The effects of the earthquake have been severely damaging with 59 of 75 districts affected and 11 severely impacted. With districts housing core manufacturing corridors being relatively unharmed, the industry is expected to take off especially with the rebuilding of damaged public and private infrastructure. Meanwhile, industrial plants for multi nationals firms such as Coca-Cola have broadly halted their operations to assess structural damages and account the impact on staff. Overall industrial production has also been cut by over 50% as workers are still in fear of another earthquake. The halt in production in these industries is bound to have economic repercussions.
Exports and Imports
The road network across the country has been impacted, obstructing import and export routes, mainly that of Araniko Highway which is the lifeline of Nepal-China trade. Export to China had earlier been witnessing a growing trend but with the obstruction of trade routes, exchange of products is expected to register a slump.
Petroleum will continue to be the top imported product mainly due to increased air traffic post-earthquake and rescue operations that followed. Furthermore, MS Billet, a core item for construction will also be among the top imported product as the country will now shift to reconstruction and rebuilding mode. Exports are unlikely to take off any time soon and major investments in hydro power plants is likely to be put on hold. Zinc Sheets which was earlier one of the top three items exported to India, is now in high demand locally. The government is therefore mulling over the idea of levying a temporary ban on export of galvanized zinc sheets due to the immediate rise in demand locally.
Trade Balance and BOP
Nepal’s already large trade deficit is expected to widen as the country relies heavily on tourism for foreign exchange, a sector which has been hit hard by the earthquake. With the tourist season coming to an abrupt halt, the foreign exchange earnings are likely to slump. On the other hand, remittance flow can be expected to increase with migrant workers sending in more funds for reconstruction and rehabilitation of families. The anticipated increase in worker’s remittance will contribute to keep the current account in surplus. However, with the downgrade of forecasted economic growth to 4.2%, it can be anticipated that the surplus levels will decline.
The Government of Nepal’s revenue targets will be difficult to meet as two custom points are closed due to damages and there is an overall slowdown in import export which has also brought down collection at other custom points.
Support for Trade
The International Monetary Fund (IMF) has shown willingness to provide Nepal with balance-of-payment support to ensure the country’s economic stability during this time of turmoil. ADB has also expanded its Trade Finance Program (TFP) in Nepal by an additional USD 40 million. This facility is expected to remove financial constraints for companies to access funds for emergency assistance, rehabilitation and reconstruction. It also prioritizes imports of basic commodities like food and medicine and also commodities related to reconstruction. With support pledges coming in and international community advising on focusing to revive the economy, the manufacturing and trade sector will play a crucial role in getting the economy back on track.
Manufacturing will take longest to recover as problems with power have been compounded with the disaster. The rebuilding phase will definitely see more imports of materials as additional funds will be pumped in. Given Nepal’s private sector mindset, it is likely that more will engage in trading of materials as well as in short term construction contracts using political clout. More financing will also be made available by international multilateral agencies to help banks provide more credit lines and limits to facilitate trade and financing contracts.