potential impact of covid-19 on nepalese economy impac… · potential impact of covid-19 on...

Potential Impact of COVID-19

on

Nepalese Economy

April 2020

Potential Impact of COVID-19 on Nepalese Economy

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Foreword

Dear Valued Clients,

We want to continue to support you in these challenging times so that you have the most up-to-date information available and are able to make the best decisions possible for your business.

The rapid outbreak of the corona virus presents an alarming health crisis that the world is struggling with. The World Health Organization (WHO) has announced that COVID-19 is a pandemic. In addition to the human impact, there is also a significant commercial impact being felt globally. Governments around the world have imposed entry restrictions on visitors and have imposed travel restrictions to their citizens, while major airlines have cancelled flights worldwide. Nepal Government, apart from this, has closed down all non-essential services. With COVID-19 cases rising in the country, the public health system will strain to contain the disease.

Many businesses are advising employees to work from home where possible. Many employees will rethink how they work; and businesses may have to rapidly adapt their systems to manage the surge in the number of employees working remotely. Some of the businesses will not be adequately equipped to connect a remote workforce. Travel restrictions related to the corona virus outbreak could limit the work of auditors and consultants also, possibly leading to delayed reports, late corporate filings or last-minute scrambles for deadline extensions.

Now, steps have been taken in order to support businesses affected by the virus. In most countries, the tax authorities have responded quickly to the changing circumstances of people and business by introducing relief measures such as deferred tax filings, tax-rate reductions, and VAT exemptions to reduce the pressures on businesses. It is likely that Governments and their budgets will be under a great deal of pressure. As the situation settles, they will likely begin to look for ways to increase revenues from sectors where the impact of COVID-19 may be less. Some may also begin to take a closer look at certain sectors where businesses are growing post-virus.

We have published this report looking at the impact of COVID-19 in Nepal on different business categories. It forecasts that COVID-19 will lead to a strong decline in business revenue. We think that though the Nepalese economy is reasonably resilient, the COVID-19 impact will be substantial in GDP. Our team is constantly monitoring and analyzing what is happening in the country. We will continue to update it as we understand, review and assess how COVID-19 will impact all areas of businesses. The team is always here and available to discuss the hurdles and challenges that you face over the next few months. Please do not hesitate to get in touch.

With Best Wishes

Bharat Rijal, FCA

Chairman

16 April 2020


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Contents

1. Overview on Global Economy ........................................................................................................... 4

2. Forecasted monetary global GDP loss as a result of COVID-19 in 2020 ....................................... 5

3. Share price index in major economies from March 2019 to March 2020 ...................................... 5

4. Impact on some major industries at global level ............................................................................. 6

5. The COVID 19 Heat Map ................................................................................................................... 11

6. Estimated impact of COVID 19 in Asian Region ............................................................................ 12

7. Estimated impact of COVID 19 in Nepal ......................................................................................... 12

8. Sectoral Impact in Nepal .................................................................................................................. 13

A. Manufacturing Sector .....................................................................................................13

B. Education Sector ............................................................................................................19

C. Remittance from Foreign Employment ...........................................................................21

D. Food and Agriculture Sector ...........................................................................................24

E. Banking and Finance Sector ...........................................................................................28

F. Insurance Sector ............................................................................................................33

G. Consumer and Retail Business ......................................................................................35

H. Tourism Sector ...............................................................................................................40

I. Aviation Sector ...............................................................................................................43

J. Telecom Sector ..............................................................................................................47

K. Hydropower Sector .........................................................................................................49

L. Real Estate Sector .........................................................................................................51

M. Transport and Logistics Sector .......................................................................................53

N. Health Care Services ......................................................................................................56

O. Construction Sector ........................................................................................................58

9. Economic policy responses on COVID 19 by some of the Developing Asian Countries .......... 60

10. Economic policy responses on COVID 19 by Nepal ..................................................................... 61

11. What Next Beyond COVID-19? ......................................................................................................... 63


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1. Overview on Global Economy

While there is no way to tell exactly what the economic damage from the global COVID-19 novel

coronavirus pandemic will be, there is widespread agreement among economists that it will have

severe negative impacts on the global economy. Early estimates predicated that, should the virus

become a global pandemic, most major economies will lose at least 2.4 percent of the value of their

gross domestic product (GDP) over 2020, leading economists to already reduce their 2020 forecasts

of global economic growth down from around 3.0 percent to 2.4 percent. To put this number in

perspective, global GDP was estimated at around 86.6 trillion USD in 2019 – meaning that just a 0.4

percent drop in economic growth amounts to almost 3.5 trillion USD in lost economic output. However,

these predictions were made prior to COVID-19 becoming a global pandemic, and before the

implementation of widespread restrictions on social contact to stop the spread of the virus. Since then,

global stock markets have suffered dramatic falls due to the outbreak, and the Dow Jones reported its

largest-ever single day fall of almost 3,000 points on 16 March 2020 – beating its previous record of

2,300 points that was set only four days earlier.

The economic damage caused by the COVID-19 pandemic is largely driven by a fall in demand,

meaning that there are no consumers to purchase the goods and services available in the global

economy. This dynamic can be clearly seen in heavily affected industries such as travel and tourism.

To slow the spread of the virus, countries have placed restrictions on travel, many people cannot

purchase flights for holidays or business trips. This reduction in consumer demand causes airlines to

lose planned revenue and they then need to cut their expenses by reducing the number of flights they

operate. Without government assistance, eventually airlines will also need to lay off staff to further cut

their costs. The same dynamic applies to other industries, for example with falling demand for oil and

new cars as daily commutes, social events and holidays are no longer possible. As companies start

cutting staff to make up for lost revenue, the worry is that this will create a downward economic spiral

when these newly unemployed workers can no longer afford to purchase unaffected goods and

services. To use retail as an example, an increase in unemployment will compound the reduction in

sales that occurred from the closure of shopfronts, cascading the crisis over to the online retail

segment (which has increased throughout the crisis). It is this dynamic that has economists

contemplating whether the COVID-19 pandemic could lead to a global recession on the scale of the

Great Depression.

Despite the clear danger that the global economy is in, there are also reasons to be hopeful that this

worst-case scenario can be avoided. Governments have learned from previous crises that the effects

of a demand-driven recession can be countered with government spending. Consequently, many

governments are increasing their provision of monetary welfare to citizens, and ensuring businesses

have access to the funds needed to keep their staff employed throughout the pandemic. In addition,

the specific nature of this crisis means that some sectors may benefit, such as e-commerce, food

retail, and the healthcare industry - providing at least some economic growth to offset the damage.

Finally, there is the fact that the crisis may have a clear end date when all restrictions on movement

can be lifted (for example, when a vaccine is developed). Taken together, this means it is at least

possible the global economy could experience a sharp rebound once the pandemic is over. There are

still many variables that could affect such an economic recovery – for example, a reduced supply of

goods and services to meet lower demand could create mid-term shortages and price increases – but

there are some reasons to think that, with the right mix of appropriate government responses and luck,

some of the more apocalyptic predictions may not come to pass.

https://www.statista.com/statistics/273951/growth-of-the-global-gross-domestic-product-gdp/

https://www.statista.com/statistics/1102889/covid-19-forecasted-global-real-gdp-growth/

https://www.statista.com/statistics/1105021/coronavirus-outbreak-stock-market-change/

https://www.statista.com/statistics/1104278/weekly-performance-of-djia-index/

https://www.statista.com/statistics/1104278/weekly-performance-of-djia-index/

https://www.statista.com/statistics/1103426/covid-19-revenue-travel-tourism-industry-forecast/

https://www.statista.com/statistics/1104036/novel-coronavirus-weekly-flights-change-airlines-region/

https://www.statista.com/statistics/1104036/novel-coronavirus-weekly-flights-change-airlines-region/

https://www.statista.com/statistics/332291/global-oil-demand-outlook-following-covid-19/

https://www.statista.com/statistics/1104015/worldwide-auto-industry-gross-value-added-growth-covid-19/

https://www.statista.com/statistics/1102658/coronavirus-lost-sales-impact-for-retailers-europe/

https://www.statista.com/statistics/1102658/coronavirus-lost-sales-impact-for-retailers-europe/

https://www.statista.com/statistics/1105059/industries-experiencing-an-increase-in-revenues-due-to-the-impact-of-coronavirus/


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2. Forecasted monetary global GDP loss as a result of COVID-19 in 2020

3. Share price index in major economies from March 2019 to March 2020

76,693

155,948

346,975

BEST CASE SCENARIO

MODERATE CASE SCENARIO

WORSE CASE SCENARIO

GDP Loss in US Dollars (Million) In the best case scenario in 2020,

which is defined as a two month

duration of travel bans and a sharp

decline in domestic demand, the

monetary loss of global Gross

Domestic Product (GDP) is expected

to be about 76.7 billion USD due to

COVID-19 outbreak. In a worst case

scenario, defined as a six month

duration of travel bans, the global

GDP is predicted to lose about 346.98

billion USD.

Source: Asian Development Bank

Brazilian share prices have

been the highest performing

of the major developed and

emerging economies, with an

index value of 163.8 in March

2020. Conversely, the lowest-

performing was China with an

index value of 77.2 at this

time. However, share prices

have dropped across the

globe in March 2020 due to

the COVID-19 pandemic.

Source: OCED

https://www.statista.com/page/covid-19-coronavirus


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4. Impact on some major industries at global level

A. Forecasted change in revenue from the travel and tourism industry due to COVID-19

pandemic worldwide from 2019 to 2020

B. Forecasted change in revenue from the travel and tourism industry due to COVID-19

pandemic worldwide from 2019 to 2020, by region

According to the Mobility Market

Outlook on COVID-19, the global

revenue for the travel and tourism

industry will be an estimated 568.6

billion U.S. dollars in 2020 - a

decrease of around 17 percent from

the previous year. Additionally, this

is significantly lower than the

original 2020 forecast of around

712 billion dollars.

According to the Mobility Market

Outlook on COVID-19, the revenue

for the travel and tourism industry in

Asia will be the most affected by the

pandemic, decreasing from 225.8

billion U.S. dollars in 2019 to roughly

165 billion U.S. dollars in 2020.

685,065 711,944

568,583

2019 ORIGINAL 2020 FORECAST

2020 RESTATED

Global revenue in million U.S. Dollars

181,805

211,972 225,889

164,679 177,662

164,707

NORTH AMERICA EUROPE ASIA

Revenue in million U.S. Dollars

2019 2020

Source: https://www.statista.com/forecasts/1103431/covid-19-revenue-travel-tourism-industry-region-forecast

Source: https://www.statista.com/forecasts/1103426/covid-19-revenue-travel-tourism-industry-forecast


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C. Forecasted business travel spend revenue loss due to COVID-19 pandemic worldwide

in 2020, by region

D. Extensive spread impact scenario of COVID-19 on the aviation industry as of 2 March

2020, by region or country

Country/Region

Impact on Passenger number (in %)

Impact on passenger revenue (in billion USD))

Australia, China, Japan, Malaysia, Singapore, South Korea, Thailand, Vietnam

-23 -49.7

Austria, France, Italy, Germany, Netherlands, Norway, Spain, Switzerland, Sweden, the United Kingdom

-24 -37.3

Canada, United States -10 -21.1

Asia Pacific (excluding the above)

-9 -7.6

Europe (excluding the above)

-9 -6.6

Bahrain, Iraq, Iran, Kuwait, Lebanon, the United Arab Emirates

-23 -4.9

Middle East (excluding the above)

-9 -2.3

As a result of the COVID-19

pandemic, the global business

travel market is predicted to see

a loss of 810.7 billion USD in

revenue in 2020. Business travel

spending in China is projected to

see the biggest loss from

COVID-19, decreasing by a total

of 404.1 billion USD.

Source: https://www.statista.com/forecasts/1103431/covid-19-revenue-travel-tourism-industry-region-forecast

As of 2 March 2020, the

extensive spread

scenario of COVID-19

impact on the aviation

industry estimated a 33

percent decline in the

number of air

passengers in Europe.

Besides this, passenger

revenue in the Asia

Pacific region is

expected to decline by

approximately 57.3

billion USD.

Source: https://www.statista.com/statistics/1102515/novel-coronavirus-extensive-spread-impact-aviation-industry/


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E. Weekly Brent, OPEC basket, and WTI crude oil prices from 30 December 2019 to 07

April 2020

Since the beginning of the year 2020, crude oil prices have slumped dramatically. Consumer

demand declined following fears of a continued spread of the coronavirus pandemic and its impact

on the economy, which in turn led to a disagreement between two of the largest oil producers,

Russia and Saudi Arabia in early March. As of 07 April, the OPEC basket stood at 22.67 USD per

barrel, compared to 31.87 USD for Brent oil and 23.63 USD for WTI oil.

Source: https://www.statista.com/statistics/326017/weekly-crude-oil-prices/

https://www.statista.com/page/covid-19-coronavirus


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F. Forecast of global high-tech product shipment impacted by COVID-19 outbreak in first

quarter of 2020 (in millions USD)

The outbreak of COVID-19, is expected to influence the production and shipment of key

technology products in the first quarter of 2020. The forecast shows global notebook shipments

reaching 27.9 million units worldwide in the first quarter, down 7.1 million units from a previous

forecast that projected notebook shipments to total 35 million units in the first quarter of 2020

worldwide.

G. Estimated trade impact of COVID-19 in the automotive sector as of February 2020, by

market

Source: https://www.statista.com/statistics/1099718/forecast-of-global-high-tech-product-shipment-impacted-by-corona-virus-outbreak/

https://www.statista.com/statistics/1043366/novel-coronavirus-2019ncov-cases-worldwide-by-country/


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China's manufacturing sector is anticipated to reduce by around two percent as of February 2020

due to the outbreak of COVID -19. The automotive industry in the European Union is expected to

see a decline of 2.5 billion USD due to a reduction in automobile and parts exports from China.

H. Estimated trade impact of COVID-19 in the electrical machinery sector as of February

2020, by market

Currently, China manufactures about 20 percent of intermediate products traded in the global

supply chain and Chinese products represent a critical part of the global value chain of the metal

and metal products sector. For this reason, the disruption caused by COVID-19 in China alone is

expected to reverberate on the economy of many other countries worldwide. In the European

Union, the metal industry is expected to lose about 1.2 billion USD from a two percent reduction

in China exports of intermediate inputs. The European chemical and automotive sector are also

expected to suffer similar impacts.

Source: https://www.statista.com/statistics/1105182/economic-trade-impact-of-covid-19-on-the-machinery-industry-by-market/

https://www.statista.com/statistics/1103657/economic-trade-impact-of-covid-19-on-the-auto-industry-by-market/


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5. The COVID 19 Heat Map

COVID 19 induced economic disruption will disproportionately impact some industry more than

others.

Source: Moody’s, Covid-19 Impact Heat Map


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6. Estimated impact of COVID 19 in Asian Region

7. Estimated impact of COVID 19 in Nepal

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

Best CaseScenario

Moderate CaseScenario

Worse CaseScenario

59,548

125,340

279,036

-0.494 -1.001 -2.203

Estimated Impact of COVID 19 in Asia

Losses in $ million as % of GDP

$118 $239

$627

$1,653

4898

377

997

0

200

400

600

800

1,000

1,200

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Shorter containment,smaller demand

shocks

Longer containment,larger demand

shocks

Additional impact ifsignificant outbreak

occurs

Employment(in thousands)

GDP losses(in $ millions)

Agriculture, Mining and Quarrying Business, Trade, Personal, and Public Services

Light/Heavy Manufacturing, Utilities, and Construction Hotel and restaurants and Other Personal Services

Employment

In best case scenario

there will be

estimated loss of

59,548 million USD in

Asia Pacific Region

out of which 43,890

million USD losses in

China. Similarly, in

worse-case scenario

there will be total loss

of 279,036 million

USD out of which

236,793 million USD

in China.

Source: https://www.adb.org

Based on GDP of 2018 29,040 million USD

Source: https://www.adb.org


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8. Sectoral Impact in Nepal

A. Manufacturing Sector

Sector Overview

Sector Contribution to GDP 5.6 Percent

Sector Contribution to Employment More than 1,072,000 (Direct Jobs) – 2017/18

Minimum Monthly Salary NPR 13,450 (Approx. USD 120)

Average Sector Growth in last 10 Years 1.18%

Key Domestic Market Kathmandu, Biratnagar, Pokhara , Birgunj

Key Export Market India, USA, Bangladesh, Germany

Key Sources of Raw Material India, China, UAE, Singapore, Indonesia, Thailand

Sub-sector Fast Moving Consumer goods (FMCGs), industrial goods and consumer goods

FDI Contribution in the form of Equity 15.1% (Mid July 2016)

Current and Potential Impact on the Sector

Parameter Low Med High Comments

Supply Side

Price Variation of Key Raw Materials

✓

The domestic supplies and that from imports both will suffer and will have an impact on availability and cost increment.

Production Shutdown

✓ Industrial output will be depressed due to lack of raw materials and restrictions in the transport area.

Labor Force

✓

Contractual, wage labor will get impacted more leading to layoffs, unrest, lowering of purchasing power. The sector will also likely expect a prolonged reduction in capacity and cost structure, which may translate into possible staff reductions and related measures.

Cash Flow Constraints

✓

Will have impacts on working capital needs during lockdown, will also have an impacts on supply chain, future investments and expansions.

Source: Economic Survey FY 2018/19, NLFS-Final Report 2017/18, A Survey report on FDI in Nepal 2018


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Supply Chain Disruption

✓

The impact on manufacturing so far has been relatively limited. In the short term, influence lies mainly in supply chain obstructions and difficulty in recovering production due to the direct supply disruptions, delayed return of workforces, lack of personnel mobility, and traffic restrictions. In the long term, the manufacturing industry should get back on track.

Imports

✓

Nepal’s manufacturing industries mostly rely on raw materials from China, India and Singapore. The knock-on effects for Nepal are significant as the supply of raw materials has reduced drastically.

Demand Side

Lockdown/restriction impact

✓ Decreased demand for certain products Delays in the delivery of goods

Consumer Sentiment

✓

There will be demand disruption due to a) Macroeconomic drops in aggregate demand (i.e. recession) b) Wait and see purchase delays by consumers and investment delays by firm.

Exports ✓

Export of garment and carpets are expected to suffer as they depend largely on Europe and USA


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Current and Potential Impact on the Value Chain

As the effects of COVID-19 are felt around the country, almost all industrial products companies are facing producing stoppages due to supply chain disruption and workforce dislocation. These companies generally expect continued supply disruption, cost escalation, and product delivery delays in the coming weeks. In the mid-term, the sector will likely to be hampered by decreased demand. Potential Long-term Impact Longer term, industrial products companies will need to examine their overall supply chain strategies to mitigate risks, improve agility, and ensure supply security. In addition, companies will re-evaluate market conditions and adjust their operations in light of the new normal. This suggests that industrial products organization may

Postpone significant investments

Take a more holistic view of potential risk

Be more selective about the products they manufacture

Further, Nepal’s manufacturing industries mostly rely on raw materials from China and India. The knock-on effects for Nepal are significant as the supply of raw materials from China will be reduced drastically. Nepal Rastra Bank, the central bank of Nepal, in its Mid-Term Review through 2019/20 Monetary Policy indicated that the spread of coronavirus, along with low paddy production this year, would have a bad impact on our economy. People are worried as people don’t know much about this deadly virus and how deep and widespread the economic fallout will be. It is still hard to predict. It will be sometime before we can estimate the full economic blow from this virus. Historical experience suggests that the rebounds from this kind of output loss are possible, but it takes time. Nepal is also facing a drop in output unprecedented in its intensity and the rebounds from this kind of loss are possible, but not by any means guaranteed.

Estimated impact over the value chain components

Sub-sector Product wise Impact

Fast Moving Consumer Goods

Food and Beverages - Sugar, grains, mill products, oils and fats, dairy products, soft drinks, sprits and beer

- All food based industries are allowed to function normally. There are few issues on interprovincial movement of skilled and semi-skilled labor that needs to be sorted out. - Risk on product life and expiry

Tobacco - Cigarettes Health experts has urged smokers to quit and cigarette companies to stop producing and selling tobacco products to help reduce the risk from COVID-19 would adversely impact the Tobacco industries in long-run.

Soap - Laundry and Toilet Soap

- Sanitization being most important during this outbreak. All hygiene-based industries are running normally. - Demand for hygiene product is at its peak. - Low quality products are increasing in market as demand for sanitizing products are high. - Small distributor who sell these products at doorsteps are at risk and at the verge of losing their only income source.


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Industrial Goods Fabricated metal product - Cast iron, steel, reservoirs, containers of metal and other fabricated metal products

The steep slowdown in these sectors is likely to affect steel demand. Further, demand-side issues are likely to keep steel prices under pressure.

Non-metallic mineral products - Clay building material, porcelain and ceramic products, cement, lime and plaster, articles made of concrete and plaster, and cut shaped and finished stone Basic Metal - Basic Iron, steel

Industrial output in Cement Industry will depress owing to reduced domestic demand, further worsened by COVID-19 pandemic. Major industries like cement, iron rod, steel and brick were operating below their full potential up until the third quarter of this fiscal year.

Plastics and rubber products

The plastic industry are seizing rapidly. However due to COVID-19, the plastic industry has assisted authorities and public health advocates being on the frontline of combating the spread of coronavirus.

Textiles - Fabrics, pashmina, yam and other textiles (except for apparel)

- International flight being suspended till 30 April 2020 has restricted the export of these product. - With lockdown in China, price of man-made Fiber imports is expected to rise significantly, resulting in higher price for some goods in the domestic market. - Low income workers are engaged in garment, carpet, pashmina factories where focus to health hygiene is minimal. - From a manufacturing perspective, employment would be impacted owing to limited demand in market.

Consumer Goods Electronics - Wire and Cable, dry cell batteries, electric motors, generators and transformers, television and radio receivers.

- Difficulties in coping with the inevitable backlog of orders, and pricing. - Meanwhile, demand for luxury goods has plummeted.

Furniture - Wooden Furniture

Possible long-term shifts in consumer behavior.

Leather and allied products

Further consumer goods, garment, utensils will see a major direct impact. Sectors which are dependent on high imports( of raw material) such as electronics, consumer durables are facing bottlenecks and so are the export oriented sectors due to a major drop in demand globally.


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Key Policy Recommendations

Recommendations Short Term Medium to Long Term

Tax and Compliance Related

- The Government has extended tax payment and filing deadline of 12 April 2020 for businesses until 7 May, 2020 which is a relief. - All VAT and other tax refunds should be credited to businesses immediately to tide over the lack of fund availability with the enterprises. - Special Tax Rebate to regular tax paying entity.

- No Fines/Penalties should be levied owing to delays in filing of statutory returns. I.e. VAT, tax returns, social security such as PF, Gratuity etc. - Demurrage and shipping Charges should be waived off.

Easing Financial Stress in the Sector

- Provide a moratorium for loan repayment (in the event of temporary closures) - Reduce cost of trade Finance - Exemption of Industries accounts from NPA Classification (which was in force till 31 May 2020) to be extended till end of June. - The banks may be directed to provide funds to ease out the working capital requirement and monthly expenses related to utilities, paying of wages, etc. - Bridge gap Loan with some special conditions.

- Increasing the Overdraft Accounts Limit for industries by 20 percent would have a positive impact on the liquidity available with the Businesses. - The government may allow the salary cut beyond monthly income levels of NPR 30,000. The salary cuts could be on slab basis. Persons drawing salary over NPR 150,000 per month may be subjected to cut of around 40 percent. In case the situation improves by September 2020 considerably, the deducted part of salary may be paid.

Operations and Supply Chain

Immediately implement sanitation measures and reconfigure workspaces for safety.

- Transfer new knowledge throughout the supply chain. Update best practices as the situation evolves and assist suppliers in implementing them. - Develop automatons solutions to reduce the number of workers on the factory floors.

Financial Reporting Broaden disclosures should be made compulsory beyond what’s required in financial statements.

Plan for disclosures about risk, such as how recent events may impact current and future judgments and estimates inherent in Financial reporting (e.g. inventory obsolescence, receivables collectability, debt covenants, impairments)


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Crisis Management - Business Houses should assess how profitability, loan, revolving credit and cash flow reserves can support ongoing operation in a low-revenue environments - in light of current (and forecasted) cash operating expenses, taxes and other cash expense items. - Review capital and corporate cost budgets to identify not marginal investments, but also discretionary items that can be cut.

- Central, Provincial and Local Level Government should coordinate for plan on workers and consumer safety with the business houses. - Steps to divest non-core or underperforming assets – M&A prospects – as a potential source of cash.


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B. Education Sector

Sector Overview Sector Contribution to GDP 7.06 percent

Government Expenditure Allocated NPR 134.51 Billion for Education, Science and Technology Sector (2019/20 Budget)

Sector Contribution to Employment More than 558,000 (Direct Jobs) - 2017/18

Net Enrollment Ratio (NER)

In the academic year 2018/19, net enrollment into primary level (grade 1-5) has reached 96.5 percent, into basic level (1-8) 92.7 percent, and into secondary level (9-12) 46.4 percent.

No. of Schools 35,055 (Out of which 3,802 schools are running 11-12 grades.

No. of College and Universities 1407 and 15 respectively.


Schools around the country have been impacted by COVID-19, facing closures during the crucial period

of academic year ending.

Public schools and low-fee private schools especially are likely to face a larger impact on teaching and learning, owing to heavy reliance on brick and mortar means of delivery lessons.

Private schools that have the means and resources on the other hand, could try to minimize the impact on teaching-learning, but could face cash flow issues if payments are delayed.

The impact of the COVID-19 outbreak is also expected to impact admissions to higher education in the coming academic year. Nepal Secondary Education Examination 2076 (SEE 2020) and all other Academic Level examination has been postponed until next notice.

As per the UNESCO report the closures of schools and colleges in Nepal will have affect nearly 8,796,624 young learners.

The challenge in a country like Nepal is the additional economic burden facing the parents in the absence of school provided mid-day meals.

Placements, internships for students could also be affected with companies delaying the onboarding of students.

In higher education, most Higher Education Institutions (HEI) are not fully geared to implement online learning, with constraints around availability of digital content, technology and delivery capabilities.

The outbreak is also expected to have far reaching consequences such as decreased global mobility of students (both inbound and outbound), difficulty in recruiting faculty etc.

Ministry of Education should change and encourage the modality of teaching (i.e. online or distance learning) as one of the alternatives for the time being.

In education sector taking advantage of the smart internet access of the users and the pressure of time, it’s high time to start new initiative through more children friendly teaching learning material programs.

Source: Economic Survey FY 2018/19, NLFS-Final Report 2017/18, A Survey report on FDI in Nepal, 2018


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- The Government has extended tax payment and filing deadline of 12 April 2020 for businesses until 7 May, 2020 which is a relief. - Special Tax Rebate to regular tax paying entity.

- No Fines/Penalties should be levied owing to delays in filing of statutory returns i.e. VAT, tax returns, social security such as PF, Gratuity etc. - Increase in time period of Non-Performing Asset classification to be revised for education service providers.


Deferred repayment for the service providers who have availed financial assistance from Banks.

Incentivize health related course- offer free of cost to qualified youth.

Support for Service providers and end beneficiary

- Creating awareness about COVID-19, by mobilizing healthcare personnel, workers, people trained in community programs. - Online entrepreneurial course/modules at minimal cost.

Trainers’ time to be utilized for e-content development and e-training delivery.

Ramping up Digital resources

- For rural schools with limited internet connectivity – radio, TV as medium to continue classes. - In Higher Education, the percentage of courses that can be offered online can be increased to ensure continuity of learning

Higher Education institutions and schools should be encouraged to digitize content, invest in technology to promote remote delivery of course.

Fiscal Support - Provide subsidies to education, encouraging them to make remediation both accessible and sustained to a wide audience. - Provide loans to low-fee private schools for ICT and broadband up-gradation.

Provision for schools with technology and resources should expand their offering to students of less privileged schools as CSR.

Others Universities should be encouraged to create content in the form of videos, documents to spread awareness about the virus.

Create a public service awareness campaign targeting schools once they reopen to address the spread of any new infections and enhance their preparedness.

Possible alternatives for interrupted education during COVID-19

Exploring the possibility of digital learning, high and low technology solutions etc. on the basis of power supply, digital skills of teachers and students, and internet connectivity.

Inclusion in distance learning programs, especially for students coming from low-income groups or presence of disability etc.

Providing support for digitalization to teachers as well as students.


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C. Remittance from Foreign Employment

Sector Overview Total remittance introduced in FY 2018/19 NPR 879.30 Billion

Sector Contribution to GDP in FY 2018/19 25.3 %

Number of countries where Nepalese are migrated through Labor Approval

172

Major Destination of Nepalese Workers Qatar, The United Arab Emirates, Saudi Arabia, Kuwait, Bahrain, India, Malaysia, The United States of America, Japan, South Korea etc.

Number of Workers receiving labor approval for foreign employment from FY 2009/10 to mid-March of FY 2018/19

4,540,906

Importance of Sector to Nepalese People and Economy of Nepal

Many Nepali households are dependent on remittance for their daily consumption needs and Nepal

Banks rely on remittance to grow their deposits.

Remittance income appear to be the most relevant variables to raise nominal GDP in Nepal.

Contribution of Remittance towards GDP of Nepal for last five years have been tabulated below.

Financial Year GDP of Nepal

(In NPR "Billion") Total Remittance Inflow

(In NPR "Billion") Ratio of Remittance

with GDP

2018/19 3,464.30 879.30 25.3

2017/18 3,031.00 755.10 24.9

2016/17 2,674.50 695.45 26.0

2015/16 2,253.20 665.06 29.5

2014/15 2,130.10 617.28 28.9

Foreign employment has helped in earning and accumulating foreign currency, and it has also helped

in acquiring entrepreneurial development through transfer of knowledge, skills and experience from

returnees’ migrant workers.

Reduces pressure on the government to create employment opportunities in the country and families

meet their consumption expenses.

Remittances make effective contribute to develop the financing capacities of the financial system,

particularly in banking sector. Enhancing of financial system in developing or emerging countries is an

important factor of growth.

Positive and significant relationship between worker remittances and economic growth in both the long-

run and the short-run.

Remittance income contribute largely to the national economy effecting development at both the

household and national levels.


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Current and Potential Impact on Sector

Remittance income will be severely affected due to COVID-19 pandemic. The income has fell by 0.5%

per annum in mid-February 2020 after rising by 16% for same period in the earlier year as per report

published by NRB. Remittance income of about NPR 879.30 billion per fiscal year, which is 25% of

GDP, is one of the major sources of foreign earnings. A sharp decline of remittance will undermine

Nepal’s external stability.

GDP growth will likely moderate to 5.3% in FY 2019/20 down from 7.1% a year earlier. Remittances in

the last quarter of this fiscal year will be adversely affected by this pandemic reflecting travel restriction

to contain the contagion and weaker demand in destination countries

During the first seven months of current fiscal year i.e. FY 2019/20, Nepal has received remittance of

NPR 513.20 Billion of which 50% was from 5 Gulf Countries - Qatar, The United Arab Emirates, Saudi

Arabia, Kuwait and Bahrain. The trend in remittance inflow showed that the national economy could be

affected any time in case of problem in Gulf Countries.

Nepal has stopped issuing labor permits to Nepali Migrant workers for the time being since 13 March

2020. Remittances will be adversely affected in the last quarter of this fiscal year as out-migration for

foreign employment has completely ceased during this global pandemic. Government’s decision to stop

issuing permits to migrant workers will have significant consequences for the country, where economic

activities are driven by remittances.

The ongoing global economic slowdown is expected to be bigger than the 2008 recession. It also had

an impact on Nepal’s foreign employment in terms of lower number of Nepalese hired by foreign

employers. Decreased remittance income compounded by a fall in tourism receipts will weaken

domestic demand.

With the fall in remittances, growth in deposit collection by banks nationwide will decline.

All these restrictions will not only hurt Nepalese migrant's workers but also the country's remittance

dependent economy as a whole. The possible downturn in remittance could thus have severe impact

on overall consumption in the country.

Although the effect of the pandemic on the flow of remittances is yet to be seen, the bans and

restrictions are likely to soon show negative impacts on the money workers send home.


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Recommendation Short Term Medium to Long Term

Overall - Increase in time period for repayment of principal amount and payment of interest amount of loans related to foreign employment for the period most affected by pandemic worldwide. - Relief from burden of loan to marginal group of workers stuck in foreign nation which are most hit by the pandemic. - Concessional rate of interest in loans provided by banks and financial institutions in relation to foreign employment. - Quick arrangements to bring Migrant Workers back to Nepal from worst hit countries by pandemic. - Financial support to families of marginal group of Migrant workers.

- Arrangement of low interest rate credit facility to ex-foreign workers who have chosen to stay in Nepal and do productive works within nation post pandemic. - Development of concrete fundamental framework so that people's right to employment is realized. - Immigrant Labor Agreement shall be signed and renewed more in favor of Nepal. - Effective Health and safety measures in nations where Migrant workers are heading shall be the main concern of government. - Government to provide dignified and productive employment opportunities for all citizens within Nepal - Youth and Small Entrepreneur Self Employment Program to be implemented effectively - Focusing on domestic economy and create jobs at local level, heavily invest in infrastructure development as well as re-address the agricultural sector.


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D. Food and Agriculture Sector



Supply Side

Price variation on daily food consumption

Rice, Flour, salt, sugar, oil, Cereals, Vegetables, Milk, Fruits, Agri Inputs

Egg, Meat and Meat Products

Bakery Items, Dry Fruits

Consumer supplies such as rice, flour, salt sugar, cereals etc. have been largely secured by government as they are the part of essentials in government list. Arrangement for sale of rice, flour, lentils, sugar salt and edible oil on 10% discount by Nepal Food Corporation and Salt Trading Corporation has been decided through press release of Ministry of finance on 31 March 2020. With interprovincial supply of foods still going on prices of vegetables may not be impacted by higher margin. However, vendors from various vegetable markets have been refusing to keep the food brought from India and border side in fear of virus, so this has resulted in increase of price of vegetables like potato and onion. Supply of egg, meat and meat products have declined drastically, especially in city areas causing a severe impact in poultry farming, animal husbandry and fisheries of nation. With most people purchasing essentials only during the pandemic, supply of bakery items and dry fruits has rapidly gone down.

Sector Overview Sector Contribution to GDP and employment 27 Percent and 21.50 percent respectively

Production of Major Food Crops (value in metric ton) Rice (5,152) , Maize ( 2,597), Wheat (1,976), Millet (314), Barley (31), Buck Wheat (11)

Production of Major Cash Crops (value in metric ton) Sugarcane ( 3,558), Jute(11), Potato (3,088) Total Cultivable Land in Nepal (value in hectare) 2,162,751

Major Exports of Commodities (value in NPR million) Palm Oil (10,333.10), Tea (3,203.91), Soyabean (2346.37), Cardamom (4,284.20), Ginger (512.30), Essential oils (408)

Major Import of Commodities (value in NPR million) Semi milled or wholly milled rice (24,591,767), Maize excluding Seeds (12,553.94), Dried pepper (6,256.25), Onions and shallots, fresh or chilled (5,269.61), Apples, fresh (4934.34) , Cashew nuts (783.96), Crude Sunflower Oil (7,649.19)

FDI equity inflow in food processing 0.3 of Total FDI

Food and grocery distribution in e-commerce domestic trade Beverages, Fresh Vegetables, Dairy Products, Dry Fruits, Sweets and Spices


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Labor Force

Cultivation and harvesting of rice, wheat, maize, Seasonal food processing like sugarcane, potato

Since the movement of people from one district to other has been banned for more than a month, shortage of labor will be visible in production and processing of various agricultural products. Moreover, fear of the disease has compelled people to stay home rather than to work on mass in fields.

Production Shutdown

All essential food processing units

Bakery Confectionery, Quick Service Restaurants, Ice Cream parlors

Most of the essential food processing industries have not been affected so far by the pandemic. However, production of almost all Bakery Confectionery, Quick Service Restaurants, Ice Cream parlors have been shut down creating a great loss to private sector business.

Supply chain disruption

Vegetables, Milks and Fruits

Eggs, meat and meat products

Highly perishable items like vegetables, milks and fruits have smooth flow of goods. Low demand of poultry eggs, meat and meat products due to shortage of labor force. Supply and production of Non-essential goods have been halted as of now.

Cash Flow Constraints

All essential goods

Online Food Delivery and online Grocery

Largely not impacted except for online Food Delivery and Online grocery. Few online delivery channels operating with permit of government for certain time of a day, only to deliver essential foods, most of other online services have been halted because of the outbreak.

Imports Consumer Edible Oils

Agro Chemicals

Industrial oils and fats

International trade will be adversely affected with the temporary closure of borders. Only essential goods such as food and medicine are being imported. Commodity prices particularly of food and beverages has risen on account of supply chain disruptions. Agro chemical Companies and supply of industrial oil and fats are going to face problem.


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Demand Side

Lockdown Impact Agriculture inputs, Food Processing

Online Food delivery

Agriculture Inputs - No impact since classified under essentials of government List Food Processing - No impact except domestic meat industry and export items like tea, Coffee, cardamom E-Commerce - Heavily impacted

Consumer Sentiment

Meat and Meat Products

Demand for these products have been worst hit

Exports Cardamom, Tea, Coffee, Ginger

High revenue generating exports of Food categories like tea, coffee, ginger and cardamom to India, Germany, US, Japan, Italy etc have been impacted heavily both due to decrease in demand and domestic supply chain issue.



Financial Ease in the Sector

- Measures announced by Nepal Rastra Bank and Ministry of Finance will help the industry and employees in short run. - Agriculture inputs like pesticides, fertilizers be made available at concessional rate.

- Various low interest financial arrangements be made available for food and agriculture sector in days to come for rapid recovery of loss from coronavirus pandemic. - Agricultural inputs be the priority handling at ports of nation.

National Policy on Food Supply Chain during COVID-19 pandemic

- Province and Central Government to classify daily essential foods items without having sever impact on supply chain to retail shop and industries. - Strict regulations be implemented in major vegetable markets and retail shops of crowded place to prevent unnecessary price hikes and black marketing.

- Tax Relief for the period hit by pandemic be given to industries related to food and agriculture. Otherwise these industries will sluggish to recover from damage incurred during the outbreak causing a huge impact in overall economy of Nepal. - Various Seminars and training on modern agriculture and food processing be held at local as well as national level. - Youths should be encouraged to involve in agriculture sector as a prospective career.


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Support for Food and Agriculture products Delivery

- Arrangement of pass and means of transport to farmers and producers to bring products into market and grant of 25% of transportation expenses as decided by meeting of Ministry of Agriculture and livestock Development dated 29 March 2020. - Health and life insurance of personnel delivering the goods of basic needs during the pandemic be done. - Incentives for working during the crisis be provided to personnel.

- Means of Transport for Food Delivery from place of small farmers and producers to local market be regularized. - Skill Development Training to be conducted.

Others - E-commerce based apps to be encouraged to delivery of goods to household to minimize mass public interaction. - Proper Preservation of non-essential foods which generate huge export revenue such as tea, coffee, cardamom etc.

- Tax Relief to be provided to E-commerce business for the period of national lockdown. - Agriculture and allied export policy during pandemic needs be commissioned.


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E. Banking and Finance Sector


General overview of expected impact

Credit Management

The cash flow of many consumers and businesses will collapse as lack of demand flows through into

lower business revenues and employee layoffs. These in turn will cause an increase in non-performing

loans as the borrower struggle to make scheduled interest and payment and non-renewal of revolving

loans on timely basis

Trade Finance Management

The cross boarder transaction is halted except for some necessity items which may cause difficulty to

the exporter to ship goods in a timely manner. It may also be difficult to forward the Trade Finance

documents to the bank. There may be payment delays.

Customer Service and Advice Provision

A short-term impact of this pandemic will be rapid changes in customer servicing preferences. While

many bank branches will stay open as a vital service, customers are increasingly looking to run their

financial life through apps and online banking.

Operating Model Adjustments, Cost Control and Innovation

The cumulative impact of pandemic will lead to a misalignment of short-term revenue and

expenses in the banking sector. There may be significant drop in Profit. As the demands of

the next four to six months will be different from what was envisaged six weeks ago.

Revenue Compression

In the first few weeks of the pandemic the banking industry market value fell to a lower level than during

the 2008/09 crisis. This is because the market has factored in short-term revenue compression from

multiple sources including:

o Pathetic recovery of loan o Lower net interest margins o A drop in payments revenue o A decline in trade finance and cross-border payments o Reduced offtake of loans under recessionary market and cautious customer outlook

Retail financing industry, which was one of the key drivers of credit growth will be impacted for at least

two quarters, as the demand for housing assets, consumer goods and working capital financing will get

hit due to general slowdown in economic activity.

Sector Overview Gross Credit NPR 3,189,377 Million

Total Deposit NPR 3,565,350 Million

CD (Credit/Deposit) Ratio 89.45%

Capital Adequacy Ratio 13.97%

Non-Performing Loans 1.77%


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There is a potential risk of defaults and insolvencies unless the regulatory framework is tweaked

urgently to address the unprecedented challenge that corporate sector and retail sector is witnessing

at present.

Financial and Business Impacts

Area Comments Actions banks and financial institutions should consider

Liquidity Management

- The NRB has taken a variety of actions to ensure market liquidity. - Some institutions’ contingency funding plans (CFPs) may have already been invoked. And due to market volatility, there could be big swings in stress testing results and limit/threshold breaches. Some market participants may already be experiencing increased liquidity tightening.

- Banks should closely review and monitor daily liquidity stress testing reporting, limit/threshold monitoring, liquidity coverage ratio (LCR) results, etc. They should be monitoring market activity against their liquidity stress indicators for triggers that would activate the CFP. - Analyses should be conducted to determine the size and impact of any liquidity shortfall if liquidity stress indicators are being triggered regularly.

Capital Management

Risk-weighted assets (RWA) may be impacted by higher charges from increased volatility levels and higher counterparty risks.

- Assumptions driving the valuation of asset values should be revisited. - Additional stress tests with different underlying scenarios specific to COVID-19 should be conducted.

Revenue and Cost Management

- If general economic conditions deteriorate and lead to lower GDP growth, there could be reduced demand for banking products and services. - With NRB aggressively cutting interest rates, banks’ net interest income will likely be challenged.

Work with relevant departments and units to develop an understanding of potential revenue hits and outline steps for mitigation.

Loan Book, Covenants, and Exception Management

- With clients potentially experiencing stressed financial conditions, credit quality/ratings may be affected. - Also, pledged collateral may experience a decline in value. - Customers, both retail and institutional, may resort to minimal or delayed payments on their loan balances.

- Find out which sectors/regions/clients are most at risk. - Reach out to clients with communications and information requests to provide temporary help as appropriate. - Loan loss provisions under different economic scenarios should be reexamined.


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Trading/Hedging Strategies

Currently, increased volatility and decline in prices across many asset classes have impacted the trading books and increased market risk as well as counterparty credit risk.

Capital allocations and hedging strategies across trading books should be revisited.

Risk and Control

Area Comments Actions banks and financial institutions should consider

Market Risk A sharp drop in interest rates and increased volatility in securities and Forex prices increase banks’ market risk, potentially leading to losses.

- Revisit internal models capturing market risk and account for potentially higher correlation. - Communicate with the regulator if capital is adversely affected and materially differs from model-implied scenarios.

Counterparty Credit Risk

Recent market events may have affected counterparties’ credit profile.

- Assess/revisit existing contracts with counterparties most at risk. - Work with market intermediaries to stay informed about any changes to counterparties’ standing.

Non-Financial Risks - Non-financial risks such as conduct risk/culture, model risk, third-party risk, and cyber risk may also become more pressing. - Potential disruptions to trading infrastructure may require that trades be rerouted to other venues, locations, and countries.

- Rethink risk controls for alternate work arrangements and potential disruptions that could warrant a reassessment of conduct risk, cyber risk, and third-party risk. - Revisit to what extent model assumptions reflect current and possibly future market conditions. - Obtain clarity from regulators about alternate trade routing.

Risk Governance If a bank’s operating model needs to change, it may become difficult for the board of directors to continue to meet governance obligations such as overseeing risk, providing credible challenge to management, and acting as responsible stewards of the organization.

- Management should err on the side of over communicating with the board of directors, keeping them apprised and seeking their guidance on alternate operating procedures. - Flexibility in work arrangements and speed of decision-making among the board of directors could become paramount in these circumstances.


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Dividends - Banks have been returning capital to shareholders in the form of dividends over the past few years. - Recent market stress may put liquidity pressure on banks, which may want to preserve capital by halting or reducing dividends.

Assess institutional shareholder interest and preferences for dividends and communicate any potential changes.

Credit Ratings - The COVID-19-induced market environment may negatively impact banks’ credit rating profile. - New systemic, country, or other business risk factors may intensify and affect the creditworthiness of banks, counterparties, and borrowers, especially in the high-yield grade.

- Stay in active communication with rating agencies and apprise them of changes to the credit standing. - Determine whether any rating actions flowing from COVID-19-induced stress would necessitate giving counterparties and borrowers some slack.


Aspects Recommendation

Don’t change the Rules

Doing this in the midst of a crisis will likely cause more confusion. Likewise, be prepared to give banks time to meet rules if they fall short, and hold off on implementing new initiatives—banks should remain focused on maintaining ongoing operations, given the increased difficulties of conducting such operations remotely

Use the buffers Regulators have to communicate clearly that capital and liquidity buffers should

support continued bank lending, without adverse consequences for bank management. Banks built these buffers well above Basel minimum standards to manage strains on liquidity and revenue loss from missed loan repayments

Encourage loan modification

Supervisors should clearly communicate to banks to be proactive in rescheduling their loan portfolio for those borrowers and sectors that have been hard hit by the severe, but temporary, shock. They should also remind banks about flexible credit risk management and the accounting standards for impairment in these situations. Accounting bodies should helpfully stepped in to clarify to auditors how such modifications should be viewed once the economy begins to recover.

Don’t hide the losses

Banks, investors, shareholders and even taxpayers have to bear them. Transparency helps prepare all stakeholders; surprises only worsen their response, as was proven during the 2008 crisis.


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Clarify regulatory treatment of support measures

Clarifying upfront how banks and regulators should treat fiscal measures, including measures directly targeted at borrowers, credit guarantees, payment holidays, direct transfers and subsidies—beyond any current guidance in the Basel capital framework—would help with overall transparency

Strengthen communication

Encourage continuous dialogue between supervisors and banks, especially in this unprecedented situation of working remotely with colleagues, customers, and supervisors. Typically, reporting requirements in key areas, such as liquidity and creditor positions, are enhanced in a crisis, but given operational disruptions, deferring other reporting requirements less material to assessments of financial health may make sense

Coordinate across borders

Banking is a global business. Broad coordination among national regulators at the international level is imperative. This crisis will pass eventually, and the effects may take time to dissipate, but preserving the integrity of the international framework will be crucial for the credibility and integrity of the global financial system. International bodies like the Financial Stability Board and the Basel Committee on Banking Supervision are working night and day to do just this.


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F. Insurance Sector



Strain on Investment Portfolios

Insurance companies rely on their investment portfolios to generate returns. Markets have been in turmoil and, as a result, insurers’ investment portfolios may be significantly impacted. Additionally, interest income revenue streams may quickly dry up as interest rates continue to drop

Delayed Payments Regulators are urging insurance companies to accept late premium

payments with no penalty, putting a strain on cash flow. Despite liquidity being impacted, insurance companies are still being expected to pay out claims

Decreased Premium Volume

Full or partial closing of businesses coupled with social distancing has led to decreased demand for insurance. Lower payroll levels lead to lower payroll-based premiums, such as those in workers’ compensation, and an uptick in layoffs results in fewer people buying houses, cars, and other insurable purchases. A decrease in premium volume means a decrease in income for insurers

Coverage Disputes Pandemics are generally excluded from insurance policy coverage and

therefore policy premium has not included the necessary charges to provide such coverage. A number of countries are attempting to legislate to force insurance companies to provide insurance coverage for business interruption and other losses for claims resulting from the COVID-19 pandemic. There is uncertainty regarding which party will ultimately incur the additional cost for these adjustments

Cybersecurity Attack Companies have seen an increase in cyber-attacks in the wake of the

business disruption that has resulted from the COVID-19 pandemic. The rapid shift to a remote workforce, for example, has created openings for more vulnerabilities, which can be combatted with operational safeguards, employee support and training, process revisions and updates, and deployment of virtual technologies

Aviation Insurance Ground risk hull insurance in motion and Inflight insurance are going to be in

reduced risk as aircrafts are flying less and it is going to see equally less premium for insurance industry. This sector could see major bankruptcy, reducing the capability of airlines to buy new aircraft. Growth in aviation insurance may see a major dip

Sector Overview Total no of life insurance policy upto FY 2018/19 5,152,587

Total no of Non-life insurance policy upto FY 2018/19 104,563

Total no of Employee upto FY 2018/19 9,028

GDP contribution 2.43%


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Automatic rollover with delayed payments

In the lockdown phase, the regulator can provide a provision for automatic renewal with a grace of certain duration for premium payments to ensure policies stay in force

Accelerated product approval

The post lockdown situation would be challenging economically, and the industry would look at introducing products calibrated to the same. An accelerated approval process, specifically for retail products shall be beneficial

Accelerated payments for government policies

Accelerated payments of premium for government policies would be extremely beneficial for the cash flows of insurance companies

Increase in FDI limit It will be worthwhile to consider increasing the proposed FDI limit sooner to

ensure adequate capital for insurers given the stress


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G. Consumer and Retail Business

Sector Overview Sector Contribution to GDP 14.37 Percent (Wholesale and Retail)

Sector Contribution to Employment More than 1,240,000 (Direct Jobs) - 2017/18 (Wholesale and Retail)

Key Domestic Market Kathmandu, Biratnagar, Pokhara , Birgunj

Outstanding loans From Commercial Bank 54,347.56 (NPR in Ten Million) - 2018/19 (Wholesale and Retail)

Last 10 Year Growth Rate 6.5 per annum

National Wholesale Price Index 104.8 (Mid-March 2018/19)



Supply Side

Price variation of key raw materials

✓

Raw material supplies could be a challenged due to disrupted supply chains.

Production shutdown

✓ Production for specific categories non-essential would be a major challenge, with demand unlikely to pick up immediately

Labor Force

✓ Labor needs to be aligned to service essential-based services.

Cash flow constraints

✓

Cash rotation would slow down for all categories, though food and grocery retail would be less impacted. Large retail companies can be expected to renegotiate rental contracts by invoking the force majeure clause.


✓

Supply chain seems to be the big challenge and needs realignment given recent announcements on essentials. Retailers’ supply-chain difficulties have largely arisen as big shifts in consumer behavior and stepped-up health restrictions have rippled back through their operations. An abrupt swing in purchasing patterns has adverse impact. Fastest and safest delivery of high demand products like grocery, hygiene and medical products is crucial. However E-commerce supplier can view pandemic as opportunity to retain and obtain new customer.

Imports

✓

The wholesale and retail sector is already being affected by the drastic downfall in imports from China and India following the outbreak of the COVID 19. Further, China is Nepal’s second largest trading partner, after India, and a large number of retail goods are imported from China.

Demand Side

Source: Economic Survey FY 2018/19, NLFS-Final Report 2017/18, A Survey report on FDI in Nepal 2018


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✓

Stronger demand for delivery through e-commerce: consumer to buy essentials and postpone purchase of non-essentials.

Consumer Sentiment

✓

Sentiment will be to conserve cash due to uncertainty of duration of Lockdown.

Exports

✓ Export of beverage, and tea are expected to suffer as they depend largely on Europe and the United States.


The e-commerce sector will also face the challenges due to COVID-19 and may see a dip in growth.

There will be increased pressure on supply chain for deliveries of products and another challenge for e-

commerce companies is that they will need to equip their employees with the appropriate resources to

manage operations remotely with little or no disruption.

In the midst of a global pandemic and with the guidance around social distancing to counter the COVID-

19 threat, it is logical to expect consumers to over-stock on essential products and commodities.

Going forward, we could expect companies to explore newer distribution channels focused on a direct

to consumer route. Further, the ability to predict and manage demand will be a game changer. In this

environment, shopping up the customer relationship while focusing on the bottom line will be key.

Inventory turnover is likely to be disrupted while funding gap continues to expand.

For most retailers/consumers goods companies, there is an immediate pressure for them to focus on

managing excess inventory caused by a dip in consumer spending, especially for items with a shorter

shelf life. On the contrary, certain popular commodities, such as dis infection products and instant food,

may be out of stock. This has presented challenges to them trying to maintain stable supply of these

commodities.

As per the Nepal Macroeconomic Update Volume 8, No .1 April 2020, Food inflation increased by 9.8%

y-o-y as of mid-February 2020 with significant increase in the prices of vegetables, spices and alcoholic

beverages. Food prices elevated owing to late monsoon and disruption in supply channel. The temporary

closure of international borders over COVID-19 concern has already nudged up food prices. The

average annual inflation in FY 2020 could be more than the anticipated if the situation further worsens

due to COVID-19 pandemic.

As per the Nepal Macroeconomic Update Volume 8, No .1 April 2020, based on different scenarios for

the impact of COVID-19 in Nepal, percentage of loss of GDP in Wholesale and retail sector has been

summarized below.

NPR in Million

Scenario Nationwide lockdown imposed From

Particulars Scenario I (From 24 March to 7 April 2020)

Scenario II (Further prolongs for weeks)

Scenario III (for 1 – 2months )

Wholesale and retail trade 1,835.10 3,145.9 0 3,801.30

Loss as % of sector GDP 0.40 0.70 0.80


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As per the ILO Monitor 2nd Edition: COVID-19 and the world of work, of the economic sectors most

affected, the wholesale and retail trade segment represents the largest share of workers, who are

typically low paid and unprotected. This group of 482 million workers includes, among others, checkout

clerks, stockers, shopkeepers and workers in related jobs. Workers in this sector who are engaged in

activities deemed essential (e.g. food distribution) may continue to work, but they face greater

occupational health risks. Workers in non-essential businesses face widespread closures and sharp

reductions in employment and hours.

There could be shortage of goods in the retail market after a week if the government fails to issue passes

for traders to obtain goods from the wholesalers.

There is a problem in the sales of vegetables and milk in the market due to lack of supply of those goods

from outside the Valley.

The overall supply of food and non-food commodities is likely to be limited as precautionary measures

are taken to curb the increased risk of contamination of corona virus (COVID19) which has spread across

the world. This will likely reduce the smooth movement of transportation services which will likely reduce

the supply of commodities. Market closure, even in the presence of ample supply, could affect availability

if enacted. Indian border closure or limits on imports could also have severe effects in especially high-

volume urban markets in the Terai and mid-hill areas of the country.




- The Government has extended tax payment and filing deadline of 12 April 2020 for businesses until 7 May, 2020 which is a relief.

- All VAT and other tax refunds should be credited to businesses immediately to tide over the lack of fund availability with the enterprises.

Personal income tax-slab-reduction.


- Payment deferment or interest waivers or special rebates to ensure that micro/small retailers have cash flows to pay workers and suppliers

- Banks could extend credit limits for small retailers.

- Confirm finance is a valuable, responsive business partner that can bring a deep understanding of current operations and workforce capabilities to help respond agilely to the rapidly changing business environment

- Improve cash conversion cycles-receivables, payables and inventory.

- Minimize outlays by deferring non-essential projects and expenses.

- Management needs to develop a more refined measure of cash flow estimation, ensuring that funds are used as efficiently as possible.


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Cost Reduction Measure

- Remove unnecessary expenses such as equipment sourcing, store renovations, etc.

- Deferred payment should be negotiated with the suppliers.

- Expenses not directly related to the entity survival should be minimized as much as possible.


- Digital payment should be prioritized in order to enable easy and COVID-19 risk free transactions.

- Boost e-commerce capabilities to address increased consumer demand for online shopping.

- Entity should ensure their employees’ health and safety through regular sanitation and disinfection of physical stores and provide protective equipment.

For e-commerce players, support to be provided to ensure smooth supply chain operations during crisis-like situation.

Stock Management - Define contingency plans to secure continuity of supply.

- For entities selling perishable foods, such as fruits and vegetables and fresh produce, an inventory stock-taking process with higher

- Pay more emphasis on food packaging, frequency and a designated store manager should be implemented. Expired commodities must be pulled from the shelves, and discounts can be given on those goods that are nearly expired.


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Financial Reporting - Disclosures to be included in Financial Statements and their impact on financial data reported in subsequent periods.

- Reporting entities should check for possible impairment caused by COVID 19.

- In crisis, covenant breaches may become more frequent. Entities should analyze the effects of a breach they may commit on the debt repayment terms (e.g. whether repayment becomes due on demand) and how this may affect the classification of related liabilities as at the reporting period end

- In the difficult economic situation, the calculation of correct Net Realizable Value may be more difficult than earlier and require additional analyses. The verification should be made properly to make sure that costs not allocated so far shall be included in profit/loss of the period they pertain to, without rolling forward.

- Plan for disclosures about risk, such as how recent events may impact current and future judgments and estimates inherent in Financial reporting (e.g., inventory obsolescence, receivables collectability, debt covenants, impairments)

- The management of the entities materially affected by COVID 19 will have to consider the reasonableness of adopting the going concern assumption when preparing the financial statements.

Opportunity Emphasize and build digital capabilities, from e-commerce to marketing to new ways of working.

Focus on delivery capacity of logistics.

Others

Guideline and preventive measures coupled with dis-infection initiatives across all cities in Nepal

Gradual opening of markets/malls within social distancing norms.


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H. Tourism Sector

Sector Overview

Sector Contribution to GDP 6.7% (NPR 231.0 BN)

Sector Contribution to Employment 1034.0 (6.9% of Total Employment)

Key Business Sectors Airlines, Hotels, Tourist Vehicle, Restaurant, Trekking, Travel & Tours

Key Market Destination Pokhara, Chitwan, Bandipur, Lumbini, Thamel

FDI Contribution in the form Equity 14.10% (Upto FY 2075-76)

FCY Income Contribution 67.09 Billion (FY 2017-18 i.e 5% of Total FCY Earnings)



Supply Side

Price variation

✓

- Decline in international and national flights causing significant decline in the demand for turbine fuel. - Falling demand for crude oil prices due to sluggish economic activities on account of COVID-19 outbreak and price war between Russia and OPEC countries will cause decline in cost of petroleum. - Disruptions in Food Supply Chain and extended lock down in neighboring India may increase prices of food.

Labor Force

✓

Tourism employs around 1.034 million persons directly and indirectly. Impact is likely to be felt across the spectrum.


✓

ADB estimates decline in Tourism Revenue -0.033% of GDP i.e USD -9.7 Million (Best Case), -0.050% of GDP i.e USD -14.5 Million(Moderate Case), -0.100% of GDP i.e USD -29.1 Million (Worst Case)

Demand Side

Lockdown/restriction impact Consumer Sentiment

✓

With Suspension of Nepal Tourism Year, 2020 and travel restriction by India and China both along with European Economies total inbound tourist shall be all time low

Source: - WTTC Travel & Tourism Economic Impact 2019

- https://www.wttc.org/economic-impact/country-analysis/country-data, Industrial Statistics 2075-76,

- Economic Survey 2018-19, Ministry of Finance,

- www.adb.org

- Nepal Tourism Board

- The Kathmandu Post

- UNWTO, Impact assessment of the COVID-19 outbreak on international tourism, Updated 24 March, 2020

https://www.wttc.org/economic-impact/country-analysis/country-data,%20Industrial%20Statistics%202075-76

http://www.adb.org/


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Current and Potential Impact on the Value Chain Tourism and travel is one of the worst hit sector on account of COVID-19 crisis. China, where the

crisis originated and is one of the worst hit area, along with India, where the cases of infection are on the rise, account for more than 35% of inbound tourists.

With the suspension of Nepal Tourism Year, 2020 the expectation of inviting 2 million tourists and

substantial growth in this sector has been heavily impacted.

Cascading adverse effect on Labor Market is expected, suspension of on-arrival Visas and Everest expedition alone to cause around 20000 job losses among trekking and tour guides while low occupancy in hotels, restaurant to cause layoffs.

UNWTO estimates international tourist arrivals could decline by 20% to 30% in 2020.This would translate into a loss of 300 to 450 US$ billion in international tourism receipts (exports) – almost one third of the US$ 1.5 trillion generated globally in the worst-case scenario.

Tourism’s economic and social footprint dwarfs that of any other economic sector. While this makes tourism vulnerable, it also puts the sector in a unique position to contribute to wider recovery plans and actions.

Key Policy Recommendations Recommendations Short Term Medium to Long Term

Support for End Customers

Ensure consumer protection, hygiene,

health and travel insurance facilities along with easy mechanisms for Advance Refunds

Adjust travel restriction continuously to

address the level of threat of the COVID crisis & ensure accessible, consistent & reliable information on travel restrictions

and other advisories

Review Taxes & Charges

Deferment of due dates of VAT, TDS, Excise and Advance Tax. Extensions and adjournment of ongoing Revenue cases. Reduction in Airport Charges

especially in domestic tourism.

Reduction in Corporate Tax upto 1/3 of

existing rates. Reduction in Individual tax rate to employees. VAT Holidays or at least reduction in VAT rate on tourism related business. VAT Refund on Stock

loss to business.

Incentivize Job Retention and promote new jobs & skills development especially digital ones

Incentivize Job Retention through

reduction in Social Security payments, mechanism for partial employment and special protection measures for vulnerable groups

Special programs for promoting

employment, upskilling and reskilling through digital intervention, encouraging entrepreneurship, identification of new tourism products and promoting tourism in other general programs.

Reduce Financial Stress and providing financial stimulus

Support entities liquidity through

moratorium on loan repayments & interests, deferred and reduced social security payments, flexible credit loans, well-targeted grants for small business and encourage investment into tourism sector.

Provide Financial Stimulus through

prioritized lending, incentivized FDI, fast track investment in infrastructure, encourage completion of tourism infrastructure like airports, roads, bridges etc, promoting Digital intervention and transformation of tourism Government Funding for entities in distress.


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Others Campaigning along the line of Stay Home Today #Travel tomorrow.

Aggressive Campaigning along alternative line like Tourism Decade 2020-2030 and further easing of Visa

Facilitation Services, diversification of markets by encouraging Domestic Tourism, encourage and subsidize

international events and conferences, incentivize Social Tourism Schemes and Digital Marketing.


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I. Aviation Sector

Sector Overview Sector Contribution to GDP 3.70 Percent of GDP (2018)

Sector Contribution to Employment More than 14, 000 (Direct Jobs) - 2018

Central Government Spending NPR 15.85 Billion Allocated to the Aviation Sector (2019/20 Budget Speech)

No of International Airport 1 (2018/19)

No of International Airlines operating Flights to Nepal 29 (2018/19)

Tourist Arrival by Air (Numbers)

969,287 (Year 2019-Mid Jan)

Top Five International Tourist Arrival India, China, The United States, The United Kingdom, Sri Lanka

Top Five Business Direct Flight Arrival India, Malaysia, Qatar, Saudi Arabia, United Arab Emirates

Top Five Business Air Cargo Routes Qatar, India, China, Hong Kong, Thailand

Visa Requirement Score 6.6/10

Air Trade Facilitation Index 5.5/10

FDI Contribution in the form of Equity USD %1.9 Billion ( 2018)



Supply Side

Price variation

✓

With international and domestic travel closed, demand for turbine fuel will substantially decline.


✓

The Airliners Association of Nepal (AAON) has predicted that the loss of the industry could hit NPR 4 Billion with the statistics of 40% slash in the market faced in first 2 months of this year.

Labor Force

✓ Impact likely to be felt on both white and blue collar jobs.

Demand Side


✓ Outbound travel and inbound travel to Nepal will be at an all-time low.

Consumer Sentiment ✓

Source:

- Economic Survey FY 2018/19, NLFS-Final Report 2017/18, A Survey report on FDI in Nepal, 2018

- IATA Economics: www.iata.org/economics The Importance of Air transport in Nepal

- Budget Speech 2019/202018


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This has made a direct impact on the number of tourists entering Nepal for tourism as well as business

purposes. The airlines booking have sliced drastically and the domestic tourism has also been affected the same way.

The government extended the suspension of regular international and domestic flights a further two weeks until 23:59 hours on 30 April 2020.

The peak tourism and mountaineering season is soon to start in Nepal. However, the foreigners have cancelled their bookings and it directly impact the aviation industry of Nepal this year. The effect in the industry could last as long as six months.

COVID 19 has affected the credit worthiness of corporation as their ability to pay loan, trade or lease liabilities.

The latest research from World Travel and Tourism (WTTC) estimates that up to 75 million jobs are at immediate risk. The research level reveals a potential Travel and Tourism GDP loss of up to USD 2.1 trillion in 2020.

WTTC also estimates that a staggering one million jobs are being lost every day in the Travel and Tourism sector due to the sweeping effect of the coronavirus pandemic. The Asia-Pacific region is expected to be most heavily impact with up to 49 million jobs at risk throughout the region, representing a loss of nearly USD 800 billion to Travel and Tourism GDP.

According to Oxford Economics (OE), the global impacts are expected to be greater than during SARS (2003), with significant impacts in more destinations due to a much greater reliance on Chinese Travel.

Comparing 2019 figures to current data, STR found that hotel occupancy is down as much as 96% in Italy, 68% down in China, 67% down in the United Kingdom, 59% in the United States and 48% in Singapore.

IATA estimates that only 30 out of 300 airlines have enough liquidity to survive for more than 3 months and most airlines only have 2 months of liquidity.

IATA estimated 2020 global revenue losses has moved beyond its extensive scenario implying USD 113 billion loss of passenger revenues (19%) worldwide in 2020.

The construction of Pokhara International Airport and Gautam Buddha International Airport are being greatly affected due to the absence of Chinese workers. These projects are built by Chinese firms and the majority of their staff are Chinese nationals.

Source:

- World Travel & Tourism Council (WTTC)

- Oxford Economics

- The International Air Transport Association (IATA)

- Self-Tuning Regulator (STR)

- Airliners Association of Nepal (AAON)


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- The Government has extended tax payment and filing deadline of 12 April 2020 for businesses until 7 May, 2020 which is a relief.

- Government should reduce the investment cost of the airline companies by reducing value added tax on spare parts and aviation turbine fuel (ATF). For same price of ATF should be reduced.

Provide Tax holiday to all regular tax paying travel and tourism services for Fiscal Year 2019/2020.

Cost Reduction Measure

- A Freeze on all non-essential and consultancy work

- Encouraging employees to take leave in light of reduced flying capacity

- Set a temporary withdraw limit (i.e. 40%) in salary or a temporary reduction of basis salary for the majority employees for three months, ranging from 25% to 50%.

- Postponing or cancelling discretionary expenditure.

- Government to waive upto 100% on airport service charges (including aircraft landing, parking , navigation and security fee at the airport) for the year 2020.

Easing Financial Stress in the Sector - Moratorium for next 12 months

on all interests, principal amounts and covenants relaxation for all loans, including payments of all principal and interests in airlines/hospitality/ travel services entities without limitation of size or turnover through a direction to all financial institutions.

- Coordinate with Nepal Rastra Bank to refinance interest rates of airlines companies.

- Deferred payment to suppliers.

- All tourism entities-airlines and hospitality must be treated as priority sector lending.

- Increased credit allowance to airlines by CAAN, Oil companies etc.

- No loan may be classified as NPA and no collateral enforced or enhanced in this period of moratorium.

Capacity - Airports must reassess their

airline customer needs and quickly adjust the terminal and runway systems by closing down facilities.

- Halt investments and negotiate with unions about at least

- Model the CAPEX position scenarios over the next six, nine and 12 months of disruption and create contingency plans for each scenario.

- Business continuity must be addressed from a total airport


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reduced working hours and pay cuts.

- Use the time to perform maintenance work.

perspective, looking at not jot airport operation but also other service providers-including security services, ground handlers, retailers and catering companies.


Immediately implement sanitation measures and reconfigure workspaces for safety.

Financial Reporting

- Disclosures to be included in Financial Statements and their impact on financial data reported in subsequent periods.

- Reporting entities should check for possible impairment caused by COVID 19.

- Plan for disclosures about risk, such as how recent events may impact current and future judgments and estimates inherent in Financial reporting( e.g. debt covenants, impairments)

- The management of the entities materially affected by COVID 19 will have to consider the reasonableness of adopting the going concern assumption when preparing the financial statements.

Support for customer

- Promote safety and hygiene through publications, detailing hygiene levels of tourists destinations and safety assessments

- Healthcare and insurance incentives.

Others Campaign - “Postpone travel, don’t cancel. Allow travelers to postpone their travels up to 12 months.

Promote domestic tourism


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J. Telecom Sector

Sector Overview

Sector Contribution to GDP 7.23% (Estimated)

Sector Contribution to Employment 60,000

Total Subscriptions 42.9 million Connections (Voice Telephony Service) and 21.4 million Connection (Broadband Services) as of December 2019


Parameter Low Med High Comments Supply Side

Price variation of materials/equipments

✓

Disruption in supply chain and suspension of manufacturing facilities of telecommunication equipment & mobile handset, disruption in mobilization of labor for maintenance is likely to have significant impact on Telecom Sector.

Bandwidth availability

✓

Network Availability

✓


✓

Labor Force ✓ Demand Side


✓

Increased demand in bandwidth usage, new subscriptions are likely to decrease. The Government instruction to provide 25% discount.

Consumer Sentiment

✓

Revenue Impact

✓


Telecom is one of the most essential services as defined by the government and is one of the key enabler to fight against COVID-19.

Internet Service Provider are facing difficulties complying with Government Instruction of 25% discount during lockdown period on account of increased cost of Network and Bandwidth maintenance in light of surge in demand while the no. of subscription and related fees remain the same.

Telecom sector is witnessing sudden surge in demand on account of enforced lockdown and concept of work from home.

Source:

- Economic Survey, Ministry of Finance, Nepal Labor Force Survey 2017-18

- NTA MIS Report Mangsir, 2076

- Industrial Statistics 2075-76, Department of Industries, NTA Notice dated 23 March, 2020

- The Kathmandu Post


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Telecom companies are required to use a combination of tools like Fair Usage Policy, Educating responsible use, use of AI for load balancing along with increase in Cyber Security Measures to address the demand of Work from Home practices.

Telecom service providers need to address the demand of data privacy and cyber security in the recent light of breach in personal data of users and breach of privacy trust by industry leaders in technology.



Review Taxes & Charges

Deferment of due dates of VAT, TDS,

Excise and Advance Tax. Extensions and adjournment of ongoing Revenue cases. Subsidize ISPs to provide the declared

discounts.

Exemption from demurrage charges and allow demurrage charge in foreign ports as expenses, reduction in Custom duty, excise and VAT on imports of telecom equipment and handsets for capacity expansion and encourage consumption.

Support liquidity and reduce financial stress

Moratorium on loans repayment, deferment of social security, taxes to encourage liquidity

Support to End Users

Encourage responsible use of Internet especially during peak hours. Use of AI for load balancing, and management of

additional bandwidth on temporary basis. Manage seamless onsite service and availability of recharge coupons to consumers

Enhance cyber security and cloud services. Provide profound tools to encourage work from home, use of local cache servers to reduce load

Others Use of Telecom as means of

managing disruption through tele-medicine, tele conferencing.

Encourage use of IT and Telecom as means of Contact Tracing

Implement use of Telecom Service for AR/VR for deploying health solutions in remote areas.


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K. Hydropower Sector

Sector Overview

Sector Contribution to GDP 1.25 % of GDP

Installed Capacity 1,126.71 MW (as on 13 March 2020)

Hydro Potential(Feasible) 43,000 MW

Sector Contribution to Employment Employment to 34,000 individuals (0.5% of the total employment)

EODB Ranking: Getting Electricity 135th among 190 Countries

Peak Deficit 78.06 MW

Power Contribution NEA - 33.75%, IPP - 29.00%, India(Import) - 37.25%

FDI Contribution in the form Equity 13.9% (NPR 19,177.5 million)



Supply Side

Price variation of key raw materials ✓

The equipment and machinery needed for constructions may be in short supply and consequently the prize may be higher.

Production shutdown

✓ The impact is limited as it is an essential service. However, the cost may increase if sustained over a longer period.

Labor Force ✓ NA

Cash flow constraints ✓ The Revenue collection may be affected.


✓ Minimal impact.

Imports (if applicable)

NA

Demand Side


✓

The Domestic Consumption is likely to increase whereas the industrial and commercial demand (50.32% contribution to gross revenue) will be adversely affected.


Current and Potential Impact on the Value Chain Electricity Demand The daily energy consumption patterns has turned out to be gloomy when

the system is experiencing its fall to about 15 million units of electrical energy, which could be at least 21 million units under normal conditions, clearly signaling hat NEA's monthly revenue is shrinking by around NPR. 1.8 billion in the present context.

Electricity Supply Being Essential service, power generation is less likely to be impacted.

Source: Economic Survey FY 2018/19, Labor Survey 2017/18, A Survey report on FDI in Nepal 2018, Annual Report NEA


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Capital Expenditure About 24,724 MW projects under construction are likely to get delayed by reason of disruption in supply chain and labor availability with prolonged lockdown, thereby impacting the debt service and project viability. Further, the Delay in turn would increase the pre-operative expenses and the overall project cost, which in turn would have impact on the expected returns.

Revenue/Cash Flows Collection delays and defaults likely by consumers. Revenue collection from the consumers will decrease, leading to a probable liquidity crisis for NEA, to run its power plants, bear the minimum expenses of operation and maintenance of system and pay to the IPPs for power procurement.

Labor/Employment Significant impact unlikely as electricity is an essential service and sustained operation is critical. Manufacturing and construction part of value chain may face temporary job losses in case of delay in under construction projects, esp. the contract based labor.


Recommendations

Financial Stress Stimulus packages/Financial Support for utility to continue service to Customers. Moratorium on debt servicing over a 3 month period and moderation in the interest rate cycle. Facilitating E-commerce for revenue collection.

Others Postponing non-essential maintenance. Late fee Waiver, Support to consumers unable to pay bills. Isolated control room operation and critical operations team. Well-equipped emergency response team and proactive maintenance of near failure equipment.

Source:

- Economic Survey 2018/19, Ministry of Finance, Government of Nepal

- Department of Electricity Development

- Report on the Nepal Labor Force Survey 2017/18

- Doing Business 2020, The World Bank

- Annual Report of Nepal Electricity Authority, Released on 2018

- A Survey Report on Foreign Direct Investment in Nepal 2018

- Nepal Macroeconomic Update, April 2020

- https://thehimalayantimes.com/opinion/covid-19-in-nepals-power-sector/


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L. Real Estate Sector

Sector Overview

Sector Contribution to GDP 11.53% of GDP (FY 2018/19)

Sector Contribution to Employment Employment to 17,000 individuals (0.2% of total employment)

Current and Potential Impact on the Sector Parameter Low Med High Comments

Supply Side


✓

Anticipated increase in raw material cost including Iron, steel, and other equipment imported from China and India.

Production shutdown

✓

Profound impact on sourcing of building material and labor.

Labor Force

✓ Significant shortage of labor force.


✓

Weakening sale velocity and restricted travel would impact the cash flows in the residential, hospitality and retail segments.


✓

Delayed construction owing to disruption in supply chain network.


✓

Nepal imports a Significant quantity of hardware used in buildings form China, which is going to be halted amid the pandemic.

Demand Side


✓

Weakened Sales within residential segment and lower footfalls for retail and hospitality segment.

Consumer Sentiment

✓

Potential change in user habits due to existing industry shutdown.

Current and Potential Impact on the Value Chain Given the lockdown, construction of incomplete projects has come to a complete standstill across

the country. Hence the Project Deliveries will get deferred.

Anticipated increase in raw material cost as the overall halt in the import of steel, cement and other equipment from China and India.

Source:

- Economic Survey FY 2018/19, Labor Survey 2017/18

- A Survey report on FDI in Nepal 2018

- https://tkpo.st/2wuoZFr


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The construction sector, which has already been sluggish from the early days of this fiscal year, is expected to be hit further. Nepal imports a significant quantity of hardware used in buildings from China and hardware traders have said they will be in short supply after a month.

May further lead to Shortage of Labor force even after the pandemic.

Adverse impact on the prevailing liquidity crunch, a high inventory overhang, weak affordability and subdued demand conditions due to the pandemic.

Demand risks for the housing sector are likely to increase, given the rising apprehensions on overall economic growth and contagion related fears leading to reduced walk-ins and inabilities to carry out site visits, thus resulting in some decline in new sales and the associated collections.



Tax and Compliance related

The due dates for depositing tax and tax returns to be extended.

Tax incentive/holiday for at least a year.

Easing Financial Stress in the sector

No interest payments for three months for developers for the loans availed.

Reduction in the interest rate of loans/facilities availed, and option for rescheduling and restructuring of loans.

Others i. Activate a business continuity

plan for real estate operations. ii. Increase hygiene and cleaning

measures on site and consider waste management, and also bring in more outdoor air in buildings with heating and ventilation systems (or opening windows in buildings without) to help dilute airborne contaminants

i. Continuity of mobile and remote-working enablement programmes.

ii. An increase in workplace technology adoption – sensors, air quality and occupancy indicators – and the faster deployment and use of PropTech and MedTech to enhance workplace safety.


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M. Transport and Logistics Sector

Sector Overview

Sector Contribution to GDP 7.23%

Sector Contribution to Employment 4.5%

FDI Contribution in the form Equity 64,674 million (mid July 2016)

No. of Vehicles Registered 3,539,518

Impact on Transportation Infrastructure


Supply Side


✓

Impact due to short term fluctuation in material cost

Production shutdown

✓ Low asset utilization for short term to medium term

Labor Force ✓

Labor availability issue for limited duration


✓ Cash flow for construction


✓

Impact low due to raw material supply challenges


NA

Demand Side


✓

Project Delay

Consumer Sentiment

NA

Exports (if applicable) NA

Impact on Public Transport Services


Supply Side


✓

Fuel price reduction to have low impact for short term

Production shutdown

✓ Low asset utilization

Labor Force ✓

Availability not an issue


✓ Repayment of debt services to impact in short term


✓

Impact on supply chain for short term

Source: Economic Survey FY 2018/19, Labor Survey 2017/18, A Survey report on FDI in Nepal 2018


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NA

Demand Side


✓

Artificial Demand reduction

Consumer Sentiment

✓

Impact from the consumer sentiment as more to opt for private vehicles


Impact on logistics and Freight Services


Supply Side

Price variation of key raw materials ✓

Impact positive due to reduced fuel prices

Production shutdown

✓ Low cargo volume impacts

Labor Force ✓

Daily services has been impacted


✓ Working capital and debt service challenges


✓ Impact on cargo volume


✓ Impact on cargo volume

Demand Side


✓

Impact on cargo volume and revenue

Consumer Sentiment

NA

Exports (if applicable) ✓ Impact on cargo volume and revenue


The price reduction of crude oil is likely to impact the transportation costs positively in the short term.

Major infrastructure projects are to be delayed which leads to time and cost overruns during the project development.

Across the transportation and logistics asset utilization are expected to reduce in short term

Low demand for logistics and transport to put downward pressure on prices across various transportation and logistics sub sectors like warehousing, freight transportation.

Labor forces are impacted to low extent as transportation sector being an essential sector. However daily wage earners are impacted in short to medium term.

Revenue impact of cab aggregators as passengers are reduced significantly


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A surge in private transport is anticipated as people have become wary of public transport due to perceived potential health risks

Storage facilities such as warehouses which are majorly dependent on EXIM and domestic trade are expected to experience reduced cargo volume impacting revenues.



Tax and compliance related

i. Relaxation in timeliness and documentation for compliance

ii. Also short term tax benefits can be given

Digitization of compliance related processes


i. Banks and financial institution can support these sectors in meeting the working capital requirement or loan repayment in short term

Relaxation can be given through deferring the interest payment on existing loan or rescheduling the loan

Support for end Customer

i. Direct benefit Transfer to daily earners impacted by the sector slowdown

Fair and transparent pricing of all the relevant transport and logistic services through price caps.

Guidelines for transport

i. Immediate guidelines for safe and hygienic travel.

ii. Cancelled tickets and rebooking issue to be addressed

Policy support and standardization for hygienic travel through establishment of health desk at the major bus stations.


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N. Health Care Services

Sector Overview Sector Contribution to GDP 1.75%





✓

Impact medium due to short term fluctuation

Production shutdown

✓

Production to be impacted due to shortage of raw materials

Labor Force

✓

Labor supply not to match the demand in short term


✓

Cash flow shall be impacted in short term to medium term


NA


✓ Less imports of due to stock piling by countries

Demand Side


✓

Demand has slowly risen up

Consumer Sentiment

✓

Consumer are stocking the essential drugs more than usual



Expansion in capacity during the period will result in high utilization of labor in short term. Gradually the asset utilization will fall the situation becomes normal.

Excess expenditure of budget on medical services resulting to hamper other development projects.

As an essential sector, labor shortage to be faced in short term due to the current pandemic.

Insurance sector to be affected as claimants to rise during this period. This sector also to be benefited positively in short term as insurance of all the medical staff to be done till 15 July 2020.

Medical equipment and drugs to be in short supply as price is also likely to rise in short to medium term.

Normal health care services to be affected in short term as threat due to pandemic.

Source: Economic Survey FY 2018/19, Labor Survey 2017/18


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Supply and distribution of essential medicines, sanitizers and PPEs (masks, gloves etc.) are impacted; also there is a production slowdown due to raw materials and ancillaries not reaching factories.

Key Policy Recommendations Recommendations Short Term Medium to Long Term

Tax and compliances related

i. Special permission and clear rules for transportation and manufacturing of raw materials and ancillaries required

ii. Subsidy on equipment import by private sector

i. Single window clearance mechanism

ii. Reduced import duty on huge machineries and other dutiable drugs

Support for end customer

i. To ensure the availability of essential medicines ii. Promote digital payment

i. Policy on social distancing and digital payment to be made compulsory


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O. Construction Sector

Sector Overview Sector Contribution to GDP 7.77%


FDI Contribution in the form Equity 626.7 million (mid July 2016)

Major projects Pushpalal highway, Kaligandaki corridor, Pokhara international airport




✓

Halt in manufacturing sector activity including cement , steel and other building materials

Production shutdown

✓

High impact on material and labor has forced the shutdown

Labor Force ✓ Job loss for certain labors in the industry

Cash flow constraints ✓ Impact more due to supply chain disruption


✓

Delay in construction to impact the supply chain network


NA

Demand Side


✓ Demand for construction to lower in hospitality and other sector due to low sales


Potential change in user habits for construction



Hospitality sector shall have huge impact due to the current pandemic outbreak with possibility of massive financial and employment losses

Fresh equity investment shall slowdown in short to medium term with all the sectors going through turmoil.

Housing sector is expected to see muted demand with reduction in new launches.

Retail sector to see slowdown with the impact on supply chain and logistics

Source: Economic Survey FY 2018/19, Labor Survey 2017/18, A Survey report on FDI in Nepal 2018


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Tax and compliance related

Tax holiday for one year Digitalizing the documentation and incentives in timely completion of the project


Interest repayment shall be deferred for 3 to 6 months

Lending rate shall be lower by 2 to 3 percent


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9. Economic policy responses on COVID 19 by some of the Developing Asian Countries

India announced a $22.5 billion stimulus package to “be disbursed through food security

measures for poor households and through direct cash transfers.” The Reserve Bank of India has

cut its lending rate by 75 basis points from 5.15 percent to 4.4 percent.

Bangladesh announced an $8.5 billion stimulus package “to increase public expenditure mainly

through employment generation, introduce stimulus packages and widen social safety net

coverage.”

South Korea announced cash payments of up to $186 per household except for the top 30

percent. This is in addition to an interest rate cut, a $9.54 billion supplementary budget, and a

“rescue package for companies” of up to $81.6 billion.

Thailand’s cabinet has approved a stimulus package worth $58 billion “for public heath works

and relief measures, and the rest for rebuilding the economy and job creation.”

Singapore has announced a third stimulus package worth $3.6 billion, bringing the total economic

package to $41.7 billion, or around 12 percent of the country’s GDP.

Fiji has unveiled a $400 million stimulus package “with more than half of funds allocated to

workers and businesses.” The budget would also provide additional equipment for doctors and

healthcare workers.

Papua New Guinea (PNG) announced a stimulus package valued at 5.6 billion Papua New

Guinea kina ($1.7 billion), “the largest ever in PNG history.” The package includes support for

deferral of mortgage or business loan payments and support for jobs and businesses.

Kazakhstan taps on its sovereign fund for an additional $4.1 billion. This brings up the country’s

total stimulus package—“aimed at softening the blow from the coronavirus outbreak and the

plunge in the price of oil”—to $10 billion.

https://www.cnbc.com/2020/03/26/coronavirus-india-needs-a-support-package-larger-than-20-billion-dollars.html

https://www.cnbc.com/2020/03/27/indian-stocks-the-central-bank-rate-cut.html

https://www.cnbc.com/2020/03/27/indian-stocks-the-central-bank-rate-cut.html

https://www.thehindubusinessline.com/news/world/bangladesh-pm-unveils-massive-stimulus-package-to-counter-adverse-effects-of-coronavirus/article31261915.ece

https://www.aljazeera.com/ajimpact/korea-pay-cash-families-plans-extra-budget-relief-200330044104832.html

https://www.nytimes.com/reuters/2020/04/07/world/asia/07reuters-health-coronavirus-thailand-measures.html

https://www.cnbc.com/2020/04/06/coronavirus-singapore-plans-third-stimulus-package-to-support-economy.html

https://postcourier.com.pg/fiji-unveils-us400m-stimulus-package/

https://www.pwc.com/pg/en/publications/png-pulse-keeping-you-informed/png-pulse-april-2020---special-edition-2---publications---papua-.html

https://www.reuters.com/article/health-coronavirus-kazakhstan-budget/update-1-kazakhstan-to-tap-sovereign-fund-for-4-1-bln-to-finance-stimulus-idUSL8N2BM0BQ


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10. Economic policy responses on COVID 19 by Nepal

With a rapid surge of COVID-19 cases and increasing fatalities globally, the government of Nepal

announced a series of measures to restrict the spread of virus in the country. On 20 March 2020, the

government announced the following measures to contain the spread of coronavirus

Suspension of all international flights from 22 March to 31 March 2020;

Closure of all public and private offices from 22 March to 03 April except those providing emergency services;

Halting the operation of long-route public buses from 23 March 23 until further notice;

Sealing all land border crossings from 23-29 March; and

Contribution of NRs 100 million or about $ 1.0 million to the recently established SAARC fund to combat COVID-19 pandemic.

On 23 March 2020, the government further announced a nationwide lockdown for a week from 24–30

March 2020. The government also established a Central Relief Fund of about $5.0 million to combat the

COVID-19 pandemic. This nationwide lockdown has been further extended until 7 April 2020.

Further, this nationwide lockdown has been further extended until 15 April 2020, which now further

extended till 27 April 2020.

On 29 March 2020, the government announced relief package to combat the effects of COVID-19

pandemic. Selected measures under the relief package are:

Local bodies will distribute food to needy ones during this period of pandemic.

Employers will have to pay salaries of their workers during the period of lockdown. However, they can utilize welfare fund for such compensation.

Tourism enterprises must pay wages of their staff for the month of Chaitra i.e. mid-March to mid-April.

Workers’ contributions to social security fund for Chaitra (mid-March to mid-April) that were to be deposited by employees and employers will now be deposited by the government.

Information regarding people who could not depart for foreign employment despite receiving permission will be collected. Individuals will be provided employment opportunities through local bodies. They will be registered at the Local Level Employment Service Center and provided employment opportunities through Prime Minister Employment Program.

The government has requested private house owners to waive off a month home rent for organized workers residing in urban areas. In return, the government has announced to waive off the rental tax for that period.

Consumers will be entitled to a 10% discount on purchase of food items from government owned food companies.

Nepal Telecom will provide a 25 percent discount on internet services during the period of lockdown.

Private telecommunication companies must also provide such discount on data and voice call charges during the period of lockdown.

Nepal Electricity Authority will provide a discount of 25% on electricity tariff for a month (mid-March to mid- April) to households consuming 150 units of electricity.

Late fees shall not be levied on utility bills for the previous two months (mid-February to mid-April) if paid by mid-May.

An insurance package of NPR 2.5 million will be provided to healthcare and security personnel involved in treating and managing COVID-19 patients.

Import of health and medical equipment by government, private and community sectors will be exempted from custom duties until further notice.

The tax payment deadline of 12 April for businesses has been extended until 7 May.


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On 29 March 2020, the Central Bank announced following policy measures in relation to COVID-19 pandemic:

To inject liquidity into the economy, cash reserve ratio for commercial banks, development banks and finance companies has been reduced by 100 basis points to 3.0%.

Bank rate reduced by 100 basis points to 5.0%.

The standing liquidity facility or the ceiling rate has been reduced by 100 basis points to 5.0%. The repo and floor rates also reduced by 100 basis points each to 3.5% and 2.0%, respectively.

Monthly amortization (principal and interest payments) on loans can be deferred until the end of FY2020 (mid- July). No penal charges and penal interest shall be levied on such loans.

Tourism and Transport entrepreneurs, who have been regularly paying monthly installment of their loan, will be eligible for short-term loans, if needed. Such loans shall be processed within 5 days of application.

Loans sought for the import, distribution and sale of medical equipment approved by the Department of Health Service and essential items such as food shall be processed within 5 days of application.

Workers who could not depart for foreign employment due to this pandemic despite receiving permission earlier shall be eligible for subsidized loan to initiate their own businesses. Once the pandemic ends, they can apply for loans that will be approved within 7 days of application.

Small and Medium Enterprises affected by COVID-19 will be prioritized for Refinancing facility.

On 14 April 2020, the government announced that nationwide lockdown has been further extended until 27 April 2020. Following decision were made in cabinet meeting.

Borders with India are completely sealed. Important imports will still come though.

To monitor the Nepal-India border, the government has decided to send reinforcements

To continue the suspension on all international and domestic flights and the closure of the southern border

until the situation normalizes in India.

Local governments to arrange food and shelter for those who have been stranded in different parts of the

country.

The government is considering lifting the lockdown in certain areas, especially related to manufacturing

and large-scale infrastructure projects.

Those people who have come in contact with people who tested positive for Covid-19 must reach out to

authorities and any refusal to do so will attract punishment. Further, people who refuse to reveal their

travel history will now be liable for punitive action.


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11. What Next Beyond COVID-19?

For the last few weeks, millions of people worldwide are under lockdown conditions due to the COVID-19 pandemic, hundreds of thousands were infected and Thousands lost their lives in many parts of the world. We’ve all borne witness to how this insidious virus is impacting our families, our communities and our very way of life.

While The state of things looks less than optimal as not only, the globe is facing health crises but it’s also looking at a deep economic recession due to the expansive job losses as a result of industry shutdown and restrictions on the flow of goods and people. Naturally, governments are busy preparing to spend billions on stimulus economic packages with the aim to lessen the severity of the impact on their citizens.

If there were any bright side of COVID-19, it would be the positive impact it has on our planet. Due to the lockdown globally, and limited movement, several positive findings were reported on earth healing, reduction of emissions, a decrease of road accidents, and a drop of greenhouse gases which might slow climate change and less disposal of waste in waterways made it clearer.

The drastic reduction of environmental pollution will eventually lessen the negative impact on our health and lower the cost of healthcare. In addition, the great majority of the global armed conflicts ceased naturally which also preserved human lives.

What’s the way forward?

Among the tools at our disposal are the digital economy should be seen as a driver for innovation and competitiveness

which can be strengthened by global cooperation. Most if not all companies have already taken advantage of work remotely and many reported success and lowered costs. Economical activities and services should be localized to avoid the global market disruption which might become a national security threat as we have come to see over and over since the spread of the COVID19 virus.

Another of these tools is the online education will provide accessible and affordable learning platforms for

knowledge seekers and will ease international networking for academic collaboration. Not only will it save money, but it will also lessen the negative impact on our planet and preserve our resources. Education policies should be aligned with the emerging dynamics online learning platforms to facilitate and ease the whole process for learners anywhere.

Sustainable agriculture, local urban farms and bio pesticides will be a promising matrix to cut food waste and also achieve local food security, while saving water and reducing chemical pesticides use.

Environmental and personal hygiene awareness should be a basic knowledge to be offered starting from

kindergarten. Preserving the environment should not be seen as an economic burden, rather as an opportunity for business sustainability, the clear example is recycling and waste to energy approach (Waste to Wealth).

Furthermore, reduction of pollution is a collective responsibility, government, industries, communities and NGO’s, because as we see now, all of us are paying the costly price of neglecting the environment. Governmental incentives or tax reduction coupled with solid environmental regulations and policies will facilitate pollution control by the industries.

Working from home might be practiced at least for part of the week, as proved by recent studies that it’s more

productive than working from office. This practice will reduce traffic congestion, accidents, reduce emissions, save energy, improve human mental health and strengthen family bonding. But it will also allow companies to spend less on office rental, health expenses and office supplies.

For the above-mentioned opportunities to prosper and produce fruitful outcomes, there is a need for a stable political environment, strong legal and enforcement system and generous government budgets for health, education and IT infrastructure.

Last but not Least, a healthy ecosystem is a foundation for sustainable economic growth and stable societal wellbeing.

The sooner we realize that, the sooner we can come together and heal.


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Disclaimer

This document is based exclusively on the facts and information publicly available and based on our interpretation

of situation and circumstances which may differ to other person. Existence of any other factual information might

require an opinion different from the one expressed herein. The information contained herein are general

information and not intended to offer specific and universal advices or services to any particular individual or entity.

No one should use the information in this document as a basis to act or make decision that may affect their

business. Advice from qualified professional on a particular situation should be obtained before making any

decisions or actions.


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