Nepal

Politics:

• Analysis

  Nepal politics: Quick View - Interim government sworn in ahead of June poll

  Event

  On 14th March the president, Ram Baran Yadav, swore in the chief justice, Khil Raj Regmi, as the chairman of an interim council of ministers.

  Analysis

  Mr Regmi's appointment ends the political stalemate precipitated by the expiry of the transitional legislature's term in May 2012, after that body had failed to draft a new constitution. Mr Regmi will lead an 11-member interim cabinet; the home and law ministers were sworn in with him. The temporary government is charged with holding an election to a new constituent assembly by June 21st.

  This represents a significant breakthrough, but there are daunting hurdles ahead on the road to a permanent political settlement in Nepal. Mr Yadav justified Mr Regmi's appointment by citing the "principle of necessity"; this underscores the fact that the government is essentially operating in the absence a constitution. There are concerns that the appointment is an ad hoc solution that could raise thorny legal and constitutional issues and may be challenged at some point.

  Indeed, several political parties and lawyers have disputed the appointment on the grounds that it violates the principle of separation of powers between the judiciary and the executive, particularly in view of the fact that Mr Regmi will be free to return to his judicial position after the vote. In addition, the organisation and conduct of the coming election is likely to be contentious, given the uncertainties and disputes over the composition and proper functions of the Election Commission-arguments that Mr Yadav may ultimately have to settle by decree.

  Furthermore, political conflict and obstructionism are unlikely to end, throwing up unforeseen obstacles that could disrupt the electoral timetable. It took the four main parties-the Nepali Congress, the Unified Communist Party of Nepal (Maoist), the Communist Party of Nepal-Unified Marxist-Leninist and the United Madhesi Democratic Front-nearly a month to resolve last-minute wrangles between them before Mr Regmi could officially take charge of the interim government. (The parties had originally agreed on February 18th that the chief justice would assume leadership of the interim administration.)

  March 15, 2013

• Background

  Nepal: Key figures

  Gyanendra

  Between February 1st 2005 and April 24th 2006 King Gyanendra ruled directly as head of state and of the government. The constituent assembly that was elected in April 2008 voted to abolish the monarchy, and King Gyanendra was forced to abdicate on May 28th. However, he has retained the support of Hindu fundamentalists, and so still wields some influence.

  Girija Prasad Koirala

  The president of the Nepali Congress (NC), Mr Koirala has been prime minister since April 26th 2006. He was also prime minister earlier, in 1991-94, 1998-99 and from March 2000 to July 2001. Once a staunch anti-communist, he led Nepal during the government's negotiations with the Maoists and remains the key player in Nepal's political transition. The 83-year-old Mr Koirala wields near-total control over his party and remains one of the strongest personalities in Nepali politics. Old age and deteriorating health are his main challenges.

  Puspa Kamal Dahal (Comrade Prachanda) and Baburam Bhattarai

  The two top leaders of the Maoist movement. Comrade Prachanda is the party chairman, while Mr Bhattarai directs ideology and policy. The two men played a role alongside mainstream parties in transforming Nepal from an absolute monarchy to a constitutional one in the early 1990s, prior to becoming revolutionaries. Political and personal differences between them surfaced in 2005, almost causing a split in the Communist Party of Nepal (Maoist), or CPN (M). Their disagreements have since been resolved, however. Following the CPN (M)'s victory in the 2008 constituent assembly election, Comrade Prachanda is expected to play a leading role in the next government.

  The judiciary

  The interim constitution provided for a judiciary, which comprises 75 district courts, 16 appeal courts, one special court, four revenue tribunals, one administrative court, a labour court, one loan-recovery tribunal, a loan-recovery appeals tribunal and a Supreme Court. The interim constitution also provided for a new Constituent Assembly Court, independent of the judicial hierarchy, with the Supreme Court at the helm. The Supreme Court has original and appellate jurisdiction, including power to interpret the constitution and other laws, with the exception of matters that come under the jurisdiction of the Constituent Assembly Court. It also serves as a court of record, and has power to confirm verdicts, review cases, initiate proceedings and impose penalties for contempt.

  The legislature

  On January 15th 2006 the House of Representatives (the lower house of parliament) promulgated an interim constitution. The Maoists joined parliament the same day, after which the charter was endorsed by the new, interim parliament known as the Legislature Parliament. The interim constitution, which ended all references to Nepal's monarchical history, replaced the 1990 charter. According to the interim constitution, the powers of the Legislature Parliament passed to the Constituent Assembly after its election in April 2008. The assembly comprises 575 elected members, 24 of which were elected on a first-past-the-post basis and the remaining 335 of which were chosen by proportional representation. Twenty-six additional members will be appointed by a Council of Ministers.

  Media services

  The government licenses and regulates the broadcast media, and also runs national radio and television stations. About 80% of the population can receive Radio Nepal, but only 65% are able to receive Nepal Television (NTV) broadcasts. Nepal has 15 operational television channels, two of them government-run and 13 private. Only six channels broadcast regularly, however. Most FM radio stations are small operations, some being run by non-profit and community groups. Nepal also has a state-run radio station that has been operational since 1951. Its short- and medium-wave broadcasts—relayed also by FM centres—reach the entire country. The government owns one English-language and one Nepali newspaper, but several daily and weekly publications in both languages enjoy fairly wide circulation. There is a plethora of smaller newspapers and magazines with tiny circulations, in Nepali and some local languages, many of which are affiliated to political parties.

  Democracy index (for methodology, see Appendix)

  Nepal fares poorly in the Economist Intelligence Unit's 2008 Democracy Index, with a score of 4.05 and a ranking of 116 out of 167 countries. It falls in the bottom quarter of the 28 Asian countries surveyed; only China, Afghanistan, Vietnam, Laos, Myanmar and North Korea rank below it. This is despite an improvement in score since 2006 that moved Nepal out of the authoritarian category and reclassified it as a hybrid regime. The momentous events of 2007-08—the participation of the Maoist former rebels in the civilian interim government, the abolition of the centuries-old monarchy, the holding of a general election and the formation of a new parliament—were responsible for the change.

  Despite the fact that it has recently held an election successfully, Nepal's score for electoral process and pluralism remains very low, because of the newness of the procedures and the fact that the vote was postponed twice. Another factor that pulled down the score was the serious violence that marred both the election campaign and the poll itself. Several bombs exploded in the weeks before the vote, an independent candidate was killed, and the day of the vote saw violent clashes between armed supporters of rival political factions as well as the torching of at least one polling station. By contrast, Nepal's highest score is for political culture, which benefits from the newly reinforced culture of secularism following the overthrow of the Hindu monarchy.

  Democracy index
  	Overall score	Overall rank	Electoral process	Government functioning	Political participation	Political culture	Civil liberties	Regime type
  Nepal	4.05	116	1.33	4.29	2.78	6.25	5.59	Hybrid regime
  Overall and component scores are on a scale of 0 to 10; overall rank is out of 167 countries.

  Download text file (csv format)

  June 30, 2008

• Structure

  Nepal: Political structure

  Official name

  State of Nepal

  Form of state

  Republic. Nepal was a constitutional monarchy until parliament approved an interim constitution in 2007. The constituent assembly (the transitional legislature) voted to abolish the monarchy, and the new state structure was confirmed by the newly elected constituent assembly in May 2008

  Head of state

  The president, currently Ram Baran Yadav, is head of state, as set out in the interim constitution

  The executive

  The prime minister is chosen by a ballot of the constituent assembly; the cabinet is chosen by the prime minister in consultation with his party and any coalition partners

  National legislature

  The constituent assembly has 601 members. Of these, 575 are elected and 26 are appointed by a Council of Ministers. The assembly was charged with drafting a new constitution by May 2010, a deadline that was subsequently extended after agreement proved impossible to reach. Its failure to draw up a permanent constitution by a final deadline of end-May 2012 prompted the prime minister to dissolve the assembly at the end of May. A general election was called for November 22nd, but this is likely to be delayed until 2013 at the earliest

  Legal system

  The Supreme Court acts as the court of appeal and review, and has powers of original jurisdiction. It presides over 16 appellate courts and 75 district courts

  National government

  The previous government-a coalition of national unity led by the Communist Party of Nepal (Unified Marxist-Leninist), or CPN (UML), and supported by the Unified Communist Party of Nepal (Maoist), or UCPN (M)-dissolved itself in May 2012. The country is currently governed by a caretaker government

  National elections

  A constituent assembly election was held in April 2008. The next general election has been set for November 22nd 2012

  Main political organisations

  UCPN (M); CPN (UML); Nepali Congress (NC); Madhesi People's Rights Forum (MPRF); Terai Madhesi Loktantrik Party (TMLP); Rashtriya Prajatantra Party (RPP); National Democratic Party (NDP); Nepal Majdoor Kisan Party (the Nepal Workers' and Peasants' Party, or NeWPP); Nepal Sadbhavana Party (Anandi Devi), or NSP (A); Jana Morcha Nepal, or People's Front Nepal; Samyukta Baam Morcha (United Left Front), or ULF

  Caretaker government

  Prime minister: Baburam Bhattarai

  Deputy prime minister, minister for home affairs: Bijaya Kumar Gachchhadar

  Deputy prime minister, minister for foreign affairs & energy: Narayan Kaji Shrestha

  Key ministers

  Culture, tourism, civil aviation, labour & employment: Posta Bahadur Bogati

  Finance: Barsha Man Pun

  Peace, land reform & local development: Top Bahadur Rayamajhi

  Transport, planning & works: Hridayesh Tripathi

  Central bank governor

  Yubraj Khathiwada

  November 06, 2012

Economy:

• Background

  Nepal: Economic background

  Economic structure: GDP by sector
  (fiscal years Jul 16th-Jul 15th; NRs m)
  	2002/03	2003/04	2004/05	2005/06	2006/07
  Agriculture & forestry	170,634	183,621	196,686	207,897	225,246
  Fishing	2,168	2,504	2,682	3,113	3,431
  Mining & quarrying	2,310	2,507	2,748	3,060	3,306
  Manufacturing	38,826	41,673	77,885	47,840	51,887
  Electricity, gas & water	11,447	11,974	12,782	13,130	13,530
  Construction	30,955	33,254	36,644	40,811	44,186
  Trade	68,695	79,219	79,839	90,214	96,284
  Hotels & restaurants	7,540	8,942	8,895	9,257	9,802
  Transport & communications	39,362	46,283	51,336	64,711	81,341
  Finance	12,861	13,728	17,342	20,633	22,686
  Real estate	38,251	39,991	49,242	51,387	58,546
  Social services	50,496	54,297	63,498	71,030	81,314
  GDP at factor cost	492,231	536,749	589,412	646,471	719,477
  Source: Ministry of Finance, Economic Survey.

  Download text file (csv format)

  June 30, 2008

• Structure

  Nepal: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012a
  GDP at market prices (NRs bn)b	815.7	988.3	1,193.7	1,369.4	1,558.2
  GDP (US$ bn)b	11.7	12.7	16.3	18.5	18.4c
  Real GDP growth (%)b	6.1	4.5	4.8	3.9	4.6
  Consumer price inflation (av; %)	10.9	11.6	10.0	9.5	8.4c
  Population (m)	28.9	29.4	30.0	30.5	31.0c
  Exports of goods fob (US$ m)	986.6	837.4	901.8	998.9	–
  Imports of goods fob (US$ m)	-3,519.4	-4,265.5	-5,016.5	-5,665.2	–
  Current-account balance (US$ m)	384.5	-227.4	-437.8	49.0	–
  Foreign-exchange reserves excl gold (US$ m)	2,457.9	2,761.1	2,925.1	3,630.8	–
  Exchange rate (av) NRs:US$	69.76	77.55	73.16	74.02	84.63c
  a Actual. b Fiscal years (July 16th-July 15th). c Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2011/12	% of total	Components of gross domestic product 2011/12	% of total
  Agriculture	33.1	Private consumption	79.8
  Industry	13.7	Government consumption	10.2
  Services	47.4	Fixed investment	19.6
  Statistical discrepancy	5.8	Stockbuilding	13.2
  		Exports of goods & services	9.8
  		Imports of goods & services	32.6
  Principal exports 2009/10	NRs bn	Principal imports 2009/10	NRs bn
  Readymade garments	4.2	Petroleum products	53.3
  Wool carpets	4.1	Gold	41.6
  Pulses	4.0	Vehicles & spare parts	27.9
  Polyester yarn	3.4	Other machinery & parts	15.9
  Textiles	3.4	Mild steel billets	14.3
  Main destinations of exports 2011	% of total	Main origins of imports 2011	% of total
  India	57.4	India	56.9
  US	9.6	China	25.9
  Germany	5.4	Singapore	1.9
  Bangladesh	3.2	Saudi Arabia	1.8
  UK	2.7	Thailand	1.4

  Download the numbers in Excel

  Download text file (csv format)

  November 06, 2012

• Outlook

  Nepal: Country outlook

  Nepal: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: More than five years after Nepal's peace process started in 2006, the country's political scene remains paralysed by an intractable dispute between the main parties. The constituent assembly has been dissolved following its failure to draft a permanent constitution by the end-May 2012 deadline. An election for a new body was initially set for November. Disagreements about the legality of holding an election in the absence of a permanent constitution are expected to cause the poll to be postponed until 2013, further delaying the drafting of a new constitution. Nepal's economic performance will be dominated by trends in agriculture. A relatively poor monsoon will depress expansion in fiscal year 2012/13 (July 16th-July 15th) to 3.4%, but growth should recover to 4.6% in 2013/14. Consumer price inflation is expected to fall in the 2013-14 forecast period, reflecting an easing of imported price pressures as inflation moderates in India (the source of most of Nepal's imports). Price increases will average 7.1% a year in 2013-14. The merchandise trade account will remain heavily in deficit during the period. But the trade deficit will be offset by a large surplus on the transfers account linked to inflows of remittances from Nepalis working overseas.

  DOMESTIC POLITICS: Political stability remains elusive, and the situation is unlikely to improve greatly in 2013-14. Issues related to the basic contours of the state-notably the drafting of a permanent constitution-remain unsettled, and, despite earlier, ostensibly positive signs of inter-party co-operation at the start of 2012, the Economist Intelligence Unit believes that important decisions will continue to be held hostage to political in-fighting, with negative implications for political stability. Three issues central to the constitution-drafting process have proved intractable: the number of provinces in the new federal state; the question of whether to adopt a presidential or a prime-ministerial model of government; and the problem of whether to opt for a proportional or a first-past-the-post electoral system (or some hybrid of the two) at the local, provincial and federal levels. Events in the past few months indicate that Nepal is inching closer to a complete breakdown of its political system. The country is currently governed by a caretaker government led by the prime minister, Baburam Bhattarai of the Unified Communist Party of Nepal (Maoist), or UCPN (M), who until May 28th led a government of national unity. The Supreme Court had declared in early May that if the final deadline for the drafting of the constitution was missed the constituent assembly (which besides being tasked with drafting the constitution also functions as a legislature) would have to be dissolved and an election held for a new body. No agreement was reached and Mr Bhattarai duly dissolved the assembly in May and called for a general election within six months. Mr Bhattarai's decision was not popular with many of Nepal's other political parties, including those that were formerly in the national unity government. The option of seeking a fresh mandate from voters may have been seen by Mr Bhattarai as one way of strengthening his power base and ending the constitutional impasse. But in practice the move has merely served to highlight the existing political divisions that were evident in the debate over the constitution. The Election Commission (EC) and the president, Ram Baran Yadev, both indicated that an election in November would not be feasible, and a poll in 2013 now looks likely. However, debate about the technicalities of how to hold an election in the absence of a constitution has been intense. The UCPN (M) leader, Pushpa Kamal Dahal, further muddied the waters in October by suggesting that the president should face re-election at the same time as the assembly. Others argue that the interim constitution does not permit fresh presidential polls until the new constitution is in place. Unless consensus can be reached between the various branches of the state, including the EC, the risk of a complete breakdown of the political system will remain high in 2013-14. In the meantime, factions associated with the country's main political parties, notably the UCPN (M), will continue to call socially and economically disruptive bandhs (strikes) to advance their cause.

  INTERNATIONAL RELATIONS: The Maoists' election victory in 2008 was a foreign policy setback for the US government, which at the time still officially considered the UCPN (M) a terrorist organisation. Nevertheless, the US is keen to expand bilateral ties and to build on the US-Nepali Trade and Investment Framework Agreement that was signed in April 2011. In a gesture of goodwill, it removed the UCPN (M) from its Terrorist Exclusion List in September 2012, but political ties with the Maoists will remain strained. The UCPN (M)'s victory was also a blow to India. The activities of militant Maoist separatists in India are among that country's primary security concerns, and the Indian government is wary of the Maoists' political legitimacy in Nepal. Despite this, efforts to improve bilateral relations are continuing, as was highlighted by the signing in October 2011 of a Bilateral Investment Promotion and Protection Agreement. Such moves by India are motivated at least in part by concerns about the increasing influence in Nepal of China, which India still sees as an economic and strategic rival. As a consequence of the dominance of government by the UCPN (M), a tilt towards China has been evident in Nepal's foreign policy. This attention has been reciprocated: China has been supportive of the UCPN (M) because of Nepal's role as a tiny yet strategically important arena for Sino-Indian rivalry. A visit to Nepal by the Chinese premier, Wen Jiabao, in January 2012 followed a flurry of visits by Chinese delegations at various levels in the past few years. This indicates China's determination to make political inroads in Nepal, which has traditionally been firmly in India's sphere of influence. Moves to strengthen bilateral ties with Nepal are, therefore, likely to continue.

  POLICY TRENDS: The government's priority will be to ensure the performance of the basic functions of day-to-day governance in 2013-14, including trying to make sure that the political and security environment is as conducive to economic growth as possible. Until the constitutional crisis has been resolved, fiscal budgets are unlikely to be implemented in a timely manner. Advancing other policies will be even tougher. The IMF has highlighted the need to rationalise pricing structures used by two state-owned firms, the Nepal Oil Corporation and the Nepal Electricity Authority, to reduce their chronic losses, but this looks unlikely to happen in the near future. There has been somewhat better progress on strengthening the financial sector, notably through the recapitalisation of the state-owned Rastriya Banijya Bank and partly state-owned Nepal Bank, but much remains to be done. A bill passed by the transitional legislature in July provided funding for the first three months of 2012/13, ensuring that spending in those months is likely to be significantly higher than in the year-earlier period. However, it is doubtful that a budget for the remainder of the year will be approved. As a result, budget targets for that period will probably run at 2011/12 levels, with the caretaker administration authorising spending through executive orders. However, with rapid rates of inflation the lack of approved increases in the budget tends to mean real reductions in fiscal spending power. Given the lack of a budget for the remainder of 2012/13, there is a risk that government expenditure could slow dramatically compared with fiscal targets and year-earlier levels in 2012/13, resulting in a marked narrowing of the fiscal deficit (excluding foreign grants and loans). With the clear need for spending on infrastructure and social priorities like education, this underspend will prove a drag on Nepal's economic growth potential. Even if the current political impasse is ended, the country's fiscal position is expected to remain weak in the short to medium term, primarily owing to the narrowness of the tax base. At an estimated 15.5% in 2011/12, Nepal has one of the lowest ratios of tax to GDP in Asia.

  ECONOMIC GROWTH: Given that the agricultural sector accounts for around one-third of nominal GDP and that the farm sector employs the majority of the population, crop-growing conditions will remain the most important determinant of Nepal's rate of economic growth in 2012/13-2013/14. A relatively poor monsoon in 2012 will depress growth in 2012/13. However, industrial output should continue to rise, and services sector growth is also expected to remain strong, resulting in overall economic growth of 3.4% in 2012/13. The political environment is unlikely to prove conducive to significantly greater economic stability, but politically-driven strikes are likely to be less frequent in 2013/14 than they were in 2011/12. In 2012/13-2013/14 growth in private consumption, the largest component of the economy on an expenditure basis, will be supported by easing inflation and a continued strong rise in remittance inflows from Nepalis working overseas. Despite the lack of a budget for the remainder of the year, strong fiscal spending growth in the first quarter of 2012/13 will ensure strong government consumption growth in the early part of 2013/14. However, investment will remain depressed until the political outlook becomes clearer in the latter half of 2013.

  EXTERNAL ACCOUNT: We expect the merchandise trade account to remain heavily in deficit in 2013-14 as expansion in imports outpaces that in exports. Growth in exports to India is likely to accelerate in the period as that country's economic expansion recovers. The economic outlook in the developed world is likely to remain troubled in the next two years, which will hurt prospects for tourism services exports to these markets. By contrast, tourist arrivals from rapidly growing neighbouring markets such as India and China are increasing at a fast pace; the two countries accounted for about 20% and 8% of arrivals respectively as of end-2011. However, at present complicated visa requirements impede the potential growth in Chinese arrivals. The tourism sector nevertheless remains relatively small in terms of earnings, and the services account was near balance in 2011. Greater support to the balance of payments comes from a large surplus on the transfers account, owing to inflows of remittances from Nepalis working overseas. These are expected to continue to grow strongly in 2013-14, largely offsetting the trade deficit.

  November 07, 2012

View detailed map

Country Briefing

Land area

147,181 sq km

Population

29.3m (2009; IMF)

Main towns

Population in '000; 2001 estimates (Central Bureau of Statistics)

Kathmandu (capital): 671.8

Biratnagar: 166.6

Lalitpur: 162.9

Pokhara: 156.3

Birgunj: 112.4

Climate

Varies from cool summers and severe winters in the north to subtropical summers and mild winters in the south (extreme cold at high altitudes)

Weather in Kathmandu (altitude 1,337 metres)

Hottest month, July, 20-29°C (average daily minimum and maximum); coldest month, January, 2-23°C; driest month, December, 3 mm average rainfall; wettest month, July, 373 mm average rainfall

Languages

Nepali (official). There are other languages and English is widely used in commerce

Measures

Metric system; local units also used include 1 seer = 0.933 kg; 1 maund = 40 seer; 1 ropani = 0.05087 ha; 1 bigha = 0.6773 ha

Currency

Nepali rupee (NRs) = 100 paisa. Since 1993 the currency has been subject to a de facto peg to the Indian rupee at the rate of NRs1.6:Rs1. Annual average exchange rate in 2010: NRs73.2:US$1

Fiscal year

July 16th-July 15th

Time

5 hours 45 minutes ahead of GMT

Public holidays

Basanta Panchami (January 8th); Martyrs' Day (January 30th); Rashtriya Prajatantra Divas: Democracy Day (February 18th); Holi (March 19th); Nepalese Women's Day (March 8th); Ghode Jatra: Festival of Horses (April 3rd); Navabarsha: New Year's Day (April 14th); Buddha Jayanti: Buddha's birthday (May 9th); Krishna Janmashtami (August 22nd); Maha Asthami (September); Ghatasthapana (September 28th); Fulpati (October 3rd); Maha Nawami (October 5th); Vijaya Dashami (October 6th); Laxmi Puja (October 26th); Gobardhan Puja (October 27th); Constitution Day (November 9th); and various holidays for different religious groups

August 01, 2011