Asian Development Bank has projected Nepal’s economic growth to be 3.7% in fiscal year ending 15 July 2005, essentially unchanged from that of the previous year. The stagnation is attributed to the continuation of the internal strife.

According to an updated version of The Asian Development Outlook (ADB) 2004, first issued in April 2004, the forecast is revised downward from 5% due to the negative impact of frequent disruptions associated with the conflict in the first quarter of the fiscal year on manufacturing output, transport and tourism.

The ADO update forecast assumes normal weather conditions and no substantial deterioration in the security situation. The agriculture sector is expected to expand by 3.7% in FY 2005 due to an anticipated growth in summer crops following a favourable monsoon.

Services are likely to falter, rising by 3.8% in FY 2005 as gains in tourism slow from the previous year. Industry is forecast to strengthen to 3.3% in FY 2005 due to some improvement in construction.

Inflation is forecast to increase to 5.5% in FY 2005, slightly higher than the 5.0% previously forecast by ADB in April. This reflects higher prices in India and higher international oil prices.

Trade deficit is expected to widen in FY 2005 due to an expected decline in garment exports.

Smelly Menace in Hetauda Ind. District

Sewage treatment plant in Hetauda Industrial District (HID) made operational ten months ago has created more problems than it solved. While the major producers of effluent within the district have not been using its services, the local residents have threatened to vandalise it if their complaints are not redressed within two months.

The plant has a capacity to treat 11 lakh litres of waste water daily, but about 3 lakh litres of such waste water released by the industrial, residential and administrative units within the district is not yet channelised to the plant. 

Though planned to be handed over to the Nepali government by August 2003, the Rs. 600 million project is still under the control of the Danish donors. Thus there is uncertainty about the future of the plant which needs about Rs. 3.5 million per month for operation costs. As a result, the toxic waste water from the major industries within the HID is still being released into Karra Khola endangering the biology of the brook which provides habitat to various species of unique fish and tortoise.

As per the design of the plant, the wastewater is to be primarily treated inside the factories themselves before mixing it into the drainage that leads to the plant. The plant has 11 tanks where water goes through different treatment processes. After 17 days of such treatment the water becomes harmless and is released into the Karra Khola. It is said the water after treatment would be safe for the fish as well as human consumption. The runoff of the industrial district is directed to the same stream via a different drainage system.

Among nearly fifty factories that are operating in HID, 13 including Birat Leather, the government owned Dairy, United Brewery, Mahasakti Soap, Nepal Vegetable Ghee Industry, Bone Mill and Everest Foods are identified as the major producers of hazardous waste water. While the vegetable ghee unit and the meat processing unit of Everest Foods are now closed down, Birat Leather and Mahasakti Soap have not yet connected their drains to the treatment plant. Even a number of residential units located within the HID are yet to connect their sewage to the plant.

The members of the executive committee formed by the government to look after the operation of the plant have been complaining that they can do nothing about the problem. They say the formation of the committee was just an attempt of the government to shift the responsibility.

The local industrialists have their share of complaints. They say the project lacks quality in its construction and transparency in its management. They also point out that the pipes used in the drainage are of capacity lower than what is required.

Now the plant is facing another risk: the local residents have become active against the foul smell and spread of insects that the project is causing in the locality and they have even threatened to vandalize the plant infrastructure if corrective measures are not taken immediately. They have cooled down after a team of experts from Denmark recently assured them about settling this disorder in two months.

(Rammani Dahal from Hetauda)

Doing Business isn’t that Difficult in Nepal

That is what Nepal can brag about while marketing itself as good investment destination. More importantly, this is what a report published by The World Bank and International Finance Corporation says.

Entitled “Doing Business in 2005: Removing Obstacles to Growth,” the report presents comparative data for 145 economies on such parameters as starting a business hiring and firing employees, enforcing contracts, getting credit and closing business.

According to the report, in Nepal there are only seven procedures to fulfill to start a business (limited liability company) and it takes only 21 days to complete them. The corresponding figures for India are 11 procedures and 89 days and in China 12 procedures and 62 days.

Similarly, the report says, hiring employees is easier in Nepal than in India while the difficulty of firing the employees is the same in both countries. However, it cost 90 weeks of salary to fire a worker in Nepal while it takes only 79 weeks of salary in India.

For closing down a business, it is much easier in Nepal than in India. This requires only five years in Nepal but 10 years in India to complete the procedures to close a business, while the cost of such closure is equal in both countries (8% of the property). However, the creditors of the closed business can expect to recover 25.8 cents per dollar in Nepal while it is only 12.5 cents in India.

Customs Collect 100% of Target

Department of Customs has something to pat its back. The collections in fiscal year ended on mid-July 2004 was 100% of the target as compared to only 90% in the previous year.

The achievement this year records a growth of more than 9% over the last year and comes at a time when the economic activities were stagnating due to the increased insurgency.

However, the major contributor to the growth were over 40% excess collection in DRP refund than the target and increase in customs tariff on cement, clinker, petroleum fuels, betel nuts, cigarettes and liquor – the items that contribute the most in the customs revenue collection.

Includes customs duty, excise and DRP refund collected by customs offices, but excludes VAT, local development tax etc.

State of the Economy

The latest information released by authorities about the state of the economy indicate two important positive trends – the current account balance is in surplus though the trade deficit has widened and the inflation is contained at 4%.

According to Nepal Rastra Bank, the first 11 months of the year ended on mid-July 2004 recorded a surplus of Rs. 15,969 million in the current account. Though the trade balance during the period was a negative Rs. 71,459 million, remittances from workers abroad (Rs. 55,257 million) and foreign grants (Rs. 20,391 million) helped to record a current account surplus.

The goods exports and imports recorded Rs. 49,833 million and Rs. 121,292 million respectively. The major component of the imports was petroleum oil worth Rs. 17,849 million. The oil import in the same period previous year was Rs. 17,310 million.

However, the trade deficit for the whole year ended on mid-July 2004 was Rs. 86,418 million, states the central bank. Total imports during the period were Rs. 139,142 million while total exports were Rs. 52,732 million.

The central bank states that the rate of inflation measured in terms of average annual increase in national urban consumer price index during the year ended on mid-July was 4.0% only as compared to 4.8% in the year previous to that.