Impact of Covid 19 in Nepal

Impact of Covid 19 in Nepal

Covid 19 has affected all around the world and Nepal is not an exception. Nepal has been in lockdown since chaitra 06, 2076 B.S and all the services, manufacturing industry, trading industry, tourism industry are shut down. To put in another word, the economic generating activities are shut down.

Impact on Government and Government Companies

The government has not been able to generate enough revenue and expenditure is increasing day by day and the condition is near where the reserve of government will come to an end. The main source of government revenue is value added tax and custom duty as it contribute near about 70% of government revenue. The government does not have any reserve to make expenditure. The indirect tax need to be paid before of 25th of next month for previous month. The government has not received any taxes for indirect tax payable at within 25th of Chaitra, and more likely it will not receive any taxes within 25th of Baishak. The revenue of Jestha is also not sure as there may be extension of lock-down.

As the government knows all of this, the finance minister has been doing every thing to make government efficient and collected huge sum of reserve of government company that were running satisfactory. Even transfer of reserve is not going to be enough to solve current liquidity crisis and even if the current liquidity crisis is solve it will surely affect the future as the government revenue is far less as compared to government expenditure. The government company whose reserve is transferred to government will be vulnerable and if any unforeseen issue hits those company either it will go in losses or into liquidation. To prevent such an impact the option will be to raise price for the service they offered and ultimately it will make huge burden to the consumer and citizen of nation. It will increase the inflation to more than market can accept.

The government will manage some how during this financial year but it can not survive next financial year if it does not reduce its recurring expenditure to 60% as compare to present recurring expenditure. The good budget is must for nation to thrive and make surplus. After all, the strong government is one which has strong financial strength and has enough financial and non-financial resource to complete the objective set out in government budget otherwise it is of no use.

Impact on Private Sector Industry (Small)

The private sector has not well developed in Nepal. The manufacturing industry can be counted in number with our hand. The most thriving industry is trading as it is one that contributes more in our economy. The custom houses are closed for every goods unless it falls with in essential commodity. We are having a situation where our nation has enough resource and commodity to supply in native market but due to lock-down it is not possible to distribute all the commodity.

The many industry that was running before covid -19 was already in near to liquidation situation but after covid-19 the industry will be facing the liquidation crisis and as well as fixed expenditure problem. Many industry will be in situation where they can not revive their business. The industry which was running without the support of bank and financial institution will regain their market share and will be in normal situation after few month of opening of market, the losses of some fixed cost will only be loss for them. But the main problem for small business sector having support of bank and financial institution will have huge losses for coming year. The small business have huge rent to pay, and a lot of fixed cost including highest bank rate. It will be one of their hardest time that they have ever faced in their business careers.

The only way we can survive this problem is to make restructuring of bank and financial institution loan provided to company and if possible make such restructuring payment only after six month to one year of ending on covid-19 crisis. The government do not ha19ve enough resource to provide any facility to such industry as it is suffering more economic problem and is unable to sustain.

Impact on Public Sector and Big Private Sector

The public sector dealing and large private sector dealing in essential goods as listed by the government is having monopoly in current market and making huge profit as they are only the distributor and manufacturer of current essential items. But for those not dealing in essential items they are the one that are having some economic problem which is estimated to be around loss in revenue about 60% as compared to previous year. Since the fixed cost are to be paid they may suffer some loss but they will in most cases revive in few month. The market will work for them.

Impact on Bank and Financial Institution

The bank and financial institution will not have major impact as they will be gaining the interest from customer even if the market is shut down due to lock-down. It is true that during the period of lick-down they are unable to provide new loan to customer and are not able to receive deposits also. But it will not impact much to them because of covid-19 but since the market was in recession before the pandemic, their profit will surely be affected.

There is a change in most banks and financial institution that their many loans will be provisioned to 100% because of defaulter but it will be the case for all the banks. And I believe that the banker association will make effort in regards to this with Nepal Rastra Bank and make this issue less likely to happen or make changes in rule for some period and provide time to adjust with some better option.

There is most probable chance that the government will take internal loan from bank and financial institution due to which the money supply in the market will fall short. The market needs capital to regain its position as before but it might not be possible due to such action. I believe that in this situation the interest rate of banks and financial institution should be below normal rate (6%), but it is highly unlikely because of government action of internal loan and inability of further investment by bank. If the sufficient capital is not provided to market with cheaper interest the market will take time to gain its formal position and may lead to increase in interest rate. Even if the banks and financial institution do not increase interest, the decrease in interest will be insignificant for market to revive.

Impact on Tourism Industry

The most serious impact of covid-19 will be on tourism industry. The world is suffering from the pandemic and there is the estimation that whole world will go into recession that no one has ever seen. It might be the most economic downfall in the history. The internal tourist will be very insignificant as they will be more focused on managing their finance. The people around the world have more unemployment than ever and during this recovery of crisis period it is highly unlikely that the huge amount of tourist will visit Nepal.

The industry will face liquidation crisis and there will be very uncomfortable situation for those who are taking support from bank and financial institution. The revenue will be very less as compared to previous year which itself was a difficult year. They might not be able to earn profit to pay interest to bank and financial institution. Their fixed cost will rise with fall in revenue and not enough to sustain their business. They may be in verse to closure of business also.

Impact on Real State Sector

As we know that the real sector industry are the one suffering from losses and in verse of closure before covid-19. But after this pandemic, there might be more difficult situation and the market value of real state might even fall. The market price of today is highly inflated but it might fall because of high supply of land and building and less having less demand for the same.