Political unrest does Nepal a disservice

Author: Sujeev Shakya, Beed Management

2021 has been a year of political upheaval and continued global disconnection for Nepal, but it has also been a year of economic recovery. Nepal saw the fury of COVID-19 in May 2021 when it was rocked by a shortage of oxygen and medical supplies, queues at cremation centers and thousands of lives lost. By mid-December 2021, nearly 12,000 people had died from COVID-19, more than those who died following the magnitude 7.8 earthquake in 2015.

At the start of 2021, it was unclear whether caretaker Prime Minister Khadga Prasad Sharma Oli – who had just taken office after parliament was dissolved in December 2020 – would last. In February 2021, the Supreme Court overturned the verdict which left Oli as Prime Minister. In May, President Bidya Devi Bhandari again ordered the dissolution of the house. Parliamentarians who opposed the decision took their case to the Supreme Court which overturned the president’s decision, warned the president not to interfere and appointed Sher Bahadur Deuba of Nepal’s Congress as prime minister. Parliament did not function for much of the year.

Deuba leads a fragile coalition of people opposed to Oli and includes former Pushpa prime ministers Kamal Dahal and Madhav Kumar Nepal. It took Deuba three months to expand the practice which had just started operating when Dasain and Tihar’s annual party season began. With major political party conventions in November and December, the focus was on selecting new leaders amid infighting, lobbying and upcoming elections.

Nepal’s relations with India remained sour in 2021 due to territorial disagreements. Trade and transit challenges have continued to dominate the headlines, and Nepal’s trade with China has been hit by COVID-19 and other natural calamities like floods and landslides. It now appears that border disagreements have also surfaced with China for the first time since 1960, which may have contributed to the lack of progress in Belt and Road investments last year.

Things aren’t going too well for U.S.-Nepal relations either. A public controversy over a US$500 million grant from the United States Millennium Challenge Corporation has emerged, with many opposing the grant, alleging it was a security sale in the United States. United. The lack of political will to implement an agreement signed between the two countries in 2017 has clearly demonstrated the difficulties for Washington to work with Kathmandu.

Nepal’s relations with other countries were limited to banter during national holidays, with Nepal recalling many appointed ambassadors. However, the country continues to have person-to-person support in many countries around the world – medicines, medical equipment, oxygen and vaccines were poured in during the second wave of COVID-19 in May. .

Nepal’s economy has weathered the pandemic better than many others. With the exception of international tourist revenue, all other economic activities continued mostly unabated. Remittances arriving in Nepal through formal and informal channels have increased. When formal remittances were down, remittances came in gold, through informal channels, as imports increased and air travel picked up.

The performance of banks has improved compared to 2020. Deposits and credit increased from $38 billion to $46 billion in November 2021. The exchange saw record volumes and prices, with total market capitalization increasing from $24 billion in October 2020 to $30 billion in November. 2021 with daily volumes peaking at US$150 million.

Imports and consumption showed signs of recovery as spending on festivities, social functions and religious functions increased. Land prices have soared and construction activity has returned to pre-pandemic levels. The number of people leaving for studies and jobs abroad also started to recover as the physical movement of people resumed in the second half of the year. The barely functioning government ensured weak regulation, fostering economic activity.

2022 will be an election year and the prelude of election activities was visible at party congresses. It will be a year that sees more business people enter the political arena and more politicians develop alliances with the private sector. It remains to be seen what promising new faces in politics will emerge.

As for the economy, Kathmandu needs to increase spending to manage the temporary shortage of cash. It will be interesting to see whether the government will be able to implement reforms to attract international investment or whether policymakers will allow protectionism to proliferate. And of course, we will have to wait and see how detrimental Omicron will be to Nepal’s economic activities.

Sujeev Shakya is the Founding CEO of Kathmandu-based consulting firm Beed Management, Senior Advisor for Nepal and Bhutan at BowerGroupAsia and Chairman of the Nepal Economic Forum. He is author of liberate nepal (Motilal Penguin India 2009) and Release the Vajra (India Viking 2019).

This article is part of an EAF series of special reports on 2021 in review and the year ahead.