Country Report Nepal November 2009

Outlook for 2010-11

Nepal has undergone a political transformation after a decade of civil war, but complex issues relating to the structure of the state are unresolved, and political efficacy is and will remain extremely low. Since its withdrawal from the government in April, the Unified Communist Party of Nepal (Maoist) has been the main opposition party. Its ability to mobilise large numbers of former rebels and cause social and governmental disruption will continue to make it impossible for the ruling coalition to rule effectively. A return to full-scale conflict cannot be ruled out. Economic performance will be strongly influenced by political developments. Nepal will remain relatively sheltered from the global recession and its aftermath, owing to the large share of the agricultural sector in GDP. The Economist Intelligence Unit forecasts GDP growth of 3-4% in fiscal year 2009/10 (July 16th-July 15th). This could rise to 4-5% in 2010/11 if political stability improves.

The political scene

The Maoist leader, Pushpa Kamal Dahal, has continued to press for a parliamentary debate over a decision in late April that was made by the president, Ram Baran Yadav, to overrule the decision by Mr Dahal—who was then prime minister—to dismiss the then chief of army staff, Rookmangud Katawal. Mr Dahal has also threatened to launch a popular movement against the government unless the Maoists are allowed to form a national government with the power to debate a presidential censure resolution.

Economic policy

The frequent Maoist-orchestrated parliamentary adjournments since May have prevented the passage of the budget for 2009/10, which was presented to the transitional legislature by the finance minister, Surendra Pandey, on July 13th. As it is without a budget and with no opportunity to pass an interim funding measure, the government is in the grip of a serious funding crunch.

The domestic economy

Consumer price inflation moderated to 10.4% year on year in the first month of 2009/10. In mid-August the overall salary and wage index was up by 22.2% year on year.

Foreign trade and payments

Nepal and India signed a new bilateral trade treaty effective from October 27th. During a visit to the US in September, Nepal's foreign minister, Sujata Koirala, lobbied US senators for support on a bilateral trade and investment agreement proposed by the US Trade Representative.

This report covers the following industry codes:
SIC Code: 80;60
NAICS Code: 62;52