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Publication | 29 October 2020

Nepal Development Update, July 2020 : Post-Pandemic Nepal – Charting a Resilient Recovery and Future Growth Directions

The global COVID-19 (Coronavirus) pandemic imposed both a supply and a demand shock on Nepal’s economy, which adversely affected growth. The global crisis induced by the pandemic initially impacted Nepal through the tourism sector, with arrivals from China dropping by around 70 percent in February and a full stop to the issuance of visitor visas taking effect in early March 2020, which has effectively dropped tourist arrivals to zero. The impacts of the pandemic did not remain limited to tourism. On March 21, the Government of Nepal announced a nationwide lockdown, which affected industrial and agricultural production, leading, for instance, to more than a 25 percentage point decline in capacity utilization of industry by early June 2020 and a 64.7 percent (y/y) drop in credit provision to the private sector during the two-month lockdown period. Demand for consumption and production products, such as diesel and petrol, slowed, with many Nepalese experiencing job losses or the inability to outmigrate due to widespread travel restrictions. A domestic outbreak of COVID-19 commenced in May, prolonging the lockdown and imposing substantial human and further economic costs. As a result of the impact of COVID-19, GDP growth in Nepal is estimated at 1.8 percent in FY2020, compared to 7 percent in FY2019. Growth in the service sector is now estimated at 1 percent, the lowest since FY2002, while growth in the industrial sector is estimated at 3.2 percent, a four-year low, due to the deceleration in overall growth.