Country Report February 2004 Nepal February 2004 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. 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Nepal 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2004-05 7 Political outlook 8 Economic forecast 9 The political scene 15 Economic policy 18 The domestic economy 20 Foreign trade and payments List of tables 13 Total disappearances 19 Nepal: economic growth 21 Nepal: foreign trade 23 Nepal: balance of payments List of figures 9 Nepal: gross domestic product 9 Nepal: consumer price inflation 17 Nepal: banking indicators 22 Nepal: trade Country Report February 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 . Nepal 3 Summary February 2004 Outlook for 2004-05 King Gyanendra has begun to consult the leaders of the parliamentary parties, suggesting that he is trying to build bridges with them. However, the parties are continuing to demand the restoration of parliament or the formation of an all- party government and there are signs that they are losing patience with the king. The civil war will continue, even though neither side can win an outright military victory. The parliamentary parties and the Maoists could move closer. Growth will remain sluggish because of the conflict. Sluggish government spending will hinder economic activity in rural areas. The government hopes to keep inflation under 5% in 2003/04. Visitor arrivals picked up in 2003, but will fall back if violence escalates. The political scene The political crisis has continued. The government has announced an action plan. The government offered Maoist rebels an amnesty for rebels in December. The Maoists have stepped up attacks in southern Nepal and have killed a senior explosives expert. A major battle has taken place in far-western Nepal. The Maoists have demanded "taxes" from two foreign companies. The leader of a communist party, Madhav Kumar Nepal, has held talks with the Maoists. The parliamentary parties have held rallies in protest at human rights abuses. The prime minister, Surya Bahadur Thapa, has denied he is being sidelined but faces dissent from his own party. Human rights violations have caused international concern. The US has designated the Maoists as a terrorist group. Economic policy The World Bank has approved a budgetary support loan. Poverty reduction has remained a key government priority. An education project has received external funding. Financial-sector transparency is being improved. The names of loan defaulters have been publicised. A rural telecommunications system has been introduced. A row has erupted over a hydroelectric project. China and Nepal have opened two new border posts. Nepal and India have signed a rail agreement. Money supply growth has been slow. Government revenue has grown strongly. The domestic economy The economy grew by 3% in fiscal year 2002/03 (July 16th-July 15th). The non- agricultural sector has barely recovered. Visitor arrivals grew in 2003, but many hotels have continued to suffer. Prices have begun to creep upwards. Rises in the price of petroleum have underpinned rises in the wholesale price index. Foreign trade and payments Exports grew strongly in the first quarter of 2003/04, but exports to India remain well below pre-2002 levels. Vegetable oil exports have remained entangled in procedural hassles. Ready-made garment exports to India have risen. Overseas (non-Indian) export receipts rose by 6% in the first quarter. Nepal's Indian rupee reserves have plummeted. An accounting change ensured a current-account surplus in 2002/03. Editors: Gareth Price (editor); Graham Richardson (consulting editor) Editorial closing date: January 19th 2004 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report February 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 4 Nepal Political structure Official name Kingdom of Nepal Form of state Constitutional monarchy Head of state The sovereign, King Gyanendra, is head of state and supreme commander of the Royal Nepal Army The executive The prime minister presides over a Council of Ministers appointed from the elected members of parliament, mainly from the lower house, the House of Representatives. The lower house was dissolved in May 2002, and an interim government has been in place since October 2002 National legislature Bicameral: upper house, National Assembly, 60 members (35 elected by the lower house; 15 elected by heads of local committees and others in the electoral college; ten appointed by the sovereign); lower house, House of Representatives (suspended since May 2002), 205 members elected for five-year terms from single-member constituencies Legal system The Supreme Court acts as the court of appeal and review as well as having powers of original jurisdiction; it presides over 16 appellate courts, a special court and 75 district courts National government The king appointed an interim cabinet on October 11th 2002 after dismissing the elected prime minister. A new prime minister was appointed on June 4th National elections May 3rd and 17th 1999; the election planned for November 13th 2002 remains postponed Main political organisations Nepali Congress (NC); Communist Party of Nepal (Unified Marxist-Leninist), or CPN (UML); Rastriya Prajatantra Party (RPP, National Democratic Party); Nepal Workers’ and Peasants’ Party (NeWPP); Nepal Sadbhavana Party (NSP); Jana Morcha Nepal; Nepali Congress (Democratic), or NC (D); armed opposition—Communist Party of Nepal (Maoist), or CPN (M) Council of Ministers Prime minister, minister of royal palace affairs, defence, home, foreign affairs, women, children & social welfare, science & technology Surya Bahadur Thapa Finance, agriculture & co-operatives, labour & transport management minister Prakash Chandra Lohani Information & communications, local development & health minister Kamal Thapa Education & sports, industry, commerce & supplies, law & parliamentary affairs minister Hari Bahadur Basnet Population & environment, physical planning & works, general administration minister Buddhiman Tamang Culture, tourism & civil aviation minister, land reforms & management, forests & soil conservation Sarbendra Nath Shukla Central bank governor Tilak Bahadur Rawal Country Report February 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Nepal 5 Economic structure Annual indicators 1999a 2000a 2001a 2002a 2003a GDP (NRs bn)bc 342.0 379.5 410.2 420.2 n/a Real GDP growth (%)bc 4.5 6.1 4.7 -0.6 3.0 Consumer price inflation (av; %)b 11.4 3.5 2.4 2.9 n/a Population (mid-year; m)b 22.4 22.9 23.2 23.7 n/a Exports fob (US$ m)b 575.6 676.2 613.0 550.8 n/a Imports fob (US$ m)b 1,199.6 1,058.2 915.4 925.0 n/a Current-account balance (US$ m)b 3.5 -129.8 -148.3 -254.2 n/a Reserves excl gold (mid-Dec; US$ m) 845.1 945.4 1,037.7 1,017.6 n/a Public external debt (year-end; US$ m)d 2,970 2,823 2,700 n/a n/a Exchange rate (av; NRs:US$) 68.2 71.1 74.9 77.9 74.51 a Actual. b Asian Development Bank. c Fiscal years ending July 15th of year indicated. d World Bank, Global Development Finance. Main origins of gross domestic product 2001/02ab % of total Components of gross domestic product 2001/02ac