Some silver linings

It has become a cliché to say that every crisis comes with opportunities. But that does not mean it is not true. It is up to us to grab that chance.

The 2015 earthquake gave Nepal the opening to build back better, and the reconstruction of monuments did revive traditional building practices. The five-month blockade forced Nepal to look for alternative trade routes, even though the trans-Himalayan corridor is mostly confined to rhetoric so far.

The COVID-19 crisis is also an opportunity for a ‘new normal’ in agriculture, food self-reliance, more sustainable tourism, and reduction of urban air pollution. But the temptation is to go back to business as usual -- and we probably will. But this crisis is a wakeup call.

As dark monsoon clouds gather over Kathmandu this week, we are reminded of another cliché – that behind them there is a silver lining.

Nepal’s imports have fallen by 15.6% this year compared to the same period last year. The import bill went down to Rs1.12 trillion, saving the country some Rs120 billion. Most of this was because of a reduction in petroleum imports, which made up 15% of all imports last year.

Nepal imported Rs160 billion worth of petroleum products in 2020, a Rs52 billion drop from the previous year. Imports of steel, textiles, machinery and other commodities have also dropped sharply.

The lockdown has also resulted in 41% in savings for the treasury from Nepalis not travelling abroad, either for holidays or education. Nepalis spent Rs89 billion for travel abroad last year, and this year this figure has dropped to Rs53 billion. The amount of hard currency Nepalis exchanged to pay for school and university fees abroad also dropped from Rs46 billion last year to Rs26 billion in 2020 – a reduction of 44%.

Earlier this year, amidst uncertainty about the pandemic, there were dire predictions about a drastic drop in remittances that Nepal gets from its workers in India and overseas. The World Bank projected a 14% decline in remittances this year, the Asian Development Bank (ADB) had a worst case scenario of a 28.7% drop, and Nepal’s own Nepal’s Central Bureau of Statistics forecast an 18% decline.

There was indeed a drop in March and April when banks and money transfer agencies closed down. But there has been a rebound, and remittances so far this year have already hit Rs875 billion, which is only 0.5% less than the preceding year.

The drop in outflow of hard currency and a rebound in remittances has had a positive impact on Nepal’s balance of payments which improved from minus Rs67 billion last year to plus Rs2.8 trillion this year. Nepal’s hard currency reserves now stand at $2.15 billion – enough to pay for 14 months of imports.

To be sure, we have to wait and see if the remittances remain steady August onwards. The record high Rs101 billion for July was largely due to a backlog from previous months, workers bailing out families back home whose incomes had declined, as well as US dollar appreciation.

The global economic downturn is expected to hit the economies of destination countries hard, and this will inevitably affect their migrant workers. However, there are positive signs. China’s petroleum imports have almost hit pre-pandemic levels, and this will shore up the economies of oil and gas exports from the Gulf and Southeast Asia. In addition, employers hit by economic slowdown will want to also scrimp on salary costs by hiring cheaper essential workers from abroad

Economists like former finance secretary Rameshore Khanal are not so pessimistic. He says in our analysis that Nepal may be shielded from the full impact of the crisis because ours is still largely a subsistence economy, and people have traditional coping mechanisms.

All this is not to discount the seriousness of the health and economic emergencies we face. The most serious is the looming crisis in the banking sector, as lenders put up collateral assets of defaulters up for auction. What will happen if there are no buyers?

About 500,000 young Nepalis enter the labour market every year, and nearly that number is expected to return to Nepal in the coming months from abroad. Where are the jobs for them? Even if the macro-economic indicators are good, there is a real socio-economic and political crisis on the horizon.