Review of Current Economic Status of Nepal

GP Chudal
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Meaning of Economic Status

The term “economic status” generally refers to a country’s overall economic health and performance, which can be measured using a variety of economic indicators. These indicators may include Gross Domestic Product (GDP), inflation, trade balance, foreign direct investment, unemployment rate, poverty rate, and other factors reflecting a country’s economic conditions.


A country’s economic status is determined by how well its economy performs overall and how well it can meet the needs and goals of its people. Most of the time, this condition is measured by examining various macroeconomic indicators that show how the economy as a whole is performing.


The Gross Domestic Product (GDP) is one of the most widely used economic indicators. It is the total value of all goods and services produced within the borders of a country in a given time period, usually a year. A higher GDP indicates a more robust and productive economy, whereas a lower GDP may indicate economic weakness or contraction.

review-of-current-economic-status-of-nepal

Another important economic indicator that reflects the change in the overall level of prices over time is inflation. Inflationary pressures can cause rising prices for goods and services, eroding people’s purchasing power and reducing overall economic activity. A country’s trade balance, which is the difference between its exports and imports, is another important economic indicator. A positive trade balance (exports exceed imports) indicates a strong and competitive domestic economy, whereas a negative trade balance (imports exceed exports) indicates reliance on foreign goods and services and an economic imbalance.


Foreign Direct Investment (FDI) is a measure of the amount of money invested in a country by foreign companies. FDI can bring in new capital and technology, create job opportunities, and help improve a country’s overall economic growth. Another important indicator of economic health is the unemployment rate. A high unemployment rate may indicate that the economy is not producing enough jobs to keep up with the growth of the working-age population, which can lead to social and economic challenges such as poverty and inequality.


Review of the Current Economic Status of Nepal employing the latest macro-economic indicators

Nepal’s economy has grown slowly in recent years, and despite some setbacks caused by the COVID-19 pandemic, the country’s Gross Domestic Product (GDP) has expanded. According to the most recent Nepal Rastra Bank data, Nepal’s GDP for the fiscal year 2020/21 was NPR 3.329 trillion (approximately USD 28.2 billion), representing a 4.1% growth rate. This growth rate was significantly higher than the previous year’s rate of 0.3%, influenced by the nationwide lockdown imposed to combat the spread of COVID-19.


The gradual relaxation of lockdown restrictions, increased public spending, and a recovery in key sectors such as agriculture and tourism all contribute to the economic recovery. Regarding GDP contributions, the services sector remains the largest contributor, accounting for approximately 57% of total GDP. The industrial sector, which includes manufacturing, construction, and mining, accounts for about 20% of the GDP, while agriculture accounts for about 23%.


While the overall GDP growth rate has been positive, some sectors of the economy have declined. For example, the transport and communication sector, which accounts for about 7% of GDP, shrank by 7.2% in the fiscal year 2020/21 due to decreased mobility and travel restrictions caused by the pandemic. However, significant challenges remain to be addressed to sustain this growth, including rising inflation, a persistent trade deficit, and a lack of foreign direct investment.


The consumer price index measured inflation increased from 3.6% in the fiscal year 2019/20 to 5.0% in the fiscal year 2020/21. Rising food prices, particularly for vegetables, meat, and fish, drove this increase. The Nepal Rastra Bank has set a target inflation rate of 4%, which it hopes to achieve through various monetary policy measures such as interest rate adjustments and money supply regulation.


Nepal’s trade balance has consistently been negative, with imports far outweighing exports. Nepal’s total exports in the fiscal year 2020/21 were NPR 127.43 billion (approximately USD 1.07 billion), while total imports were NPR 1.446 trillion (approximately USD 12.2 billion), resulting in a trade deficit of NPR 1.318 trillion (approximately USD 11.1 billion). The government has taken several steps to address this issue, including encouraging export-oriented industries and improving trade infrastructure.


Foreign direct investment (FDI) inflows into Nepal have been relatively low, with the country receiving NPR 11.43 billion (approximately USD 97 million) in the fiscal year 2020/21. This decreased from NPR 14.26 billion in FDI the previous year (approximately USD 120 million). The government has implemented various policy measures to encourage more FDI, including tax breaks and simplified regulatory frameworks for foreign investors.


In the face of the COVID-19 pandemic, Nepal’s economy has shown resilience, with a moderate GDP growth rate of 4.1% in the fiscal year 2020/21 and 5.80 in the fiscal year 2021/22. However, significant challenges remain, including rising inflation, a persistent trade deficit, and a lack of foreign direct investment. The government must implement effective policies and reforms to maintain economic growth momentum and raise living standards.


Comparison of the Economic Status of Nepal With Major Economies of the World

Comparison of the Nepalese Economy with the US Economy

Nepal’s and the United States’ economic situations are vastly different. The US is a developed, industrialized country with a strong economy, whereas Nepal is a developing country with an emerging market economy.


The United States has more than $22 trillion in nominal GDP, making it the world’s largest economy, while Nepal’s nominal GDP is around $32 billion. The per capita income in the United States exceeds $68,000, whereas it is around $1,100 in Nepal. The American economy is extremely diverse. It has a large service sector, advanced manufacturing industries, and vast natural resource reserves. On the other hand, Nepal’s economy is primarily agricultural, with most of its people engaged in subsistence farming.


However, Nepal has made significant progress in recent years. Its service sector and tourism industry are both rapidly expanding. The unemployment rate in the United States is around 4%, while it is over 11% in Nepal. Furthermore, the United States has advanced technologically, and its citizens enjoy a high standard of living with access to modern healthcare, education, and infrastructure. In these areas, Nepal, on the other hand, faces significant challenges.

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Comparison of the Nepalese Economy with the Japanese Economy

The Nepalese and Japanese economies significantly differ in size, structure, and development level.


In terms of size, Japan has a nominal gross domestic product (GDP) of around $5 trillion, making it the world’s third-largest economy. In contrast, Nepal’s nominal GDP is around $32 billion, making it a small, developing economy.


In terms of structure, Japan has a highly developed and diversified economy, with advanced manufacturing industries, a large service sector, and significant natural resources. In contrast, Nepal’s economy is primarily based on agriculture, with most of its population in subsistence farming.


The per capita income in Japan is around $40,000, while Nepal’s is around $1,100. Japan has a high standard of living with access to modern healthcare, education, and infrastructure, while Nepal faces significant challenges in these areas.


The unemployment rate in Japan is around 2.5%, much lower than Nepal’s unemployment rate of over 11%.


Japan’s highly developed infrastructure includes modern transportation systems, high-speed rail, and a well-developed telecommunications network. In contrast, Nepal’s infrastructure is less developed, with limited transportation, electricity, and modern telecommunications access.


Comparison of the Nepalese Economy with the Chinese Economy

The Nepalese and Chinese economies significantly differ in size, structure, and development level. According to the World Bank, China had a nominal GDP of over $15 trillion in 2020, making it the world’s second-largest economy. In contrast, Nepal’s nominal GDP was around $32 billion in the same year, making it a small, developing economy.


The per capita income in China is around $11,900, while Nepal’s is around $1,100.


China’s economy has been growing quickly over the last few decades, with an average annual GDP growth rate of about 6-7% in the last few years. In contrast, Nepal’s economic growth has been slower, with an average annual growth rate of around 4% in recent years. China’s highly diversified economy has a large manufacturing sector, a growing service sector, and significant natural resource reserves. Nepal’s economy is primarily agricultural, with most of its population in subsistence farming.


China is the world’s largest exporter and second-largest importer of goods, with a total trade volume of over $4.6 trillion in 2020. In contrast, Nepal’s total trade volume was only around $12 billion in the same year. China has made significant investments in infrastructure development over the past few decades, with modern transportation systems, high-speed rail, and a well-developed telecommunications network. Nepal’s infrastructure is less developed, with limited transportation, electricity, and modern telecommunications access.


Comparison of Nepalese Economic With SAARC

The South Asian Association for Regional Cooperation (SAARC) is an intergovernmental organization that comprises eight countries in the South Asian region. These countries include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. In this section of the article, we will compare the Nepalese economy with the economies of other SAARC countries.

Gross Domestic Product (GDP):

According to the World Bank, Nepal’s nominal GDP was around $32 billion in 2020. Among SAARC countries, Nepal’s GDP is ranked seventh, ahead of only Afghanistan. India has the largest economy in the region, with a nominal GDP of over $3 trillion, followed by Pakistan and Bangladesh.

Per Capita Income:

The per capita income in Nepal is around $1,100. Among SAARC countries, Nepal’s per capita income is ranked sixth, ahead of only Afghanistan and Bangladesh. Maldives has the highest per capita income in the region, followed by Sri Lanka and Bhutan.

Economic Growth:

In recent years, most SAARC countries have experienced significant economic growth. According to the World Bank, India’s GDP growth rate was 7.7% in 2021, followed by Bangladesh at 6.5% and Bhutan at 6.4%. Nepal’s GDP growth rate was 4.1% in 2021, slightly higher than the average growth rate of 3.5% for SAARC countries.

Industrial Structure:

Most SAARC countries have a primarily agricultural economy, although significant differences exist in the size and structure of their industrial sectors. India has the largest manufacturing sector in the region, followed by Pakistan and Bangladesh. Nepal’s economy is primarily agricultural, with most of its population in subsistence farming.

Trade:

Trade is an important aspect of the economies of SAARC countries. According to the World Bank, India is the largest trading partner in the region, accounting for more than half of the total trade volume among SAARC countries. Nepal’s total trade volume was around $12 billion in 2020, which is relatively small compared to other SAARC countries.

Infrastructure:

Infrastructure development is a crucial factor for economic growth and development. Among SAARC countries, India has made significant investments in infrastructure development, particularly in the areas of transportation and telecommunications. Nepal’s infrastructure is less developed, with limited transportation, electricity, and modern telecommunications access.

Comparing the major macroeconomic indicators of Nepal with other SAARC countries

CountryNominal GDP (in billions of USD)GDP per capita (in USD)GDP growth rate (%)Inflation rate (%)Unemployment rate (%)
Afghanistan19.2503-2.55.711.9
Bangladesh302.51,7683.85.54.5
Bhutan2.43,0136.43.33.9
India3,050.02,2277.74.66.1
Maldives6.815,762-29.71.97.1
Nepal32.01,1004.16.33.6
Pakistan278.21,3273.98.94.0
Sri Lanka84.73,991-3.64.15.0

Source: World Bank for the year 2020

The data used in the table is from the World Bank for 2020. As we can see from the table, Nepal has the second-lowest GDP and GDP per capita among SAARC countries, ahead of only Afghanistan. However, Nepal’s GDP growth rate is higher than that of Pakistan and Sri Lanka. Nepal’s inflation rate is also higher than other countries, except for Afghanistan. The unemployment rate in Nepal is the lowest in the region, tied with Bhutan.

Nominal GDP:

Nominal GDP refers to the total value of goods and services a country produces in a given year without adjusting for inflation. The table shows Nepal’s nominal GDP was $32 billion in 2020. This is the second-lowest among SAARC countries, ahead of only Afghanistan. India has the highest nominal GDP in the region at $3,050 billion, followed by Pakistan and Bangladesh.

GDP per capita:

GDP per capita is a measure of a country’s economic output that accounts for its population. It is calculated by dividing a country’s GDP by its total population. Nepal’s GDP per capita was $1,100 in 2020, which is the second-lowest among SAARC countries, ahead of only Afghanistan. Maldives has the highest GDP per capita in the region at $15,762, followed by Sri Lanka and Bhutan.

GDP growth rate:

GDP growth rate refers to the percentage change in a country’s GDP over a given period, usually a year. Among SAARC countries, India had the highest GDP growth rate in 2020 at 7.7%, followed by Bangladesh and Bhutan. Nepal’s GDP growth rate was 4.1%, which is higher than Pakistan and Sri Lanka but lower than the regional average of 3.5%.

Inflation rate:

The inflation rate refers to the rate at which the general level of prices for goods and services is rising. It is measured by the percentage change in the Consumer Price Index (CPI). According to the table, Nepal’s inflation rate in 2020 was 6.3%, which is higher than most other SAARC countries except for Afghanistan. Maldives had the lowest inflation rate in the region at 1.9%.

Unemployment rate:

The unemployment rate refers to the percentage of the labour force that is unemployed but actively seeking employment. Among SAARC countries, Nepal had the lowest unemployment rate in 2020 at 3.6%, tied with Bhutan. Maldives had the highest unemployment rate in the region at 7.1%.


In conclusion, the table shows that Nepal has lower GDP and GDP per capita than most other SAARC countries. However, Nepal’s unemployment rate is the lowest in the region, and its GDP growth rate is higher than in other countries. The inflation rate in Nepal is relatively high compared to other countries, which can have a negative impact on the economy.

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