The coronavirus pandemic has become a global phenomenon. No country, regardless of its size or economic vitality, has been able to aloof itself from this crisis. Very few countries which implemented early precautionary measures have been able to minimise insurmountable loss of wealth and human casualties. In this connection, it was indeed a quick maneuvre by our state mechanism to control its possible intensity through a timely lockdown. This has been by far the most effective measure to protect the country from possible human casualties. Though on one hand, it caused some difficulties to the general public, on the other it saved the country from possible severity of the mass transmission. However, prolonged lockdown has put the economy on the verge of recession. The virus will stay with us for a long time until the vaccine arrives, which is no anytime sooner. In this situation, the best thing to do is to continue contemporary preventive measures while also taking measures prevent damage on the economy.
The IMF predicts the global economy to contract by 3 per cent in 2020, making the current crisis the worst after the great depression of the 1930s. The IMF has named this crisis as "The Great Lockdown", because of the global nature of the crisis whose speed and scale of impact is unparalleled to any other crisis before.
In response to the crisis, central banks and governments across the globe have introduced various policy measures. Such measures are aimed to facilitate the economy to have a V-shaped recovery. In the US the Federal Reserve has approved a $2.2 trillion stimulus package. Similarly, Japan has introduced the largest ever stimulus package worth over $550 billion or about 10 per cent of its Gross Domestic Product. Many other countries have followed suit.
Following the pandemic, the IMF, the World Bank, Nepal’s Center Bureau of Statistics etc have estimated the growth rate of Nepal for the current fiscal year to range within 1.5 to 2.5 per cent. Though such projection might change depending upon the duration of the crisis, it is obvious that the economy will be hit hard. Given the composition of our GDP, various sectors that contribute to the GDP will be affected in varying degrees.
Amongst all the economic sectors, agriculture is least affected and with some arrangements, the government can have benefit of controlling the damage. A major contributor to the agriculture sector is paddy, which will sustain its contribution to a large extent. Further, improvement in the supply chain will ensure the marketability of other agro-products even in a difficult period. In the secondary sector, the manufacturing is disturbed severely on account of the paucity of workers, disturbance of the supply chain, etc. The construction sector is likely to be moderately affected. Continuing the construction activities of large scale projects will contribute in controlling the damage.
The contribution of the service sector in the economy of the country is paramount. Here, the wholesale and retail trade sector with 14.4 per cent of GDP has the highest share. On account of disruption of the supply chain, diminished purchasing power of self-employed, big layoff of employees and contract workers this sector will also be moderately affected. Another sector that has been hit hard is the hotel and restaurant. It was because of the corona crisis that Visit Nepal 2020 was canceled. The downfall in this sector will also negatively affect other sectors like transportation and communication, earnings of the financial intermediaries, agriculture, aviation, etc. As the COVID-19 crisis prolongs, this area may be affected for a longer period. Even after total lifting of the lockdown, it will take time for this sector to revive.
Another factor that has a vital role in the functioning of our economy is remittance which will be severely hit. The total inflow of remittance for last fiscal year was Rs. 879 billion which for this year is estimated to be limited within Rs. 800 billion. With the major destination countries’ economy forecasted to be in recession, the fall in remittance will continue in days to come. As such new job opportunities abroad will diminish increasing the return of the workers and escalating the unemployment problem in the country. Dive in remittance and number of outgoing migrant workers will lead to multifold repercussions on the economy of the country such as liquidity problems in the banking sector, pressure on forex earning, decrease the overall economic activities, and increase the poverty level and inequality.
Amidst this crisis, Nepal Rastra Bank has announced policy measures to facilitate the economy. The measures aim to lubricate the functioning of the economy via ensuring liquidity ease, reducing the cost of borrowing, flexible provisioning of the loans and its servicing, enhancement of the refinance package, allowing easy access to supplemental capital, and so on.
Furthermore, the government has the responsibility to manage multifold challenges and prioritise its actions. For this, it has introduced various measures in the recently announced fiscal policy for the upcoming fiscal year. For example, the budget for the health care sector has been increased by Rs. 20 billion reaching Rs. 90.69 billion to strengthen the overall health care infrastructure and support our fight against the pandemic.
The policy also emphasises the agricultural sector with the introduction of some novel ideas. Policies aiming to enhance the infrastructure in the agro sector for robust supply chain management, linking products to the market, storage of products, agro-insurance, land bank and irrigation plants will modernise our agriculture, enhance the level of food security and save our expenses on food imports.
The policy aims to absorb the unemployed workforce in the agriculture sector and other sectors by creating employment opportunities, addressing those who have been laid off from their jobs including the returnee migrant workers. Touted as labour-friendly, the policy also aims to create employment opportunities via the PM Employment Programme focused on skill-based training, subsidised loans via banks and financial institutions and stringent management of the foreign employees working in Nepal.
Consideration has also been taken in line with the frugality measures, such as withholding all the additional perks and benefits going to the employees and downsizing the MP’s fund. The policy looks like one to be adhered to during times of crisis.
In a nutshell, the overall policy measures recommended are sound and aim to address the dynamics of the current crisis. However, its real excellence will be reflected in its proper implementation. Similarly, the duration of the crisis will also be another limiting factor that might demand some flexibility in due course of time. As such it is pertinent to ensure that the stated policies are timely implemented in a coordinated and transparent manner so that the damage emanating from the corona pandemic can be contained.
(The author is associated with Nepal Rastra Bank.)