Nepal's Economic Landscape: Recommendations for a sustainable Economic Policy

Term Paper, 2011

14 Pages, Grade: Keine



1) Introduction

2) Quick Facts

3) Economic Reality of Nepal and the way out

4) Hurdles of Change

5) Current Problems

6) Recommendations for key sectors
6.1) Political stability
6.2) Regulated Financial Institutions
6.3) Learning from the ill policies of the past
6.4) Free Trade
6.5) Investment in Tourism
6.6) Investment in Education

7) Between Two powers: A chance or a threat

8) Conclusion

1) Introduction:

The world is changing rapidly. In the last sixty years it has seen miraculous developments. Coming out of the ashes of World War II, Western Europe has established itself as the most stable region of the world. Totally destroyed Japan, having been the victim of the only atomic bomb in human history, which killed hundreds of thousands, has established itself as the strongest economy of Asia, and second only to the United States worldwide. We have seen the rise of South Korea, which had the equal per capita income as Mozambique in late fifties. Today South Korea stands as a developed country. We have seen the growth of China when Mao went. From Deng Xiaoping to Xiang Jemin to Hu Jintao, it kept its economy open and recently overtook Germany as the third largest economy of the world. China is on the way to become the second largest economy. India, from the early ninetees, took similar policy. India grew when the world economy was in downturn. The rise of BRIC (Brazil, Russia, India and China) countries has re-shaped the world order. Mexico proudly declares itself as a North American country today and no more intends to turn back to its old identity as a Central American country. The North American Free Trade Agreement (NAFTA) has been good for Mexican economy as they can sell their products in the United States and Canada now. Indonesia shares similar story. Even though it was runned by one of the terrible dictator of the world, Suharto, he brought liberal policies in the country encouraging Privatisation, Free Trade and more market liberalization. After the Asian financial crisis of 1997, people lost faith in him and finally toppled him. Growth was felt in other parts of the world as well. Emergence of computarized technologies, World Wide Web, digital technologies etc have reshaped the world. Nepal, however, did not change much. Even though it enjoyed the modern developments from other parts of the world, it could not establish itself as a country capable to adopt such changes. There are many things to blame. Ill adviced policies of the past, weak justice system, ineffective education policies, high corruption, nepotism etc are just handful of things.

In this paper, I will point out some sectors which need immediate change in Nepal. I will recommend some policy advices and finally analyse some future scenarios in international level which have huge impact on Nepalese economics and politics.

2) Quick Facts:

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3) Economic reality of Nepal and the way out:

Nepal is a himalayan country in south Asia located between two giants China and India. China (Tibet) borders the complete north with long himalayan ranges whereas India borders in the east, west and the south. Being a land-locked country, Nepal is strongly dependent on two neighbours. This dependency, unfortunately, allows India and China to practice political influence in the young democratic federal republic. Hence, a good relation with two neighbours, both emerging as global powers now, is vital. Nepal’s economy is dependent on tourism, even though the total number of tourist arrivals is very less in international comparison. Due to the physical geography, the distance to Europe and North America is large, which means a less number of arrivals from richer parts of the world. In the recent years, however, tourists from south Asian region have drastically increased. Nepal introduced the visa-waiver system for the citizens of former SAARC countries namely India, Pakistan, Bangladesh, Srilanka, Bhutan and Maldivs. The second important source of income is the Remittance sent by the people working in foreign countries. Worldwide, the Inter American Development Bank (IDB) reports that around $ 300 billion has gone to the developing countries in 20063. Nepal belongs to a part of it. Hundreds of thousands have left in the recent years for Gulf regions to work in the booming economies of the Middle East. Malaysia, UAE, Saudi Arabia, Qatar, Bahrain etc are among the largest job providers. Tens of thousands are in North Africa, Israel and in Asia pacific region. Small numbers of people have made their way to Europe and North America but most of them are students whose main aim is first of all to complete a degree, atleast for the first few years. Experiences from social network websites shows that even as a student, these young people are managing to send small amounts every month back home.

Nepal virtually survives from these two sources, tourism and remittance. These are also the most vulnerable sources. Tourism and Remittances depends both on how good the world economy is running. If the economy is in turmoil, it means that less number of tourists can afford a holiday or a trip to a foreign country; hence the tourism industry will suffer. Remittance has the same story. After the Recession of 2008, the developing countries like Nepal were the ones which were hardest hit. When the businesses collapsed throughout the world or in the Middle East, they fired the workers and didn’t need any new. Tens of thousands were forced to go back home, sometimes even without getting the salaries of months. The failures of banks and the collapse of banks had huge impact on these innocents. Tourism cannot be the same always, as remittance. If the money Nepal earns from these sources is not invested in domestic economy, it could mean that the country should face with bigger problems in the future. Domestic investment creates job, boosts consumption and the economy will eventually grow. If we just use the income in our daily consumption, someday when the income stops, everything will stop. Take an example of a family which has one man, his wife and three children. The man goes to work in Dubai and sends certain amount of money back home. His wife controls the household. If she uses the money to buy foods and often new cloths, go to cinema, take the children to fun parks, she will have a great problem when the man come back home and have no job anymore. Humans grow old, sometimes they cannot work, and sometimes they are sick and many other reasons. But if the housewife uses the money to buy the basic living things and saves the remaining and later invests in opening a small teashop or any shops, she will generate income from there. She can even get support to take micro credit if she shows that she spends her money responsibly. In this case, if her husband come back home and has no more job to do, they can survive from their small teashop for a long period. This is also the whole sense of micro credit. This small example shows us the power of investment in small scale business.

The young generation today is starting to understand this fact. They also know the importance of coming out of the old conservative tradition and install a modern system as in western countries. However, it is connected with huge bureaucratic hurdles.

4) Hurdles of Change

When we look back the history of Nepal, it was just sixty years ago when the country experienced the first smell of democracy. When India got independence from the United Kingdom, a democratic regime was installed under the leadership of Mahatma Gandhi and Jawaharlal Nehru. There were few Nepalese youths who worked very hard alongside Gandhi and Nehru to bring independence in India and among them, the charismatic man with immense intelligence, Biseshwor Prasad Koirala, elder brother of the former Prime Minister Girija Prasad Koirala. The then dictators of Nepal, the Ranas, were loyal to the British and were against democracy. However, when India was democratic, it was obvious that Nepal would follow the suit and it did. However, the Ranas were already powerful. They sent their relatives to study in Europe, in North America and when they came back to the country, they took the important position in the country. Even through the Ranas and some other powerful clans were toppled. Their infuence remained, and still continue to remain today. The major industries belong to them. They control elite educational institutions. Hence, they controlled the organs of the nation, directly or indirectly and were reluctant to change.


1 Department of Economic and Social Affairs Population Division (2009) (PDF). World Population Prospects, Table A.1. 2008 revision. United Nations. Retrieved 12 March 2009



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Nepal's Economic Landscape: Recommendations for a sustainable Economic Policy
Cologne University of Applied Sciences
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ISBN (Book)
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Nepal, Economic Policy, Nepalese Economy
Quote paper
Bikal Dhungel (Author), 2011, Nepal's Economic Landscape: Recommendations for a sustainable Economic Policy, Munich, GRIN Verlag,


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