NEPAL: ECONOMIC HIGHLIGHTS FOR JULY 2009

UNCLAS SECTION 01 OF 02 KATHMANDU 000739 SIPDIS E.O. 12958: N/A TAGS: ECON ELAB ENRG ETRD PGOV NP SUBJECT: NEPAL: ECONOMIC HIGHLIGHTS FOR JULY 2009 ¶1. (U) Below is a compilation of economic highlights from Embassy Kathmandu for the month of July 2009, including the following: -- FY 2009/10 Budget Nearly 34 Percent Larger -- Economic Survey Shows Declining Performance -- UN Says Hunger in Some Areas 'Extremely Alarming' -- Growth in Overseas Workers and Remittance Slows FY 2009/10 Budget Nearly 34 Percent Larger -------------- ¶2. (U) The Government of Nepal (GON) introduced a Rs. 285.9 billion (USD 3.7 billion) budget for fiscal year 2009/10 on July 13. The proposed budget is nearly 34 percent larger than the FY 2008/09 budget and more than double the amount the government spent two years ago. The largest share of the budget, 45.6 percent, is earmarked for social services, including education, which accounts for 16.3 percent of total spending. The GON plans to make a massive investment in infrastructure improvement, including Rs. 18.5 billion for road construction, upgrading and maintenance. Revenues are expected to total Rs. 176 billion, with the balance of budget financing coming from increased foreign aid (Rs. 78.5 billion in grants and loans) and domestic borrowing (Rs. 30.9 billion.) The projected Rs. 52.4 billion deficit is more than 40 percent higher than the previous year's shortfall. Government's Economic Survey Paints Bleak Picture -------------- -------------- ¶3. (U) Nepal's economy grew by just 3.9 percent in FY 2008/09, compared to 5.3 percent in the previous year, according to the Finance Ministry's annual economic survey released on July 8. The survey, based on the first eight months of the fiscal year, showed that the consumer price index rose nearly 13 percent, up from 7.7 percent the previous year. Growth in the agricultural sector, which accounts for about one third of the total gross domestic product, fell to 2.1 percent, less than half the previous year's rate. The non-agricultural sector grew by 4.8 percent, compared to 5.7 percent in FY 2007/08. The Ministry blamed slow agricultural growth on adverse weather and attributed the non-agricultural sector's weak performance to the energy crisis, "bandhs" (strikes) and other problems. UN Says Hunger in Some Areas 'Extremely Alarming' -------------- -------------- ¶4. (U) The level of hunger in the mid- and far-western mountain regions of Nepal is "extremely alarming," according to a report issued by the UN World Food Program (WFP) in late July, which says the percentage of malnourished people in these areas is on par with Congo and Ethiopia. Overall, Nepal ranked 57th out of 88 countries studied by the WFP. Of the 15 sub-regions in Nepal, the level of hunger in 12 was categorized as "alarming" or worse. No sub-region fell within the moderate or low-hunger categories, which the WFP said, "underscores the seriousness of the food security situation in Nepal." Growth in Overseas Workers and Remittances Slows -------------- --- ¶5. (U) The number of Nepali workers going overseas fell by 12.8 percent in fiscal year 2008/09, compared to the previous year, according to the Department of Foreign Employment (DoFE) in the Ministry of Labor and Transport Management. DoFE reported that 217,164 workers left for overseas jobs during FY 2008/09, which ended on July 15. Although that is 31,887 fewer than the record number of workers who went overseas in FY 2007/08, it is still the second highest total of all time. Experts said the slower growth is a result of the global economic downturn, which led Malaysia and the United Arab Emirates, two of the most popular labor destinations, to downsize the foreign work forces in certain sectors. Although the number of Nepalis going to QATAR fell by 10.8 percent, it still remained the top labor destination, with 76,175 Nepali workers arriving there in FY 2008/09. ¶6. (U) Remittances grew by 55.5 percent to a total of USD 2.45 billion during the first 11 months of FY 2008/09, KATHMANDU 00000739 002 OF 002 according to the Nepal Rastra Bank. However, the year-on-year growth rate has steadily declined since the third month of the fiscal year, when it reached 80.7 percent. (Note. These figures do not include people working in India.) Vehicle Registrations Soar, Road Construction Lags -------------- -------------- ¶7. (U) The number of vehicles registered annually has nearly doubled over the past four years, according to the Department of Transport Management (DoTM) in the Ministry of Labor and Transport Management. DoTM reported 102,570 new vehicle registrations in fiscal year 2008/09, which ended July 15. In FY 2004/05, up from 55,775 in FY 2004/05. The new registrations brought the total number of vehicles in the country to 805,614, more than half of which are registered in Kathmandu Valley, according to DoTM. Motorcycles account for nearly three-quarters of all registered vehicles. According to the government's proposed budget for the new fiscal year, just 62 kilometers of roads were added across the country during the first eight months of FY 2008/09. Fuel Consumption Grows 15 Percent -------------- ¶8. (U) Despite frequent short supply of petroleum products, consumption rose by 15 percent in FY 2008/09, according to the Nepal Oil Corporation (NOC),the state-run monopoly. The NOC reports that an average of 2,301 kiloliters (KL) of fossil fuels were consumed daily, led by the use of diesel, which grew by 54 percent to a total of 463,140 KL. Much of this growth was attributed to the increased use of power generators in the wake of protracted load-shedding. Consumption of gasoline grew by 22 percent to a total of 123,782 KL. NOC officials said the 15 percent growth in consumption of liquefied petroleum gas reflected rising urbanization. Tourists Arrivals Up for Month, Down for Year -------------- ¶9. (U) Tourists arrivals by air increased by 10 percent in July, compared to the same month last year, according to the Nepal Tourism Board. Even though this was the second consecutive monthly increase, the overall number of arrivals this year is still down 4 percent, compared to the first seven months of 2008. With a 16-percent increase in monthly arrivals, compared to July 2008, the United States remained the second largest source of tourists. A total of 14,897 Americans have arrived by air so far this year. India is still, by far, the largest sources of tourists. The number of tourists arriving from India increased by 33 percent in July, compared to the same month last year, bringing the 2009 total to 52,942. (Note. In recent years, air arrivals have accounted for about 70 percent of all tourists.) MOON