Nepal is a small landlocked nation hidden in the Himalayan mountains nestled in between India and China. Almost half the Nepalese population of 25.8 million live below the poverty line as it is ranked as one of the world's poorest. Nepal has been rocked by a terrible national tragedy with the bloodbath assasinations of 10 royals including King Birendra at the royal palace in June 2001 by a young disgruntled royal member, Crown Prince Dependra who also died from this bizarre massacre attack.
POLITICS: chief of state, King Gyanendra since June 4, 2001 after the death of his brother, King Birendra. Political reforms in 1990 created a multi-party democracy within the framework of a constitutional monarchy from the previous absolute monarchy. There have been too many governments culminating in weak leadership that have held power for too short of time with 9 governments over the last decade thus making it difficult to reach a consensus on formatting issues for the good of the nation. On October 5, 2002, King Gyanendra fired the elected government and the cabinet for failing to hold constitutional elections. By October 11, 2002, the King appointed a new government to take power headed by former Prime Minister Bahadur Chand of the centre-right National Democratic Party (NDP). Political risk is prevalent with security concerns including Maoist insurgencies and an uncertain political environment with active public strikes and work stoppages creating havoc within Nepal.
ECONOMY: the overall macroeconomic outlook has improved modestly for Nepal's small economy as it is rebounding from the political crisis in summer 2001. For the most part, the economy is technology backwards due to Nepal's remoteness hidden away in the Himalayan mountain range. In 1991, reforms were implemented similar to India at that time to open up the economy to foreign investment and to encourage trade. Subsidies have since been reduced, privatization of state companies and a reduction in the government civil service has taken affect. Nepal's textile and carpet industry is its largest foreign exchange earner accounting for 80 percent of earnings. In addition, Nepal has room to grow its tourism industry although it is presently in the doldrums due to the downturn in the global economy and security fears within Nepal and abroad, particularly after the terrorist attacks in New York on September 11, 2001. Remittances from Nepalese abroad are a major source of hard currency income as this is valued at over $1 billion USD/year. Foreign aid investment has played a large role for decades as poverty is a serious problem in Nepal.
Economic Statistics
GDP using purchasing power parity is at $35.6 billion USD (2001) or GDP/capita at $1,400 USD. GDP growth for year 2000 at 6 percent, 2001 at 2.6 percent, 2002 slowed to 0.8 percent. Inflation for year 2000-01 is at 2.1 percent, 2001-02 inflation at 3.5 percent. Current account is now in surplus at 1 percent of GDP, however the budget deficit is running at 4 percent of GDP. Foreign aid assistance for 2001 came in a $424 million USD. Nepal is a net oil importer. Agriculture accounts for 41 pecent of GDP and employs 80 percent of the workforce.
POSITIVE: potential to increase tourism (tourism represents 4 percent of GDP) and energy - hydropower sector. CONCERN: political instability makes it difficult to implement prudent economic policies, delay in reforms, high population growth rate, illiteracy is a challenge, unemployment at 40 percent, contaminated water and deforestation.
BANKING SYSTEM: increasing foreign reserves with gross official reserves for 2001-02 at $1 billion USD. Difficulties in the banking sector are prevalent. The central bank of Nepal is the Nepal Rastra Bank (NRB). Interest rates are currently at 4 percent.
REGIONAL: India, China
India provides great stability to the Nepalese rupee as Nepal's economy is highly integrated with India's. Nepal has tremendous potential in hydropower as foreign investment is required to develop and export this resource to markets in India. The future for Nepal is its strategic location between two of the world's largest population centres, India and Nepal each with large fast growing economies.
KNOWLEDGE: the fragile Nepalese economy has been badly damaged by the Maoist rebels insurgency since its uprising in 1996. Over 7,000 have been killed so far with many innocent civilians caught in the crossfire. The Maoist rebellion seeks to turn Nepal into a one party communist republican state and to remove the constitutional feudal system currently in place. The rebels who derive the power from many of the rural poor accuse the government of only serving the wealthy and elite. The 10,000 strong rebel forces who control 25 percent of Nepal are in direct conflict with government paramilitary forces of 90,000 including the government's Armed Police Force specifically established in 2001 to combat the rebels.
In early December 2002, the Chairman of the Maoists, Prachandra, ordered a halt on attacks of civilian infrastructure however government defensive related positions are still vulnerable. Nepal and its people have taken significant infrastructure damage from rebel forces including terrorist strikes against telecommunication towers, bridges, roads, hydropower facilities, private businesses and political murders. The net affect of this civil war is that is killing Nepal. Foreign direct investment and tourism has been shattered and are at very low levels. The overall environment in Nepal is difficult enough with fragile political leadership and a country home to high poverty & challenging social conditions.
As time passes and as further innocent civilian casulaties occur, the Maoist insurgency may begin to lose its popularity amongst many of the poor as many of themselves are victims from rebel actions. The pursuit of violence to convey their message is starting to jeopardize their legitimacy, the Maoist rebels will most likely sooner rather than later be forced to the negotiating table and use diplomatic peaceful ways to stake their claims. Rebel leader Prachandra has recently given instructions to set up a framework for peace talks with the Nepalese government. If peace prevails, this will provide an economic boost to Nepal with a return of foreign investment and hard currency from tourist arrivals and provide further support to the Nepalese rupee.
CURRENCY: ISO symbol 'NPR', Nepalese rupee. At time of review on January 20, 2003, the Nepalese rupee had an exchange value of 76.5 NPR to the USD. The Nepalese rupee is pegged to the Indian rupee - the nominal anchor under a crawling peg fomat. Tthe Indian rupee is also legal tender currency - parallel currency in Nepal reflecting the close ties between these two nations.
CURRENCY HISTORY: considering the economic & social turmoil that has taken place within Nepal, particularly over the last 2 years, the Nepalese rupee has performed relatively quite well. Historical quotes include year 1997 at 58 NPR to 1 USD, 1998 at 65.6, 1999 at 68.2, 2000 at 71.1 and 2001 at 74.9
CURRENCY FORECAST: continued modest depreciation, slow global tourist arrivals until the current geopolitical tension cools down. The greatest single threat to Nepal is further violence from Maoist uprisings as domestic instablity can greatly impact both the social and economic equilibrium. Fortunately, Nepal does have financial support from the United States and India is a key aid donor. For further information on the Indian rupee, please click INDIA in this BI.C currency index.
UPDATED: January 20, 2003
