NEPAL: ECONOMIC HIGHLIGHTS FOR THE MONTH OF MAY

UNCLAS SECTION 01 OF 02 KATHMANDU 000473 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON ELAB ENRG ETRD PGOV NP SUBJECT: NEPAL: ECONOMIC HIGHLIGHTS FOR THE MONTH OF MAY 2009 ¶1. (U) Below is a compilation of economic highlights from Embassy Kathmandu for the month of May 2009, including the following: -- Food Crisis Leaves Millions Hungry -- Electricity Supply Improves, But Not for All -- Bank Lending Growth Rate Slows -- Declining Number of Workers Going Overseas -- Tourist Arrivals by Air Fall Food Crisis Leaves Millions Hungry -------------- ¶2. (U) A severe winter drought has left about 3.4 million people with an inadequate food supply, according to a report issued by the Ministry of Agriculture and Co-operatives (MoAC) in mid-May. The food crisis has affected people living in hill and mountain districts throughout the country, except in eastern Nepal. The Far-Western Region and Mid-Western Region have been particularly hard hit. The MoAC estimates that two-thirds of the population in the mountains of the Far West have been affected by the food crisis, which is expected to last for another seven months. In the Midwest, where the crisis is expected to persist for at least six months, about 53 percent of the people do not have enough food. ¶3. (U) The food crisis was sparked by one of the worst droughts in the history of Nepal. Some districts in Mid- and Far-Western Nepal reported receiving less than 50 percent of the average precipitation between November 2008 and February ¶2009. Nationwide, yields for wheat and barley, two principal winter crops, fell by 14 and 17 percent respectively, while yields in the Mid- and Far-West plummeted by more than half. The crisis was exacerbated by a two-week bandha in the Terai, which ended on May 4. The strike crippled transportation in the region, which is Nepal's agricultural belt. ¶4. (U) In late May, the UN Food and Agricultural Organization (FAO) and World Food Program (WFP) announced that they were increasing their assistance to those affected by the food crisis. WFP officials said they planned to provided subsidized food to another 700,000 people in the worst-hit areas, while FAO officials said they are expanding food-for-jobs and food-for-training programs in these areas. Electricity Supply Improves, But Not For All -------------- ¶5. (U) On May 31, the Nepal Electrical Authority (NEA) announced that it would cut the ongoing eight-hour daily load-shedding in half, beginning the next day. NEA officials said they were able to make the cut because a rise in water levels has increased power generation at several major hydropower plants. At the Kulekhani Hydropower Project near Hetauda in Mahawanpur Dsitrict south of Kathmandu, power production increased by 38 percent, or 52MW, following continuous rainfall in the surrounding area. ¶6. (U) However, not all of the country benefited from the announced reduction. The NEA said it will not cut load-shedding in the Morang-Sunsari region in the eastern Terai, a important industrial center. Load-shedding will remain at eight hours daily in this region because it is dependent on power imported from Kataiya, India, and only one of the two import circuits damaged by the Koshi floods in August 2008 has been repaired. The repaired circuit has a 45MW capacity, while the one still under repair carries 30 MW. Bank Lending Growth Rate Slows -------------- ¶7. (U) The Nepal Rastra Bank (NRB) reported that the growth in commercial bank lending slowed during the first nine months of the current fiscal year, which began in July 2008, as compared to the same period last year. Overall credit to the private sector expanded by 17.9 percent during this period. During the same period last year, it grew by 19.9 percent. ¶8. (U) Declines in the growth of loans to the construction and real estate sectors may indicate that the overheated housing market is being to cool. According to the NRB, construction loans grew by 27.2 percent, while in the same KATHMANDU 00000473 002 OF 002 period the previous year they grew by nearly 44 percent. The central bank noted that credit growth in the real estate sector "also declined," but it did not provide figures. ¶9. (U) One of the few areas in which the growth accelerated is consumer loans. During the review period, consumer loans, such as those for gold and silver and credit cards, grew by 31.6 percent, as compared to 0.1 percent last year, according to the bank. Observers said this dramatic growth suggests that remittances are now being used more for consumption than for productive investments. Declining Number of Workers Going Overseas -------------- ¶10. (U) The number of Nepali workers leaving for overseas jobs fell by 20.5 percent during the first 10 months of the current fiscal year, as compared to the same period last year, according to the Department of Foreign Employment (DoFE),Ministry of Labor and Transport Management. The DoFE reported that 147,545 workers left the country during this period, while, during the same period the previous year, 185,817 workers left. (Note: These figures do not include workers who left for jobs in India. End note.) ¶11. (U) Between mid-April and mid-May, there were dramatic declines in the number of jobseekers leaving for work in three of the most popular labor destinations: Malaysia, the U.A.E. and Saudi Arabia. According to the DoFE, only 824 workers left for Malaysia during this period, as compared to 4,181 last year. The number of workers leaving for the U.A.E. was 1,701 this year, down from 4,336 last year. Saudi Arabia, the most popular destination for Nepali workers, absorbed 2,861 jobseekers, about 2,000 fewer than last year. Tourist Arrivals by Air Fall -------------- ¶12. (U) The Nepal Tourism Board (NTB) reported that tourist arrivals at Tribhuvan International Airport, the country's sole international airport, fell by 5 percent in May, compared to the same month last year. According to the NTB, 25,129 visitors arrived by air in May, 1,331 fewer than the previous year. Air arrivals have fallen ins all but one of the first five months of 2009, as compared fort the same months last year. (Note: In recent years, air arrivals have accounted for about 70 percent of all tourist arrivals. End note.) ¶13. (U) The largest declines were in the numbers of tourists arriving from other South Asian countries. Visitors arriving from India, which is, by far, the largest source of tourists, fell by 13.6 percent in May, as compared to last year. The only country in the region to register growth was Sri Lanka, with visitors from that country increasing by nearly 20 percent. Arrivals from the United States and Canada also grew, as did those from the European market. Inflation Moderates Somewhat -------------- ¶14. (U) Consumer price inflation rose to 11.9 percent during the first nine months of the current fiscal year, as compared to 8.9 percent during the same period the previous year, according to the NRB. The current year-on-year inflation rate is 1.2 percent less than the rate the central bank reported for the first eight months of the fiscal year. ¶15. (U) Inflation during this period was driven mainly by the rise in the price of food and beverages, which overall increased by 14.8 percent, as compared to 12.6 percent last year. Within this group, the price of sugar and sugar products increased the most, rising by 50.5 percent. During the same period last year, the price of these products fell 3.8 percent. The price of meat, fish and eggs and the vegetable and fruits sub-groups were also up sharply, increasing by 28.2 percent and 21.3 percent, respectively. POWELL