Kathmandu, March 22
When the going gets tough, the tough gets going.
Nepalis are well aware of and have lived this adage. The last time they showed their resilience was during the April 2015 earthquakes, which took the lives of over 9,000 people.
Nepal is facing another turbulence triggered by COVID-19 pandemic, which has locked down cities worldwide, rendered many jobless and sent economies into a tailspin. The disease is yet to reach Nepal, but its rapid global spread has shaken lives here.
What is worrying is that various international studies have made it pretty clear that normalcy will return only after COVID-19 vaccine is found, which might take 12 to 18 months. This is an indication that economic activities and movement of people will not pick up in the next one to one-and-a-half years.
This grim prediction has prompted countries across the globe to rapidly launch billions of dollars of economic rescue packages, which include waivers on tax, loan instalment and rental payments; handouts to those who have temporarily lost jobs or have been sent on unpaid leave; and stimulus package to keep businesses, especially small and medium, afloat.
Prime Minister KP Sharma Oli too pledged a similar package during his address to the nation last week. But Finance Minister Yubaraj Khatiwada, who is responsible for designing such a package, has not launched one.
“We are still in a wait-and-watch mode as the global situation is rapidly evolving. This has made it difficult for us to get a comprehensive picture because data keep on changing. But we are aware some of the sectors that need support are tourism, labour, construction and manufacturing,” the minister told state-owned Nepal Television today.
Many are calling for an economic rescue package as it would provide breathing space to daily wage earners who have seen their incomes slump, support those who have been sent home on unpaid leave, and help small and medium businesses, which are fearing bankruptcy, to stay afloat and gradually get back on their feet.
Nepal was fast to announce a relief package after the 2015 earthquakes, which bolstered confidence of people and helped them weather the challenge to some extent. “So, the government should not wait until it completes its assessment, as enterprises and workers are already in need of a relief package,” said economist Bishwo Poudel.
The coronavirus threat has already wrecked Nepal’s tourism sector, shutting down hotels, travel, trekking and mountaineering agencies and restaurants that cater to foreigners. Complete or partial closure of these businesses has had ripple effect on other firms that supply goods and services to them. For example, a slump in tourist arrival has indiscriminately slashed cash flow of souvenir shops, stores that rent items to foreigners and those who supply vegetables, meat and other food items to hotels and restaurants.
Tourism sector previously survived crises by turning towards locals as during the decade-long Maoist insurgency from 1996 to 2006. But in those days public movement was not restricted in a fashion that mimics today’s. On top of that, an upsurge in remittance inflow had played a catalytic role in boosting consumption.
The situation is not the same today. Nepalis are already being laid off in major labour destinations, such as Malaysia, Qatar, the UAE and Saudi Arabia. If this continues, remittance inflow, which had remained robust even during 2007-08 global financial crisis, is bound to suffer. This will hit domestic industries producing consumer goods, reduce liquidity at banks and cause foreign exchange reserves to shrink, destabilising the entire economy.
Nepal is feeling this heat at a time when the economy was already facing severe headwinds. Nepal’s economic growth averaged 6.9 per cent per annum (7.3 per cent in market price) in the last three years. But since the beginning of this fiscal year, business confidence has slumped largely because of mistrust towards the private sector and growing insecurity among businesspersons following the arrest of banker Ajay Shrestha and renowned industrialist Roop Jyoti. No wonder, the economy expanded by about 5.5 per cent in the first quarter of this fiscal, as against 9.5 per cent in the same period a year ago, according to preliminary estimates of the Central Bureau of Statistics.
A contraction in economic activities prior to the onset of coronavirus threat had lowered demand for cement, steel and other construction materials, creating uncertainty in the construction sector, which is one of the biggest job creators. Construction sector is unlikely to rebound anytime soon, as many Chinese contractors who had gone home for Lunar New Year have not returned following coronavirus outbreak in their country and projects managed by others are facing shortage of construction materials.
“These scenarios call for different sets of relief packages for organised and unorganised sectors,” former National Planning Commission vice-chairperson Swarnim Wagle said. The government, for example, can develop a mechanism to provide concessional bridging loans to under-capitalised firms for a period of 12 to 36 months on condition they retain at least half of the workforce, according to Wagle. “The government can also provide subsidy on house rents and link daily wage earners, who have lost income, to Prime Minister Employment Programme,” Wagle said, adding, “A two-month moratorium on tax, interest, fees and fine payments can also be offered to both organised and unorganised sectors.”
Worldwide economic stimulus packages
Economic rescue packages launched by different countries:
- The US is coming up with most expensive economic rescue package in its history, which could be to the tune of up to $4 trillion
- Australia has announced economic rescue package worth $66 billion, on top of an initial $17.6 billion package, and more than $100 billion in emergency banking measures to prevent a credit freeze. The package includes an extra $550 a fortnight for the unemployed and wage subsidies for small businesses
- France has announced a €45 billion aid package for small businesses and other hard-hit sectors of the economy
- Italy has adopted an emergency decree worth $28 billion, suspending loan and mortgage repayments for companies and households, and increasing funds to help firms pay workers temporarily laid off due to the lockdown
- The UK will cover 80 per cent of worker salaries for at least the next three months, provide 20 billion pounds of tax cuts, and ensure loans to businesses threatened by the coronavirus pandemic
- UAE has offered $27.2 billion to fight the coronavirus outbreak, which includes subsidies on water and electricity bills, waiver on toll taxes and SME credit guarantee scheme
- Thailand has approved a budget of $17.6 billion to offer loans at two per cent interest and help firms or workers affected by the coronavirus outbreak
- Switzerland has pledged $10.5 billion in aid for its companies
- South Korea announced a stimulus package of $9.8 billion, a part of which will go towards medium-sized businesses struggling to pay wages to their workers, and medical institutions
- New Zealand has floated a $7.3-billion stimulus package, which includes wage subsidies, income support and business tax relief
- Indonesia has announced a rescue package of over $8 billion to support consumer spending, tourism and the entire economy
- The Indian state of Kerala has announced INR 200 billion stimulus package, which includes food grain rations and tax waivers
- China has cut reserve requirements for banks, a move that will free up an additional $78.8 billion in funds to lend to companies hit by the coronavirus outbreak
- The EU Central Bank has announced that it will spend €750 billion in bond purchases to calm down sovereign debt markets
- Japan is mulling over handing out more than 12,000 yen per citizen in cash as part of an emergency economic stimulus package
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Written by Sureis
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