Nepal’s worst fear has come true. The country is now in the grip of a second wave of Covid-19, a pandemic which has so far killed over three million people and infected close to 145 million globally. Everyone knew this was coming, but we failed to make preparations based on lessons learnt from the first wave. It is therefore not surprising that the country is once again running out of hospital beds, oxygen is in short supply, and the death rate is rising. A replay of mistakes made in the past could have been avoided had the government not misdiagnosed the situation. The government thought Nepal was out of the woods after daily new cases took a plunge. So it did not think it was necessary to ban political and religious rallies and other large public gatherings or make people follow health protocols such as mandatory use of face masks.
The first wave of the disease had put undue pressure on the frail health system, devastated livelihoods, especially of low- and lower-middle-income groups, and sent the economy into a tailspin. Although the death rate in the country was not high compared to many other nations, the months-long lockdown clamped to contain the spread of the disease pushed around 1.2 million people into the poverty trap, culled 1.6 million jobs, and permanently shut down hundreds of micro, small and medium businesses.
The government responded to the crisis through various measures, including fiscal and monetary. It introduced food distribution programmes, directed the central bank to provide concessional loan facilities, and deferred the payment of taxes. It also introduced the 'Business Continuity Loan Scheme', under which credit of up to Rs 100 million was pledged for a minimum of two years at five-six percent interest. But businesses could not use many of those facilities because of stringent conditions, while tax authorities indirectly exerted pressure on businesses to clear the dues.
These half-hearted measures failed to lift the confidence of businesses and spur consumer demand, leading to a reduction in the production of goods and services in the last fiscal year. Nepal’s economy is projected to have shrunk by 1.88 percent in 2019-20, according to the Central Bureau of Statistics. This is the first economic contraction in 40 years. There are now predictions that it might take years for Nepal's economic growth to return to pre-pandemic levels.
Nepal's economy is expected to grow at a moderate pace of 2.7 percent in the current fiscal year, as per the World Bank, suggesting recovery will be very slow. Growth is expected to rise to 5.1 percent in the fiscal year 2022-23, as industrial and tourism activities rebound to pre-pandemic levels. This growth is lower than in the pre-pandemic period when the economy expanded by an average of 7.7 percent per annum from 2016-17 to 2018-19.
Now, as Nepal is battling its second wave of Covid-19, the government has not formulated any plans to stimulate growth. This is likely to badly hit the job creation process, cause distress among people, and raise the flow of outmigration. To raise the confidence of both the public and businesses, the government must hold consultations with the private sector and design a stimulus package so that jobs and businesses can be saved, more people do not fall into the poverty trap, and the cycle of subpar economic growth, that had previously gripped the country, does not make a comeback.
Of course, the government does not have all the resources to fulfil the wishes of everyone as its income is limited and it cannot go on a borrowing spree. But it can at least ramp up capital spending from the beginning of the next fiscal year to create jobs, provide concessional loans with very little conditions, defer tax payment, and, above all, bring in as much vaccines as possible and inoculate the population rapidly. These measures can provide some relief. The upcoming budget must address these issues.