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Economy of Nepal

From Academic Kids

An isolated, agrarian society until the mid-20th century, Nepal entered the modern era in 1951 without schools, hospitals, roads, telecommunications, electric power, industry, or civil service. The country has, however, made progress toward sustainable economic growth since the 1950s and is committed to a program of economic liberalization.

Nepal completed its ninth economic development plan in 2002; its currency has been made convertible, and 17 state enterprises have been privatized. Foreign aid accounts for more than half of the development budget. Government priorities over the years have been the development of transportation and communication facilities, agriculture, and industry. Since 1975, improved government administration and rural development efforts have been emphasized.

Agriculture remains Nepal's principal economic activity, employing 80% of the population and providing 37% of GDP. Only about 20% of the total area is cultivable; another 33% is forested; most of the rest is mountainous. Rice and wheat are the main food crops. The lowland Terai region produces an agricultural surplus, part of which supplies the food-deficient hill areas.

Economic development in social services and infrastructure has made progress. A countrywide primary education system is under development, and Tribhuvan University has several campuses. Although eradication efforts continue, malaria had been controlled in the fertile but previously uninhabitable Terai region in the south. Kathmandu is linked to India and nearby hill regions by road and an expanding highway network.

Major towns are connected to the capital by telephone and domestic air services. The export-oriented carpet and garment industries have grown rapidly in recent years and together now account for approximately 70% of merchandise exports.

Contents

Imports/Exports

Nepal's merchandise trade balance has improved somewhat in recent years with the growth of the carpet and garment industries. In FY 2000-01 exports posted a greater increase (14%) than imports (4.5%), helping bring the trade deficit down by 4% from the previous year to $749 million. Trade with India rose rapidly after conclusion of the 1996 bilateral trade treaty between the two countries, and now accounts for 43% of all exports. Indian efforts to revise the treaty, which comes up for a 5-year review in December 2001, could dampen Nepal's export growth. The annual monsoon rain, or lack of it, strongly influences economic growth. From 1996 to 1999, real GDP growth averaged less than 4%. The growth rate recovered in 1999, rising to 6% before slipping slightly in 2001 to 5.5%.

Strong export performance, including earnings from tourism, and external aid have helped improve the overall balance-of-payments situation and increase international reserves. Nepal receives substantial amounts of external assistance from India, the People's Republic of China, the United Kingdom, the United States, Japan, Germany, and the Scandinavian countries. Several multilateral organizations, such as the World Bank, the Asian Development Bank, and the UN Development Program also provide assistance. In June 1998, Nepal submitted its memorandum on a foreign trade regime to the World Trade Organization and in May 2000 began direct negotiations on its accession.

Resources

Progress has been made in exploiting Nepal's major economic resources--tourism and hydroelectricity. With eight of the world's 10 highest mountain peaks--including Mount Everest at 8,850 m (29,035 ft)-- hiking, mountain climbing, and other tourism is growing. Swift rivers flowing south through the Himalayas have massive hydroelectricity potential to service domestic needs and the growing demand from India. The two countries have joint irrigation-hydroelectric projects on the Kosi, Trisuli, and Gandaki Rivers. Several other hydroelectric projects, at Kulekhani and Marsyangdi, were completed in the mid- to late 1980s. In the early 1990s, one large public sector project and a number of private projects were planned; some have been completed. The most significant private sector financed hydroelectric projects currently in operation are the Khimti Khola (60 MW) and the Bhote Koshi (36 MW).

The environmental impact of Nepal's hydroelectric projects has been limited by the fact that most are "run-of-river" with only one storage project undertaken to date. The largest under active consideration is the private sector West Seti (750 MW) storage project which is dedicated to exports. Negotiations with India for a power purchase agreement have been underway for several years, but agreement on pricing and capital financing remains a problem. Currently demand for electricity is increasing at 8%-10% a year.

Population pressure on natural resources is increasing. Over-population is already straining the "carrying capacity" of the middle hill areas, particularly the Kathmandu Valley, resulting in the depletion of forest cover for crops, fuel, and fodder and contributing to erosion and flooding. Although steep mountain terrain makes exploitation difficult, mineral surveys have found small deposits of limestone, magnesite, zinc, copper, iron, mica, lead, and cobalt.

Statistics

GDP: purchasing power parity - $38.29 billion (2003 est.)

GDP - real growth rate: 3% (2003 est.)

GDP - per capita: purchasing power parity - $1,400 (2003 est.)

GDP - composition by sector:
agriculture: 40%
industry: 20%
services: 40% (2002 est.)

Population below poverty line: 42% (1995-96 est.)

Household income or consumption by percentage share:
lowest 10%: 3.2%
highest 10%: 29.8% (1995-96)

Inflation rate (consumer prices): 2.9% (2002 est.)

Labour force: 10 million (1996 est.)
note: severe lack of skilled labour

Labor force - by occupation: agriculture 81%, services 16%, industry 3%

Unemployment rate: 47% (2001 est.)

Budget:
revenues: $665 million
expenditures: $1.1 billion, including capital expenditures of $NA (FY 99/00 est.)

Industries: tourism, carpet, textile; small rice, jute, sugar, and oilseed mills; cigarette; cement and brick production

Industrial production growth rate: 8.7% (FY 99/00)

Electricity - production: 1,755 GWh (2001)

Electricity - production by source:
fossil fuel: 8.5%
hydro: 91.5%
nuclear: 0%
other: 0% (2001)

Electricity - consumption: 1,764 GWh (2001)

Electricity - exports: 95 GWh (2001)

Electricity - imports: 227 GWh (2001)

Oil - production: 0 barrel/day (2001 est.)

Oil - consumption: 16,000 barrel/day (2,500 m³/d) 2001

Agriculture - products: rice, maize, wheat, sugarcane, root crops; milk, water buffalo meat

Exports: $568 million f.o.b., but does not include unrecorded border trade with India (2002 est.)

Exports - commodities: carpets, clothing, leather goods, jute goods, grain

Exports - partners: India 50.5%, US 26%, Germany 6.6% (2003 est.)

Imports: $1.419 billion f.o.b. (2002 est.)

Imports - commodities: gold, machinery and equipment, petroleum products, fertilizer

Imports - partners: India 22.9%, China 13.5%, UAE 12.6%, Singapore 7.1%, Saudi Arabia 5.5%, Kuwait 4.6%, (2003 est.)

Debt - external: $2.7 billion (2001)

Economic aid - recipient: $424 million (FY 00/01)

Currency: 1 Nepalese rupee (NR) = 100 paisa

Exchange rates: Nepalese rupees (NRs) per US$1 - 77.88 (2002), 74.95 (2001), 68.253 (1999), 65.976 (1998), 58.010 (1997), 56.692 (1996), 51.890 (1995)

Fiscal year: 16 July - 15 July

References

Some information in this article has been taken from the CIA World Factbook, 2003 edition.

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