The world is reeling from the COVID-19 pandemic for more than five months. The lockdown and other restrictive measures, imposed to slow down the virus’s spread, have badly disrupted the people’s mobility, production, supply chain, tourism and other economic activities. Millions of people involved in formal economy were laid off while those living on the margins of society lost their sources of livelihoods and incomes owing to the extended lockdown. Nepal, whose economic engine is run by remittances and foreign grants and aid, is bracing for worst economic shocks. It has been forced to tighten the belt in order to ensure the judicious allocation of budget. The expensive administrative structure under the federal system has further sapped the rare resources. A humongous portion of budget has been earmarked to meet the recurrent expenditure while development sector has received the declining amount of money.
It is next to impossible to expect the occurrence of economic serendipity at a time when the nation has been weighed down by multiple negative factors – soaring virus cases, looming political instability and worsening relations with the southern neighbour. Most of the country’s economic transactions take place with India, and there are increasing fear that Nepali traders might face hurdles while supplying export items to India. Nonetheless, there is good piece of news that Nepal has moved up to the ‘lower-middle income’ status from ‘low income’ country for the first time in its history. It is like an oasis in a desert. Based on country classification by income, the World Bank (WB) has announced Nepal’s upgraded status the other day. According to its report, Nepal’s per capita income was US$1,090 last year up from $960 in 2018. The world’s lending agency had set a threshold of $1,035 PCI for the countries to climb up from ‘lower-income’ to ‘lower-middle income’ economies. However, the WB has taken account of the income classifications through the use of gross national income (GNI) of 2019 till July 1 and it has not included the economic indicators developed after the COVID-19 takes its toll on the entire health of nation.
The country’s upgrade to the lower-middle income appears to be a short-lived phenomenon given that the GNI has not considered the economic recession and massive job loss at home and abroad in the wake of the pandemic. The GNI encompasses all the income earned by a country's residents, businesses, and earnings from foreign sources. Hundreds of thousands of Nepalis working abroad have lost their jobs and are returning home, which will obviously shrink the nation’s income sent from the foreign soil. The country has received $8.1 billion in remittance last year, which constitutes more than a quarter of national GDP but income from remittances will go down by 14 per cent in 2020, according to the WB. It says Nepal’s growth stands at 1.8 per cent during this fiscal year that ends in mid-July while it will be 2.1 per cent for the fiscal year 2020-21. Although the country has made encouraging progress in poverty reduction during the past two decades, the pandemic-induced economic downturn is likely to push many Nepalis into vicious cycle of poverty. The coronavirus crisis has impelled us to devise sustainable economic policy and development path to come out of the low-growth trap.