Tourism and remittances power the economy. Other industries trail

Despite slowed economic growth, Nepal’s external sector appears stronger than ever, thanks to remittances, tourism and the appreciation of the US dollar.

Nepal’s three external indicators—foreign exchange reserve, remittance earnings, and tourism income, which represent all international economic transactions between residents of the country—reached a historic high in the last fiscal year that ended mid-July.

Conversely, the country’s statistical body, the National Statistics Office, has projected Nepal’s economic growth to be at a meagre 3.87 percent for 2023-24 due to the poor performance of the internal sector.

According to experts, the mismatch is due to political uncertainty and growing corruption, as the external sector's growth did not support the internal sector.

Experts claim that because the rise of the external sector did not support the internal sector, the mismatch is caused by political unpredictability and increasing corruption.

The growth in tourism-related revenue is positive. According to Nara Bahadur Thapa, a former executive director of Nepal Rastra Bank, the nation's central bank, "this will generate jobs."

However, increasing remittance earnings also imply fewer employment opportunities at home. However, the money that migrant workers send home has increased foreign exchange reserves to a record high.

Nepal has a remittance trap, but by investing in the real sector, the nation may make the most of this situation.

"Investing in the productive sector with the private sector is the best way to channel remittances," Thapa stated.

According to experts, the nation just needs to invest at this point because the massive amount of liquidity has caused the interest rate on credit to drop dramatically.

Nepal's gross foreign exchange reserves reached a record high of Rs2.04 trillion in the most recent fiscal year, up 32.6 percent. Experts say that in a least developed nation, this kind of tendency suggests no investment.

The central bank data, which was made public on Sunday, states that remittance inflows reached a new high of Rs1.44 trillion in the previous fiscal year, up 16.5 percent from the previous year.

The reason for the rise in remittances is the departure of young people.

741,302 people received foreign work permits in the most recent fiscal year (460,103 for the first time and 281,199 for renewals).
Compared to the previous fiscal year's 774,976, this figure represents a minor decrease.

Travel income, or the amount spent by foreign visitors, climbed 32.1 percent to Rs82.33 billion in the review year under the service account, the biggest revenue ever. From 862,992 in the previous fiscal year to 1.12 million in the most recent fiscal year, there were more tourists arriving overall.

In the review year, there was still a surplus of Rs502.49 billion in the balance of payments.

The internal sector has continued to be depressing despite the positive external sector.
The president of the Federation of Nepalese Chambers of Commerce and Industry, the leading organization for the private sector, Chandra Dhakal, stated, "This is because the private sector investment has been shrinking for the last two years." He was addressing a gathering on Sunday in Kathmandu.

Given that less than 40% of Nepal's capacity is industrialized. The 86 percent private sector's contribution to the economy has decreased. Naturally, this won't lead to job chances.

He claimed that the nation, where the private sector has prospered, has seen a huge increase in the need for labor.

In a recent analysis, the World Bank stated that the occurrence of frequent political shifts has discouraged private investment, which has been a major burden on firms for more than ten years. A culture of rampant corruption and a dearth of accountability has stunted economic growth and driven tens of thousands of young Nepalis to seek opportunities outside.

Thapa, a former central bank employee, stated that the current administration had a chance to profit from the billions of dollars in the banks.

There are opportunities and problems associated with the unusual coalition of the two main parties ruling Nepal at the moment.

"The private sector has to be assisted by the government. It must request that the private sector submit projects that are prepared for investment," Thapa stated.

The financial market is expanding.

According to Thapa, "the government can facilitate money raising and enable the private sector to invest in the productive sectors that create jobs through initial public offerings (IPOs) and follow-on public offers (FPOs)."

However, the nation is immobilized due to political squabbling.

For several months, there has been no leader at the Nepal Tourism Board and the Securities Board of Nepal (SEBON).

Even though the nation possesses a sizable amount of loanable funds, the Nepal Electricity Authority has not yet opened the door for negotiating power purchase agreements with the major developers.

"Investment is a must for both the public and private sectors," stated Dhakal. "The private sector has been spending Rs. 5 for every rupee that the government spends."

According to economists, the government's capital infusion into the economy would incentivize private sector investment.

Private investment has not increased significantly over time. For instance, the government's import ban from two years ago deterred private sector investment, lowering market capital and imports of intermediate goods.

Public investment and consumption decreased as a result, which eventually affected the government's ability to collect taxes.

Nepal is expected to leave the least developed countries by 2026, but statisticians and economists claim that because of poor government and private sector investment, the country lacks the conditions necessary to see double-digit economic development in the near future.

According to a recent announcement from the national statistics office, Nepal's growth rate will remain constant at this point due to continued investment. It won't change.

Economists predict that everything will stay the same, including social security, company growth, wages, and other state advantages, which will entice young people to try their luck overseas.