The April 25th earthquake has left Nepal devastated. But with the right approach, the country can rise again.
--By Akhilesh Tripathi
The devastating 7.6 local magnitude (ML) Gorkha earthquake which struck Nepal on April 25 and the subsequent aftershocks have caused more than 30,000 casualties including over 8,600 deaths. In addition to this tragic loss of human lives, the economic toll of the quake is immense. Tourism, agriculture, hydropower, manufacturing, real estate, SMEs, physical infrastructures etc have been hit hard by the quake. Observers say Nepal will be adversely affected by the economic aftershocks of this disaster for
years to come.
As per the latest data, nearly 750,000 houses have been damaged either partially or fully. Similarly, 10,000 schools and 1,000 hospitals and health institutions have been destroyed. Major highways and roads have developed cracks. Several historical monuments and cultural landmarks, including four UNESCO World Heritage Sites have collapsed. Farmer’s stockpiles of grains have been buried in the debris and their livestock have died. Over 2.5 million people have been directly affected.
Tourism, which accounts for about eight percent of the economy and employs more than half a million people, or about seven percent of the workforce, is set to take a near-term hit as high-end hikers and backpackers cancel vacations. The agriculture sector which accounts for one-third of the GDP is said to have incurred a loss of Rs 12 billion. Nearly two-thirds of the industrial units in the country’s industrial estates have suffered damage.
Needless to say, it was one of the worst disasters in the country’s history.
Assessing the Damage
There is varying data on assessing the amount of the economic damage Nepal has suffered because of the earthquake and its aftershocks.
An Asian Development Bank assessment on the impact of the quake on the economy has estimated that the growth rate will decline to 3.8 per cent from its earlier estimate of 4.6 per cent in March. “If the supply-side disruptions intensify in the coming weeks, the growth forecast may be further downgraded to somewhere between three percent and 3.5 percent,” states the ADB assessment. The regional multilateral lender has projected the inflation rate to be at 8.2 per cent.
However, the government thinks the growth rate will not go below four percent. A month after the earthquake, Nepal Rastra Bank (NRB), the country’s central bank, has revised the economic growth rate to four percent from five percent projected earlier this year. “Nepal’s economy has been positive this fiscal year. The economic indicators are good enough. So, we estimate that the impact of the earthquake will not bring down the growth rate to below four percent in the remaining two months of the current fiscal year,” says NRB Governor Dr Chiranjibi Nepal
Similarly, other estimates by the US Geological Survey and other agencies estimate economic losses to most likely be in the tune of USD 10 billion, which accounts for 50 per cent of the country’s Gross Domestic Product (GDP). Based on the projected five percent growth rate for the current fiscal year, the government had earlier estimated the GDP to grow to Rs 2,200 billion (USD 22 billion) from Rs 1928 billion (USD 19.28 billion) in the last fiscal year. However, as the projected growth rate for the current fiscal year has been revised to four per cent, the GDP is likely to shrink by Rs 50 to 60 billion. “By the end of the current fiscal year, the size of the GDP will be Rs 2,140 billion (USD 21.40 billion),” said Dr Nepal.
However, NPC officials say these are just estimates and the actual economic loss caused by the quake and the amount needed for rebuilding and reconstruction can be ascertained only after a Post Disaster Needs Assessment (PDNA).
“For proper analysis of the economic cost and rehabilitation and reconstruction needs, we are working on the PDNA which will be completed by mid-June. After this, we will have concrete data on the damage done by the quake and the actual amount needed for rebuilding and reconstruction,” says Dr Govind Raj Pokhrel, vice-chairman of the National Planning Commission.
He adds that the government is working closely with Nepal’s development partners in order to come up with a single PDNA report. “In Haiti, there was a lot of confusion in the aftermath of the earthquake as three different PDNA documents were prepared by different stakeholders. We have learnt from this and want to make sure that we do not face a similar situation,” explains Dr Pokhrel.
Development planners are waiting for the PDNA report which will make the picture clearer. “The PDNA report will help us figure out how much we need for reconstruction. It will also help us identify the sources of the resources required, including international support,” says Chandra Mani Adhikari, a member of the NPC. “And once we know that, we can plan accordingly,” he adds.
Agrees senior economist and chairman of Mega Bank, Prof Dr Madan Kumar Dahal. “The National Planning Commission has fixed the ceiling of the national budget for the next fiscal year at slightly above Rs 700 billion. However this ceiling was fixed before the earthquake. So, now the national budget will have to be bigger than that, at least for the next couple of years. The total damage caused by the quake has been estimated at Rs 1000 billion. So, if we divide the spending for reconstruction between two years, we are going to need Rs 500 million extra for two consecutive years. This means the size of the national budget for the coming fiscal year will have to be more than Rs 1200 billion.”
According to Dr Dahal, out of the Rs 1000 billion required, Rs 500 billion will have to be raised from internal revenue, Rs 200 billion from government savings that have remained unspent, Rs 200 billion from internal loans and Rs 300 billion from foreign grants and loans.
There is no doubt that this natural disaster has placed Nepal in a precarious economic state. On top of that, some experts have doubted the government’s ability to effectively handle the complex process of reconstruction which will soon have to begin. “The government alone cannot do this. This is a fact known to everyone,” former finance secretary Rameshor Khanal says. “For this, all stakeholders of Nepal’s development – public sector, private sector and international community should work collectively.”
Private sector leaders, too, think that the crisis can be managed effectively if the government can take the private sector, development partners and friendly countries into confidence. “The situation can be turned into an opportunity and Nepal can indeed rise from the rubble if the government involves the private sector in preparing the reconstruction plan and implementing it, with generous support from Nepal’s friends,” says Pashupati Murarka, acting president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
Public-private cooperation hasn’t been as expected in the aftermath of the disaster. In some sectors, the government officials and private sector actors have come together to plan what needs to be done now. For example, a Tourism Recovery Committee with participation from both government officials and tourism entrepreneurs has been formed for the revival of the tourism industry.
But the government has ignored the private sector while forming the National Reconstruction Consultation Committee (NRCC) led by Prime Minister Sushil Koirala. “It is unfortunate that the government has invited no representation from The Federation of Nepalese Contractors’ Association of Nepal, the umbrella organization of private builders and construction entrepreneurs in the country, while forming the NRCC,” says Ram Sharan Deuja, general secretary of FNCCI.
“Public-private partnership hasn’t been that effective though a month has already passed since the quake. But that was the rescue and relief phase. We will soon enter the rebuilding and reconstruction phase. Such a partnership becomes all the more important for this phase,” says Hari Bhakta Sharma, vice president of the Confederation of Nepalese Industries (CNI). Therefore, he advises, the government should now consult the private sector while formulating the revival plan for any sector of the economy that has been affected and ensure private sector participation in at least the key mechanisms to be set up for taking the reconstruction drive forward.