Corona Crisis, Global Economy and Nepal

9 MAY, 2020
MADHAV KUMAR NEPAL
(FORMER PRIME MINISTER OF NEPAL / MEMBER OF PARLIAMENT)

1. The Global lockdown consists two sides as other coins; in one side it has created risk in human lives as well as, in other side, economic crisis bigger than in 1930 Great Recession and Global Financial Crisis 2008-09 including social and behaviour problem. Due to unnatural conflict between the human action and nature as well as ecology, the nature has been appeared in harsh way; the human being has been trapped in the hand of man killer virus.  

2. To save the people from Covid-19, more than 200 countries initiated the action of physical separation of the people and named social distance. To maintain this physical separation, the governments searched the way of lockdown. Due to the result of such lockdown, two third of global population has been psychologically imprisoned under their home, apartments and rooms. 

3. Due to this situation, the patients and possible patients other than infected by corona virus are in shadow. Covid-19 crisis has jammed the motion of man (all human beings), machine and money. People are locked; they cannot move. Machines or all industrial & production, trading as well service related works are stopped; as per the WTO more one third of world trade has been disappeared; economic activities are in rest. With very slow movement of man and machines, the motion of money also has been stuck.

4. Up to March 2020, a total of 81 percent of the global workforce of 3.3 billion is pushed in out of work line; their workplaces are fully or partly closed (ILO and BBC). More than 200 millions of people lost their jobs. However, before outbreak of Covid-19 too, with ending of year 2019, the number of global unemployment was registered 190 million (ILO) and at that time also, there were enormous challenges in the world of work including inequalities and exclusion.

5. With the situation created by the Corona virus, the numbers and size of problems and challenges are broadened and but it is not predictable, what the last distance of the loss will be. In a single country, the USA, with stepping on second week of April 2020, in addition to earlier beneficiaries another 5.2 million people are looking for unemployment benefits and more than 30 million Americans have applied for benefits; in a single week of April 2020, 3.8 million people lost their jobs; let us keep in mind that during the period of Global Financial Crisis 2008, one out of six workers were lost their jobs. Similarly, the unemployment rate, in Indian economy, climber to 27.1 per cent in April 2020 due to a paucity of jobs in the economy (CMIE, May 4, 2020), from 3.5 percent in 2018.

6. World growth is expected to be negative or jump down around 6 percent, it means around minus 3 percent; tentatively the loss in production may register $9 trillion; the recovery of world economy may take one to two years. The share market has been almost crashed. The price of oil is in negative level; terrible scenario existed. The prices of oil and commodity are dropped to 160 years back. On April 20th a barrel of West Texas Intermediate oil for delivery in May had a negative price-tag, meaning sellers had to pay buyers. On April 27th prices for June also slumped by more than a quarter, though remained positive, at just over $12 a barrel (Economist).  During the period of GFC 2008-09, per barrel price was climbed to $130 and more.

7. Cross boarder migration has been completely blocked. This kind of blockade has created the chance of decline in remittance income of many countries; basically those countries whose economy is remittance based, like Nepal, may be trapped in bigger problem. The level of poverty may go up, in unexpected mode. As per the study of UN University, the impact of the corona virus pandemic is in between 420 million and 580 million and more people, or 8 percent of the global population may be pushed to living in poverty, even only a 5 percent fall in income or consumption, it could lead to the first increase in global poverty since 1990. Based on the study, researchers warned that the corona virus could therefore pose a real challenge to achieve SDGs, ending poverty by 2030. 

8. The travel and tourism sector is in coma. Most of airlines are grounded. The investees are nervous and the price of gold has been hiked due to searching of relatively more safe option of investment.

9. To address the problem, the central banks of major economies including Fed USA, RBI India, and the People’s Bank of China have already reduced the interest rates. As side effect of interest rate reduction, and other reasons the value of US dollar has gone up. Increased value of dollar may push the import based countries, especially developing and low income countries. These countries may have to face depression as well as inflation. United States of America also will not be trouble free. It may lose the world market, its trade deficit may increase; since the US public debt/GDP ratio has crossed the number of 100 percent.

10. Thus Covid-19 has created quake in the economic and social order of the world. People are psychologically, mentally and physically disturbed; they are feared due to unclear picture of post Covid-19; fear of collapse of business, fear of loss of job and work, fear of loss of immigration permit. The imaged picture of economic and social future is bigger, broader and deeper than other crises and pandemics in history. The pandemic has pushed the education and health system in erosion. All education system has been disturbed and stopped. It will defiantly work badly on the matter of human resource development.

10. Around the Corona crisis, a very significant and notable point is that relatively low income groups are badly affected; from point of loss of jobs and lose of incomes as well as infection from corona virus; since most of them basically urban poor live in more crowded area; slums and less comfortable apartments and many of them (both urban poor and rural poor) work in informal sector where the social security program are rarely available. 

11. Another point, but positive thing, is that this global crisis may change the food habit, migration and labour patter as well as working style of the people. Digital based working system may be broadened. The volume of use of health hazarding goods may go down; like alcohol and junk foods.

12. Under this global scenario, to minimize the impact of the pandemic and to keep the economy and social actions live, many countries have already declared the relief package and stimulus scheme that varies from 0.8 percent to 16 percent; e.g.US has declared the relief scheme of 2 trillion dollars, India Rs.1700 billion. Malaysia has declared the package as equivalent of 17 percent of GDP.

13. Being a member of Global village, Nepal is also not untouched from the crisis created by Covid-2019.

EFFECT AND IMPACT  

13.1 More than 75 percent of working labour force has been kicked out of work. The tourism and foreign employment sector are highly affected; tourism and travel industry is almost in stuck; all airline services and hotels are closed. The manufacturing and mining industry is stopped. Almost. all public and private infrastructures projects are locked.

13.2. The agriculture and livestock sector is far away from adequate labour, essential inputs and hand of consumers. The supply system has been put out of regular cradle and existed in lean and thin form. The foreign employment sector and inflow of remittance also has been affected badly; as per the estimation of responsible Government Agency, nearly 20 percent of remittance amount may be cut; tentatively 700 to 1100 thousands labour force is estimated to come back in the country. Corona crisis has narrowed down the scope of bilateral assistance as well direct foreign investment too.

13.3 Due to worst usual trend of inefficiency of responsible agencies and persons as well as newly added corona crisis ,  the running projects  may go longer to complete that may hike projects cost and some of them may come below the line of economic and financial viability.

13.4 The growth is expected to change at 2.28 percent only; 5 percent less than projected by the Budget policy for the Fiscal year 2019-20. To achieve the goal of uplifting the country as medium income level by 2030, while it needs double digit growth under the destinations defined by SDGs which was initiated and introduced by the UN. The crisis has created the challenge in achieving such national goal in desired time period. It  may push the destination far, or in post 2030 period.   

13.5 This time people are struggling for live and livelihood; it is not only due to cause and effect of Covid-19, in Pre-Covid-19 period also the live and other condition of the people who were known as low income classes was pity for the government. Due to mismanagement of resources and inefficiencies of the state institutions, the desired development was left behind.

13.6 The economy of Nepal was earlier in trouble; the spending capacity of the governments was relatively low; investment from private sector was also not so far satisfactory. Combined cause and effect of earlier low efficiency and problem created by new incident the goal of “Prosperous Nepal and Happy Nepali” has been trapped in challenge.

OPPORTUNITIES

13.7 The Corona break out has not only created the crisis; in some extent for Nepal it has also opened a little space of opportunity too. The use of own resources especially labour force, that will return from foreign employment as well as who come in market due to demographic nature in potential sector may show the economy upstairs. Agriculture, livestock, fisheries, forestry and mining are the sectors where the probability of value adding is high. Investment in the above sectors and other sectors like small, medium and large industry as well as tourism (in earlier period basically in internal tourism) will be appreciable.  Putting together of four things, man and soil, water and technology may boost the economy in sustainability direction through developing rural and natural resources and other own resource based economy.

WAY FORWARD

13.8 Way forward can be tracked out in three phases. The sectors damaged are live, livelihood and eco-industrial. For the recovery of such sectors, the packages should come in two modalities: one for relief of lives and other for stimulating the industrial and other economic activities. To develop the policies, programs, and packages, at first it requires need assessment with sectoral loss and amounts. The policy and program of reforms should be aligned with availability of resources based on the percentage of GDP, whatever is possible.

13.9 Previous priorities and priorities created by the crisis should be put in one box, reconciled and re-prioritized based on needs and resource availability; some programs and projects may be dropped or deferred accordingly.

The policy and actions should be divided as (i) immediate relieve programs, (ii) intermediate period programs related to reactivation of economic activities and (iii) thirdly up-lift of economy in long run.

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