0.80 1.40 1.33 Total reserves excl gold 183.99 181.18 249.63 274.41 295.35 Source: IMF, International Financial Statistics.

Reference table 14 Exchange rates (Nu per currency unit; period averages) 1996 1997 1998 1999 2000 US$ 35.43 36.31 41.26 43.06 44.94 SDRsa 51.67 53.0 59.81 59.69 60.91 Rs 1.00 1.00 1.00 1.00 1.00

Note: The ngultrum is tied at parity to the Indian rupee. a End-period.

Source: IMF, International Financial Statistics.

Editors: Duncan Wrigley (editor); Gareth Price (consulting editor) Editorial closing date: October 31st 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]