COVID-19 impact on Nepal’s economy hits hardest informal sector, Nepal’s Economy is projected to grow by only 0.6 percent

KATHMANDU / Nepal’s economy is projected to grow by only 0.6 percent in 2021, inching up from an estimated 0.2 percent in 2020 as lockdowns caused by COVID-19 disrupteconomic activity, especially tourism, says the World Bank’s latest South Asia Economic Focus.

Released today, the twice-a-year-regional update notes that South Asia is set to plunge this year into its worst-everrecession as the devastating impacts of the pandemic on the region’s economies linger on, taking a disproportionate toll oninformal workersand pushing millions of South Asians into extreme poverty.

The report forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7 percent in 2020, after topping 6 percent annually in the pastfive years.Regional growth is projected to rebound to 4.5 percent in 2021. Factoring in population growth, however, income-per-capita in the region will remain 6 percent below 2019 estimates, indicating that the expected rebound will not offset the lasting economic damage caused by the pandemic.

In previous recessions, fallinginvestment and exports led the downturn. This time is different asprivate consumption, traditionally the backbone of demandin South Asia and acore indicator ofeconomic welfare, will decline by more than 10 percent, further spiking poverty rates.A decline in remittances is also expected to accelerateloss of livelihoods for the poorest in some countries. 

“The economic consequences of the pandemic and impact on livelihoods across Nepal is expected to be the most acute for informal workers or those without social security or assistance,who are more at risk of fallinginto extreme poverty,” stated Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal and Sri Lanka. “Swift action is needed to provide incomes, social protection, and employment to support them. This includes key investment climate reforms to promote physical infrastructure and access to finance for the informal sector to shorten the transition to recovery.”

Informal businesses make up around 50 percent of enterprises in Nepal and are the main source of income for most of the labor force. Within this group, urban informal sector workers and self-employed households in urban areas are more vulnerable than rural households who can fall back on subsistence farming.Most informal firms operate with limited savings, and owners may face the difficult choice of staying home and facing starvation during the lockdown or running their business and risking infection. These scenarios accentuate financial difficulties as well as the spread of COVID-19. 

The report urges governments to designuniversal social protection as well as policies that support greater productivity, skills development, and human capital. In that effort, securing international and domestic financing will help governments fund crucial programs to speed up recovery.In the long-term, digital technologies can play an essential role in creating new opportunities for informal workers, makingSouth Asia more competitive and better integrated into markets—if countries improve digitalaccess and support workers totake advantage of online platforms.

“COVID-19 will profoundly transform Nepal and the rest of South Asia for years to come and leave lasting scars in its economies. But there is a silver lining toward resilient recovery: the pandemic could spur innovations that improve South Asia’s future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital,”said Hans Timmer, World Bank Chief Economist for the South Asia Region.

 

REAL GDP AT MARKET PRICES IN PERCENT

Country

Fiscal year

2019 (e)

2020 (f)

2021 (f)

2022 (f)

Afghanistan

December to December

3.9

-5.5

2.5

3.3

Bangladesh

July to June

8.1

2.0

1.6

3.4

Bhutan

July to June

3.8

1.5

1.8

2.0

India

April to March

6.1

4.2

-9.6

5.4

Maldives

January to December

5.9

-19.5

9.5

12.5

Nepal

mid-July to mid-July

7.0

0.2

0.6

2.5

Pakistan

July to June

1.0

-1.5

0.5

2.0

Sri Lanka

January to December

2.3

-6.7

3.3

2.0



 

REVISION TO FORECASTS FROM OCTOBER 2019 IN PERCENT

Country

Fiscal year

2019 (e)

2020 (f)

2021(f)

 

Afghanistan

December to December

1.4

-8.5

 

 

Bangladesh

July to June

0

-5.2

 

 

Bhutan

July to June

-1.2

-5.9

 

 

India

April to March

-0.7

-1.8

-16.8

 

Maldives

January to December

0.7

-25.0

 

 

Nepal

mid-July to mid-July

-0.1

-6.2

 

 

Pakistan

July to June

-2.3

-3.9

 

 

Sri Lanka

January to December

-0.4

-10.0

 

 


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