Nepal - Economy

Economy

Nepal's gross domestic product (GDP) for 2012 was estimated at over $17.921 billion (adjusted to Nominal GDP). In 2010, agriculture accounted for 36.1%, services comprise 48.5%, and industry 15.4% of Nepal's GDP. While agriculture and industry is contracting, the contribution by service sector is increasing. Agriculture employs 76% of the workforce, services 18% and manufacturing/craft-based industry 6%. Agricultural produce – mostly grown in the Terai region bordering India – includes tea, rice, corn, wheat, sugarcane, root crops, milk, and water buffalo meat. Industry mainly involves the processing of agricultural produce, including jute, sugarcane, tobacco, and grain. Its workforce of about 10 million suffers from a severe shortage of skilled labor.

Nepal’s economic growth continues to be adversely affected by the political uncertainty. Nevertheless, real GDP growth is estimated to increase to almost 5 percent for 2011/2012. This is a considerable improvement from the 3.5 percent GDP growth in 2010/2011 and would be the second highest growth rate in the post-conflict era. Sources of growth include agriculture, construction, financial and other services. The contribution of growth by consumption fueled by remittances has declined since 2010/2011. While remittance growth slowed to 11 percent (in Nepali Rupee terms) in 2010/2011 it has since increased to 37 percent. Remittances are estimated to be equivalent to 25-30 percent of GDP. Inflation has been reduced to a three-year low to 7 percent.

The proportion of poor people has declined substantially in recent years. The percentage of people living below the international poverty line (people earning less than US$1.25 per day) has halved in only seven years. At this measure of poverty the percentage of poor people declined from 53.1% in 2003/2004 to 24.8% in 2010/2011. With a higher poverty line of US$2 dollars per-capita per day, poverty declined by one quarter to 57.3%. However, the income distribution remains grossly uneven.

The spectacular landscape and diverse, exotic cultures of Nepal represent considerable potential for tourism, but growth in this hospitality industry has been stifled by recent political events. In 2009, the number of international tourists visiting Nepal was 509,956. The Nepal Tourism Board plans to create a new Meetings, incentives, conferencing, exhibitions (MICE) department by end-2012 to draw business events from neighbouring countries. The yield from MICE events is estimated to be twice the amount brought in by leisure tourism.

The rate of unemployment and underemployment approaches half of the working-age population. Thus many Nepali citizens move to other countries in search of work. Top destinations include India, Qatar, the United States, Thailand, the United Kingdom, Saudi Arabia, Japan, Brunei Darussalam, Australia, and Canada. Nepal receives $50 million a year through the Gurkha soldiers who serve in the Indian and British armies and are highly esteemed for their skill and bravery. As of 2010, the total remittance value is worth around $3.5 billion. In 2009 alone, the remittance contributed to 22.9% of the nation's GDP.

A long-standing economic agreement underpins a close relationship with India. The country receives foreign aid from India, Japan, the UK, the US, the EU, China, Switzerland, and Scandinavian countries. Poverty is acute; per-capita income is around $1,000. The distribution of wealth among the Nepalis is consistent with that in many developed and developing countries: the highest 10% of households control 39.1% of the national wealth and the lowest 10% control only 2.6%.

The government's budget is about $1.153 billion, with expenditure of $1.789 billion (FY05/06). The Nepalese rupee has been tied to the Indian Rupee at an exchange rate of 1.6 for many years. Since the loosening of exchange rate controls in the early 1990s, the black market for foreign exchange has all but disappeared. The inflation rate has dropped to 2.9% after a period of higher inflation during the 1990s.

Nepal's exports of mainly carpets, clothing, leather goods, jute goods and grain total $822 million. Import commodities of mainly gold, machinery and equipment, petroleum products and fertilizer total US$2 bn. EU (46.13%), the US (17.4%), and Germany (7.1%) are its main export partners. Recently, the European Union has become the largest buyer of Nepali ready made garments (RMG). Exports to the EU accounted for "46.13 percent of the country’s total garment exports". Nepal's import partners include India (47.5%), the United Arab Emirates (11.2%), China (10.7%), Saudi Arabia (4.9%), and Singapore (4%).

Besides having landlocked, rugged geography, few tangible natural resources and poor infrastructure, the ineffective post-1950 government and the long-running civil war is also a factor in stunting the economic growth and development.