UNIT 5
Nepalese Economics
Features of Nepalese Economy
1) Mass poverty
2) Dependence on agriculture
3) Low per-capita income
4) High trade deficit
5) High population growth
6) Dualistic and mixed economy
7) Under utilization of natural resources
8) landlocked country
9) Remittances based economy
Potentials of Nepalese Economy
a) Water resources
b) Energy resources
c) Forest resources
d) Minerals resources
e) Human resources
f) Agriculture
g) Tourism
1. Water resources
Potential of water resources
a. Hydroelectricity generation
• Nepal is the second richest country in water resources after
Brazil in the world.
It is the one of the most important natural resources in Nepal.
Theoretical potentiality of hydropower is 83000 MW.
Technically and economically feasible potential is estimated
42000 MW.
The hydroelectricity produced in Nepal is only 2818 MW.
River system Hydroelectricity potential
1. Gandaki 21000 MW
2. Koshi 22000 MW
3. Karnali 32000 MW
4. Others 8000 MW
Total 83000 MW
b. Drinking water potential
• According to the constitution of Nepal 2072,
“fundamental right relating to health under
which every citizen shall have a right of access
to clean drinking water and sanitation”.
• In Nepal, 97 percent of the total population
has access to basic drinking water services.
c. Irrigation potential
• Nepal has large potential in irrigation .
• Development progress of irrigation project is slow.
• 3.56 million hectares of agricultural land area.
• 2.64 million (60%)hectares potentially irrigable.
• Currently only 1.76 million hectares are irrigated.
d. Industrial purpose
e. Household activities
f. Recreational activities
2. Energy resources
• Renewable energy sources is important sources of
energy in Nepal.
• Renewable energy sources are hydroelectricity city,
solar energy, Biogas and wind energy.
a) Solar energy
Nepal has 300 days of sunshine annually.
Nepal has largest markets of solar heaters for
household consumption.
Department of electricity development survey licenses
for 21 locations with combined capacity of 317.14 MW.
b. Biogas
Biogas is a renewable and environmentally friendly form of energy
produced through the digestion of organic materials like animal dung,
agricultural residues etc.
It is used for cooking, lighting etc
Over 400,000 biogas plants have been installed across Nepal.
C. Wind energy
It has become one of the most economical and proven renewable energy
technology among all other renewable energy technology in recent years.
The commercially viable wind potential of the country is estimated to be
only about 448 MW.
d. Fossil fuel : Petroleum is second largest energy fuel in Nepal after
firewood .coal is used by industries for heating and boiling process.
3. Forest resources
• Forest resources is one of the important
natural resources of Nepal.
• “Hariyo ban, Nepal ko dhan”
• It is estimated that the forestry sector has 15
% contribution to GDP of Nepal. Forest land
covers 41.69% of total area of Nepal.
Potential of forest resources
Eco- tourism / tourism potential
Forest based industry
Climate change mitigation
Watershed protection
Bio-diversity conservation
Community forest
Employment generation
Bioenergy and firewood
Livelihood support
4. Minerals resources
• A minerals is an inorganic element that occurs naturally in the earth.
Minerals are fixed in quantity. Minerals are extracted from the earth.
Potentials of Minerals resources
Industrial development /industrial minerals
Employment generation
infrastructure development
Government revenue increase
Technology and energy development
Construction materials
Fuel minerals
5. Agriculture
• The agricultural sector has remained the backbone of the national
economy. It contributes 24.0 percent to the Gross Domestic Product
(GDP) and provides the main occupation for approximately 62.0
percent of households. About 67.0 percent of the total population
resides within agricultural families. (Source: Economic Survey 2080/81).
According to the World Bank, agriculture is the main source of food,
income, and employment for the majority of the population in Nepal. It
provides about 33% of the gross domestic product (GDP).
Agriculture production is declining gradually compare to population
growth rate. Rural populations are shifting towards urban areas. There
is challenges and problems of food insecurity and malnutrition.
Agriculture diversification is the strategic approach to overall these
challenges.
Potential of agriculture
1) Food security
2) Economic growth
3) Irrigation and technology
4) Diversified agro-climatic zones/climate –smart
agriculture
5) Subsistence farming
6) Agribusiness opportunities
7) Organic agriculture
6. Human resources/human capital
• “If you are planning for a year, sow rice; if you are planning for a
decade, plant trees; if you are planning for a lifetime ,educate
people.”- chinese proverb.
• Human resources is defined as the healthy educated, efficient,
skilled and physically and mentally capable manpower.
• According to National planning Commission,” human resources is
the knowledge, skill, efficiency, physical and mental capacity to do
work inherent in the people of the country.”
• It is the ability and efficiency of labour.
• Human resources is the very essential and active factor of
production.
• Brain drain is main challenges of the country.
Potential of human resources
1) Increased productivity and innovation
2) Employee engagement and satisfaction
3) Enhanced organization reputation
4) Reduce economic backwardness
5) Social development
6) Utilization of natural resources
7. Tourism
• According to world Tourism Organization(WTO)
defines tourism as,” traveling to and staying in
place outside their usual environment for not
more than one consecutive year for leisure,
business and other purpose.”
• Tourism is a multifaceted industry involving
various activities, destinations, and economic
impacts, with a focus on sustainable development
and significant contributions to local and national
economies.
Potential of tourism
1. Natural beauty/Nature- based tourism
2. Climate variety
3. Cultural and religious heritage
4. Ancient art and culture
5. Adventure tourism
6. Eco-tourism
Planning in Nepal
Meaning of planning
A plan is a set of activities to operate in a systematic
order to achieve definite goals.
Development planning is defined as the deliberate
government attempt to implement , monitor,
supervise as well as coordinate economic decisions
made on economic issues of the nation.
Constraints of plan implementation
1) Lack of comprehensive data and information
system
2) Political intervention and corruption
3) Lack of good governance
4) Unrealistic prioritization of projects
5) Lack of transparency and accountability
6) massive dependent on foreign sources
7) Lack coordination between concerned
authorities
Budget in Nepal
Meaning of budget
It is the financial plan of the government.
It is the statement of expected revenue and
proposed expenditure of the government for
the coming fiscal year.
Types of budget
1. Deficit budget : if the total revenue is less
than the total expenditure, then is called
deficit budget
2. Surplus budget: if the total revenue is more
than the total expenditure, then is called
surplus budget.
3. Balanced budget: if the total revenue is equal
to the total expenditure , then is called
balanced budget.
Process of Budget Formulation
The process or the steps adopted for the formulation of the budget is called budgetary process. The budget
formulation begins few months before the start of the coming fiscal year. The steps of budget formulation are given
below:
1. Circulars: In the first stage, the budget division of Finance Ministry prepares the guidelines of budget in
consistent with economic planning and fiscal policy. It sends circulars to the government ministries and
departments to send the estimate of revenue and expenditure on the basis of the guidelines. The
ministries and departments also send such circulars to their concerned offices.
•The budget division of Finance Ministry prepares the guidelines of budget in consistent with economic planning and
fiscal policy.
2. Estimate of overall expenditure: In the second stage, the level of government expenditure for the next budget
period is determined. The level of government expenditure should be enough, to achieve development objectives
and economic stability. In the initial period of budget preparation the planning authority should decide the primary
target of the expenditure of development plan. The final decision on the budget limit is done by the national council
having representatives of all governmental agencies.
3 Establishment of priorities: In the third stage, the planning authority fixes priority on main sectors of government
activity. In other words, after determining the amount of expenditure for next year, the expenditure is allocated
according to different sectors or regions. The projects should be prepared remaining within the limit fixed for the
concerned sectors.
•The planning authority fixes priority on main sectors of government activity
4.Project preparation and selection: In the fourth stage, the operating department formulates the proposed
projects and submits to the planning authority. The planning authority, after making review of the projects, selects
the projects to include in the coming budget. After the selection of the projects, the planning authority informs and
sends a list of approved projects to the concerned departments.
5. Submission of financial estimates: In the fifth stage, the list of the selected projects and financial estimates are
submitted to the budgetary office by the planning authority. This is the stage of budget preparation. The budget
office reviews the projects in the presence of departmental representatives and reconciles any difference in opinion.
6. The final budget: The final budget comes in the sixth stage. The budget
office, after making review gives final shape to the budget. There are two
general principles to be taken into account while preparing a budget:
• The budget should be made clearly related to the plan.
• The budget should give adequate information so as to exercise
proper financial and operational control.
7. Authorization and execution: The seventh and final stage of the budget
is the discussion and authorization of the budget by the legislature. The
fund is disbursed to the various departments according to the schedule of
the project and actual performance of the concerned departments.
• The final stage of the budget is the discussion and authorization of the budget by
the legislature
8. Auditing: Auditing is the last phase of the budget cycle. It is made in
order to ensure whether funds are spent in conformity with the law or not.
In Nepal, the control of budget through audit is done by the office of the
Comptroller General and Auditor General.
Auditing is done to ensure that funds are spent in conformity with the law
Process of plan formulation
Challenges in budget implementation
Implementing a budget can present various challenges, and the specific
challenges may vary depending on the country and its context. In the case of
budget implementation in Nepal, here are ten common challenges:
1.Revenue collection: Ensuring effective revenue collection can be challenging
due to factors such as a large informal sector, tax evasion, inadequate tax
administration systems, and limited tax base.
2.Limited fiscal capacity: Nepal faces resource constraints, making it
challenging to allocate sufficient funds to address all development priorities
adequately.
3.Infrastructure limitations: Insufficient infrastructure, including transportation
networks and communication systems, can hinder the smooth implementation of
budgetary programs and projects.
4.Weak institutional capacity: Limited human resource capacity and
bureaucratic inefficiencies can impede effective budget implementation, leading
to delays and suboptimal outcomes.
5.Political instability: Political instability, frequent changes in government, and
policy uncertainties can disrupt budget implementation, creating delays and
inconsistencies.
6.Decentralization challenges: Nepal's ongoing process of decentralization
presents challenges in terms of capacity building at the local level, coordination
between different levels of government, and fiscal transfer mechanisms.
7.Corruption and leakages
16th five year Plan of Nepal
( 2024/25 to 2028/29)
vision of this 16th plan = good governance, social justice and
prosperity.
• First development was implemented in 1956/57 to 1960/61.
Goals
The main goal of the sixteenth plan is attaining development
and good government that can be perceived in the life of the
common people. The main goals are as follows:
1) To promote good governance in political , administrative,
judicial, private and non –governmental sectors.
2) To established social justice in health, education,
employment, settlement, security and public service
delivery.
3) To achieve prosperity in human life and national economy.
Objectives
1. Economic growth and structural transformation
target to achieve economic growth=7.3% and aims to increase GDP to RS.
8.6 trillion within five years.
2. Poverty reduction and sustainable development
the plan aims to reduce absolute poverty to 20.3% and inflation to 5%.
3. Good governance and sustainable development
4. Human development
objective of the plan is to increase the average life expectancy to 73 years .
5. Infrastructure development and digital transformation
6. Promoting private sector and inclusive growth
7.Balancing development and social inclusion.
Priorities
1. Macro economic stability and rapid economic growth
2. Production, productivity, and competitiveness
3. Decent jobs and productive employment
4. Poverty reduction and inequality
5. Sustainable development goals and green economy
6. Human capital development
7. Modern ,Sustainable and systematic urbanization and
settlements
8. Fiscal management and governance
Resources Allocation
• Equitable distribution through grants and distribution
resources through equalization and special grants .
• Key areas of resources allocation
a) Hydropower
b) Infrastructure
c) Social sectors
d) Industrial development
e) Climate change and green investment
f) Financial sector
g) Human capital formation
