Country Report Nepal May 2009

Outlook for 2009-10

Nepal has undergone a momentous political transformation after a decade of civil war, but complex issues relating to the structure of the state remain unresolved. The resignation of the Maoist prime minister, Pushpa Kamal Dahal (known as Comrade Prachanda), and the collapse of the government in May have created unwelcome new uncertainty at a time when Nepalis already struggling to adjust to a new political system. As the country is without a functioning government, it remains unclear whether the departure of Prachanda will herald the start of more serious turbulence. Economic performance will be heavily influenced by political developments. Nepal will remain relatively sheltered from the global economic downturn, owing to the large contribution of the agricultural sector to the economy. Assuming that the turmoil is only temporary and a continued peaceful transition to political normalcy allows economic stability to improve, the Economist Intelligence Unit estimates GDP growth of 4-5% in fiscal year 2008/09 (July 16th-July 15th).

The political scene

In May Prachanda attempted to sack the army chief over the issue of integrating former Maoist rebels into the army. The Communist Party of Nepal (United Marxist Leninist), or CPN (UML), which had been a member of the ruling coalition, pulled out of the government in protest against the attempting sacking of the army chief, raising questions about whether the coalition still had a majority in the constituent assembly. The president, Ram Baran Yadav, blocked Prachanda's move. The prime minister subsequently resigned and the Maoists withdrew from the government.

Economic policy

Prior to its collapse in May, the government had conceded that the economy would not expand by 7% year on year in 2008/09, as had previously been projected. Nepal Rastra Bank (NRB, the central bank) has revised up its forecast for consumer price inflation in 2008/09 to 11%, from 7.5% previously.

The domestic economy

Consumer price inflation remains above the NRB's annual target of 11%, standing at 13.1% year on year in mid-March. On March 3rd the state-owned Nepal Oil Corporation lowered subsidised retail prices for diesel and kerosene by 4.3%, but it made no change to the price of petrol or liquefied petroleum gas.

Foreign trade and payments

Nepal's balance of payments (before official financing) moved into surplus for the first eight months of 2008/09 because of a surge in current transfers. This was despite a weakening of the merchandise trade account.

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22