Nepal
MACROECONOMIC
Macroeconomic
UPDATE
Update
NEPAL
VOLUME.
NO.1
VOLUME
11,7,NO.
1 | SEPTEMBER 2023
April 2019
Nepal
Macroeconomic
Update
VOLUME 11, NO. 1 | SEPTEMBER 2023
iv
Macroeconomic Update
© 2023 Asian Development Bank, Nepal Resident Mission
All rights reserved.
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means, without the prior written permission of the Asian Development Bank (ADB).
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territory or area.
This issue of the Nepal Resident Mission (NRM) Macroeconomic Update was prepared by the following team with
overall guidance from Arnaud Heckmann, Officer-in-charge; and Jan Hansen, Principal Economist, NRM. Rana
Hasan, Regional Lead Economist, Economic Research and Development Impact Department (ERDI) reviewed
the draft and provided comments and suggestions.
Manbar Singh Khadka
Neelina Nakarmi
Malika K.C
Asian Development Bank
Nepal Resident Mission
Metro Park Building, Lazimpat
Post Box 5017
Kathmandu, Nepal
Tel +977 1 4290100
Fax +977 1 4005137
adbnrm@adb.org
www.adb.org/nepal
www.facebook.com/adbnrm/
Macroeconomic Update
CONTENTS
MACROECONOMIC UPDATE
Executive summary
Economic performance
Economic prospects
Page
vii
1
7
THEME CHAPTER
Assessing Customs Reforms and Trade Facilitation Program in Nepal
10
APPENDICES
Appendix 1: Country Economic Indicators
Appendix 2: Country Poverty and Social Indicators
32
33
v
vi
Macroeconomic Update
ABBREVIATIONS
ASYCUDA=Automated System of Customs Data
BFIs = bank and financial institute
COVID-19 = Coronavirus Disease 2019
DOC=Department of Customs
FY = fiscal year
GDP = gross domestic product
LPI=logistics performance index
MW = megawatt
NRB = broad money
NRs = Nepalese rupee
RKC=Revised Kyoto Convention
SASEC=South Asia Subregional Economic Cooperation
TFA=Trade Facilitation Agreement
UNCTAD=United Nations Conference on Trade and Development
WCO=World Customs Organization
WTO=World Trade Organization
NOTE
i.
The fiscal year (FY) of the government ends in mid-July. FY before a calendar year denotes the
year in which the fiscal year ends, e.g., FY2023 ended on 16 July 2023.
ii.
In this report, “$” refers to US dollars.
Macroeconomic Update
vii
Executive Summary
1.
Gross domestic product (GDP) growth is estimated
to have slowed to 1.9% in fiscal year (FY) 2023 after rising
by 5.6% in the previous year, owing to tight monetary
policy, unwinding of COVID-era stimulus, persistent global
headwinds, and wider fiscal consolidation. Agriculture
growth increased to 2.7% in FY2023 from 2.2% a year
earlier as cereals output, namely paddy, wheat, maize,
increased by 3.9% on a favorable monsoon and the use
of improved variety of seeds. Industry grew by only 0.6%
after expanding by 10.8% in FY2022 as manufacturing
and construction contracted—affected by higher interest
rates, import restrictions (during the first five months of
FY2023), and slackened domestic and external demand.
Services growth nearly halved from 5.3% in FY2022, as
wholesale and retail trade contracted, and transportation
and storage mildly expanded on a dampened domestic
demand.
2.
On the demand side, a 4.1% rise in private
consumption expenditure, albeit down from 6.8% a year
earlier, helped underpin growth, supported by sizeable
remittances. Fixed investment slumped by 10.9%, after
expanding by 3.8% in FY2022. Private investment shrank
by 7.6% and public investment slumped by 20.2%, resulting
in a 3.9 percentage point decline in GDP. Moreover, a
sharp fall in stock inventories by 20.2% reduced overall
capital formation by 13.0% in FY2023. Because of the
21.6% contraction in imports of goods, net exports were
the major contributor to growth in FY2023.
3.
Annual average inflation edged up to 7.7% in
FY2023, up from 6.3% a year earlier. Inflation increased
on higher oil and commodity prices and depreciation of
the Nepali rupee vis-à-vis US dollar. Annual food inflation
averaged 6.6% as prices rose for cereal grains, spices, dairy
products, and eggs. Annual nonfood inflation averaged
8.6% as prices rose for transportation, health, education,
and housing and utilities.
4.
This monetary policy stance and import restriction
measures resulted in a significant fall in merchandise
imports and declining revenue mobilization. Further, it
weakened aggregate demand. Lower than expected capital
spending and recurrent spending rationalization, partly
due to lower revenue mobilization, also affected economic
activities and banking sector liquidity. With revenue
shortfalls, the fiscal deficit increased to 6.1% of GDP in
FY2023 from 3.2% of GDP a year earlier.
5.
Adoption of a tight monetary policy in FY2023
helped maintain external sector balance. The current
account deficit significantly moderated in FY2023
reflecting both an easing of the trade deficit and buoyant
remittance inflows. The merchandise trade deficit having
increased by 19.5% in FY2022 narrowed by 22.2% a
year later owing to tight monetary policy and import
restrictions. Workers’ remittances, on the other hand,
further expanded by 12.1% in FY2023 after rising by 2.2%
a year earlier, on increased migration for employment
overseas. Consequently, the current account deficit
narrowed massively by 89.2% to $557.1 million, or 1.4%
of estimated GDP. Coupled with broadly stable financial
inflows, foreign exchange reserves increased to $11.7
billion in FY2023, providing import cover for 10.0 months
of goods and services—a marked improvement from $9.5
billion in FY2022 that provided only 6.9 months of cover.
6.
The economy is expected to expand by 4.3%
in FY2024 after economic growth slowed to 1.9% a year
earlier. Key areas of the economy such as manufacturing
and construction, that had contracted in the previous year,
will gradually pick up with the normalization of economic
activities. NRB’s tight monetary policy to fight inflation during
FY2023 had weighed on economic activity. With moderation
in inflation and comfortable foreign exchange reserves,
NRB adjusted its monetary stance by lowering the policy
rate by 50 basis points to 6.5%. This will marginally soften
commercial interest rates, stimulating economic activities.
viii
Macroeconomic Update
NRB has further relaxed provisions on working capital loans
to revive confidence in the private sector. Electricity output is
estimated to increase by 900 MW by end of FY2024, to a total
of 3,584 MW. Industry is thus projected to grow by 6.3% in
FY2024 after a dismal growth of less than 1.0% a year earlier.
The service sector is expected to perform well, particularly
with the boost coming from real estate activities, wholesale
and retail trade, and accommodation and food services.
Services growth will likely be double the 2.3% expansion in
FY2023. Agriculture growth may however decelerate to 2.5%
from 2.7% in FY2023 owing to deficient rainfall in June and
erratic weather conditions, further afflicted by lumpy skin
outbreaks in cattle.
7.
Inflation is forecast to decline to 6.2% in FY2024
from 7.7% a year earlier on subdued increases in oil prices
and a decline in inflation in India, Nepal’s dominant import
source. Despite moderation in inflation and comfortable
foreign exchange reserves, the NRB reduced the policy rate
by a mere 50 basis points. This considers any upside risks
to inflation possibly emanating from geopolitical tensions,
and extreme weather-related events affecting production and
distribution of agriculture goods.
8.
External risks remain relatively well-contained.
Considering the recent trends in reserves accumulation
and the NRB’s prudent monetary stance, the NRB’s
target of maintaining foreign exchange reserves sufficient
to sustain at least seven months of imports of goods and
services seems achievable. Maintaining a broad money
supply growth of 12.5% may partly depend on remittances.
Remittances will remain buoyant as the number of migrant
workers going abroad has sharply increased over the past
two years and has exceeded pre-pandemic level. Amidst
stable remittance inflows and higher imports, the current
account deficit is expected to widen to 1.8% of GDP as
growth revives to 4.3% in FY2024.
9.
Possible downside risks to the outlook may arise
from potentially stringent measures by the authorities to
stem the rise in prices given the uncertainties centered
around geopolitical tensions, a developing El Niño effect,
and the suspension of the Black Sea Grain Initiative.
This may depress domestic production and consumption,
adversely affecting growth. Any intensified geopolitical
turmoil and natural disasters may further dampen growth
prospects.
10.
This edition of macroeconomic update’s theme
chapter assesses customs reforms and trade facilitation
program in Nepal. Being a landlocked nation, Nepal
imports and exports goods using transit corridors and
seaport facilities of neighboring countries. Hence, it is
critical to simplify and streamline export and import
processes to support supply chain activities and save
time and compliance costs for legitimate trading. This
report broadly makes five recommendations that would
help the government achieve its overarching goal of
creating paperless customs, saving both time and money
for trading. First, Nepal must tap every known source to
further automate customs procedures as it is bound to
lose access to trade-related preferential treatments upon
graduation from the grouping of least-developed countries
in 2026. Second, it must identify new risk indicators and
parameters, and automate the risk management process to
reduce physical inspection of goods. Third, the government
must strengthen the capacity of customs administration
as well as human resources to execute behind-the-border
functions using modern technologies to reduce face-to-face
interactions with traders at customs points. Fourth, Nepal
must continue to strengthen its physical infrastructure to
facilitate cross-border trade. And fifth, the government
and the private sector, especially traders and customs
agents, must coordinate to hash out differences that are
working as barriers in creating paperless customs.
Macroeconomic Update
1
MACROECONOMIC UPDATE
A. Economic performance
1.
Gross domestic product (GDP) growth is estimated to have
slowed to 1.9% in fiscal year (FY) 2023 after rising by 5.6% in the
previous year, owing to tight monetary policy,1 unwinding of COVID-era
stimulus,2 persistent global headwinds, and wider fiscal consolidation
(Figure 1).3 Agriculture growth increased to 2.7% in FY2023 from
2.2% a year earlier as cereals output, namely paddy, wheat, maize,
increased by 3.9% on a favorable monsoon and the use of improved
variety of seeds.4 Industry grew by only 0.6% after expanding by 10.8%
in FY2022 as manufacturing and construction contracted—affected by
higher interest rates, import restrictions (during the first five months
on FY2023), slackened domestic and external demand. The energy
sub sector5 however expanded by 19.4% as Nepal’s installed capacity
of electricity generation increased from 2,190.6 megawatt (MW)
in FY2022 to 2,684 MW in FY2023.6 Services growth nearly halved
from 5.3% in FY2022, as wholesale and retail trade contracted, and
transportation and storage mildly expanded on a dampened domestic
demand. Accommodation and food service activities,7 however,
Figure 1 : Supply-side
to growth
Figurecontributions
1 : Supply-side
contributions to growth
Agriculture
Industry
Services
Indirect taxes less subsides
Gross Domestic Product (%, right-axis)
Percentage
Percentage points
10
8
10
7.6
8
6.7
6
4.8
5.6
6
4
4
1.9
2
0
2018
2019
2020
2021
-2
2022
2023
2
0
-2
-2.4
-4
-4
Note: Years are fiscal years ending in mid-July of that year.
Source:
National
Statistical
Office.
2023.ending
Nationalin
Accounts
of Nepal
2022/23.
Note:
Years
are fiscal
years
mid July
of that
year.
Source: Central Bureau of Statistics. 2023. National Accounts of Nepal 2022/23 Š
’
1
2
3
4
5
6
7
Monetary policy was tightened to address rising inflation and pressure on foreign exchange reserves. To contain the rising price level, NRB hiked the ceiling rate and policy rate
by 150 basis points to 8.5% and 7.0%, respectively in order to tighten credit growth, and contain rising prices and imports.
The refinancing facility that was increased 5-fold to $1.7 billion during the coronavirus disease (COVID-19) crisis has been gradually rolled back. The facility will be reduced to its outstanding
size by mid-July 2024.
With revenue shortfalls in the first half of FY2023, the Ministry of Finance on 31 January 2023 slashed the budget for various expenditure headings, such as fuel, repair works, printing,
and information publication, traveling and other allowances, including budget for the employee training, meetings and seminars, furniture and fixtures, and structural buildings,
among others.
Ministry of Finance. Economic Survey for FY2023. Paddy output, which contributes nearly 16% of agriculture GDP, increased by 7% in FY2023.
This includes electricity, gas, steam, and air conditioning supply.
Ministry of Finance. Economic Survey for FY2023.
This sub-sector constitutes about 3% weight in the services sector. The policy rate (overnight repo) was increased to 7.0% from 5.5%, effective August 2022.
2
Macroeconomic Update
Figure 2: Monthly tourists’ arrival
Figure 2: Monthly tourists' arrival
160000
140000
120000
100000
80000
60000
40000
20000
0
Source
: Nepal
Rastra
Bank.
2023. Recent
Macroeconomic
Situationhttp://www.nrb.org.np
. http://www.nrb.org.np
Source: Nepal
Rastra
Bank.
2023.
Recent
Macroeconomic
Situation.
registered a robust growth of 18.6% from 12.6% a year earlier as tourism
and related activities gathered pace on increased international tourist
arrivals (Figure 2).
#
2.
On the demand side, a 4.1% rise in private consumption
INTERNAL.expenditure,
This information is accessiblealbeit
to ADB Management
and staff.
It may be shared
outsidea
ADByear
with appropriate
permission.
down
from
6.8%
earlier,
helped underpin
growth, supported by sizeable remittances8 (Figure 3). Fixed investment
slumped by 10.9%, after expanding by 3.8% in FY2022. Private
investment shrank by 7.6% and public investment slumped by 20.2%,
resulting in a 3.9 percentage point decline in GDP. Moreover, a sharp
fall in stock inventories by 20.2% reduced overall capital formation by
Figure
3: Demand-side
contributions to growth
Figure 3: Demand-side
contributions
to growth
Government consumption
Gross Fixed Capital Formation(GFCF) (Investment)
Private investment
Statistical Discrepancy
Private consumption
Government investment
Net Exports of Goods and Services
Gross Domestic Product (%, right-axis)
Percentage
10
Percentage points
25
20
7.6
8
6.7
15
5.6
6
4.8
10
4
5
0
1.9
2018
2019
2020
2021
-5
-10
-2.4
-15
2023
2
0
-2
-4
Note: Years are fiscal years ending in mid-July of that year.
Source: National Statistical Office. 2023. National Accounts of Nepal 2022/23. http://cbs.gov.np
Note: Years are fiscal years ending in mid July of that year.
Source: Central Bureau of Statistics. 2023. National Accounts of Nepal 2022/23 Š
’
8
2022
Worker’s remittances increased by 12.1% in FY2023 to $9.3 billion, or 22.7% of GDP.
Macroeconomic Update
13.0% in FY2023. Because of the 21.6% contraction in imports of
goods, net exports were the major contributor to growth in FY2023.
3.
Annual average inflation edged up to 7.7% in FY2023, up
from 6.3% a year earlier (Figure 4). Inflation increased on higher oil
and commodity prices and depreciation of the Nepali rupee vis-à-vis US
dollar.9 Annual food inflation averaged 6.6% as prices rose for cereal
grains, spices, dairy products, and eggs. Annual nonfood inflation
averaged 8.6% as prices rose for transportation, health, education, and
housing and utilities.
4.
To address rising inflation and pressure on foreign exchange
reserves, the central bank, NRB had raised interest rates through its
monetary policy for FY2023 (footnote 1). This created an upward
pressure in the interest rates of banks and financial institutions, making
investments costlier and requiring higher returns from investment
(Figure 5). Nepal Rastra Bank, the central bank had raised the Cash
Reserve Ratio10 by 100 basis points to 4.0%, and the statutory liquidity
ratio11 to 12.0% for commercial banks and 10.0% for development
Figure
4: Monthly
Figure
4: Monthlyinflation
inflation
Overall
% change
Food & beverage
Nonfood & services
15
10
5
0
Jan 2018
Jul
Jan 2019
Jul
Jan 2020
Jul
Jan 2021
Jul
Jan 2022
Jul
Jan 2023
Jul
Source: Nepal Rastra Bank. 2023. Recent Macroeconomic Situation. http://www.nrb.org.np
Source: Nepal Rastra Bank. 2023. Recent Macroeconomic Situation. http://www.nrb.org.np
5: Weighted average
rates (commercial
banks)
FigureFigure
5: Weighted
average
rates (commercial
banks)
Deposit
Lending
14
12
10
8
#
6 information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.
INTERNAL. This
4
2
0
Jul-18
Nov
Mar
Jul-19
Nov
Mar
Jul-20
Nov
Mar
Jul-21
Nov
Mar
Jul-22
Nov
Mar
Jul-23
Source:
Nepal
Rastra
Bank.
Recent
Macroeconomic
Situation.
http://www.nrb.org.np
Source:
Nepal
Rastra
Bank. 2023.
2023. Recent
Macroeconomic
Situation.
http://www.nrb.org.np
9
10
11
The Nepali rupee depreciated by 7.6% in FY2023 vis-à-vis the US dollar.
Cash reserve ratio refers to the percentage of a bank’s total deposits maintained as liquid cash with Nepal Rastra Bank.
Statutory Liquidity Ratio is the minimum percentage of deposits that bank and financial institutions (BFIs) have to maintain in the form of liquid cash, gold, or other securities.
3
4
Macroeconomic Update
banks and finance companies, affecting the availability of loanable
funds. Loans against the collateral of land/building decreased from
40.0% to 30.0% within Kathmandu valley and from 50.0% to 40.0%,
outside the valley.
5.
The refinancing facility12 that increased 5-fold to $1.7 billion
during the COVID-19 crisis had been gradually rolled back13 which
together with the hike in policy rates resulted in the surge in marketbased interest rates, raising the financing costs of investments.
Consequently, private sector credit growth substantially slowed to 4.6%
in FY2023, down from 13.3% a year earlier. This led to a fall of private
investment by 7.6% in FY2023. Broad money (M2) growth, however
increased from 6.8% in FY2022 to 11.4% a year later on increased net
foreign assets and a modest rise in net domestic assets (Figure 6).14
6.
Adoption of a tight monetary policy in FY2023 helped maintain
external sector balance. The current account deficit significantly
moderated in FY2023 reflecting both an easing of the trade deficit
and buoyant remittance inflows. The merchandise trade deficit having
increased by 19.5% in FY2022 narrowed by 22.2% a year later owing
to tight monetary policy and import restrictions. Workers’ remittances,
on the other hand, further expanded by 12.1% in FY2023 after rising
by 2.2% a year earlier, on increased migration for employment overseas.
Consequently, the current account deficit narrowed massively by 89.2%
to $557.1 million, or 1.4% of estimated GDP (Figure 7). Coupled with
broadly stable financial inflows, foreign exchange reserves increased
Figure 6:
6: Credit
Credit totothe
private
sector
and M2
growth
Figure
the
private
sector
and
M2 growth
Credit to private sector
% change
30
M2 growth
25
20
15
10
5
0
2018
2019
2020
2021
2022
2023
Note: Years are fiscal years ending in mid-July of that year.
Source:
Nepalare
Rastra
2023. in
Recent
Macroeconomic
Note: Years
fiscalBank.
years ending
mid July
of that year. Situation. http://www.nrb.org.np
Source: Nepal Rastra Bank. 2023. Recent Macroeconomic Situation. http://www.nrb.org.np
12
13
14
#
The refinancing loans are provided by NRB to banks and financial institutions at concessional interest rates for expanding economic activities.
This facility was nonetheless available for export-oriented industries, micro enterprises, and those that were highly affected by the COVID-19 pandemic. Borrowers of up to
NPR50 million did not have to pay penal charges upon payment of principal and interest by mid-July 2023.
Net foreign assets increased by 26.1% in FY2023 after decreasing by 19.1% in FY2022. Net domestic assets increased modestly by 7.6%, down from 15.9% a year earlier.
INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.
Macroeconomic Update
Figure
7: Current
account
indicators
Figure
7: Current
account
indicators
Exports
Tourism and travel
Oil imports
Workers' remittances
Non-oil imports
Current account balance (right axis)
$ billion
% of GDP
20
0
15
-2
10
-4
5
-6
0
2018
2019
2020
2021
2022
2023
-8
-5
-10
-10
-15
-12
-20
-14
Note: Years are fiscal years ending in mid-July of that year.
Source: Nepal
Rastra
2023.
Recent
Macroeconomic
Situation. http://www.nrb.org.np
Note: Years
areBank.
fiscal years
ending
in mid
July of that year.
Source: Nepal Rastra Bank. 2023. Recent Macroeconomic Situation. http://www.nrb.org.np
to $11.7 billion in FY2023, providing import cover for 10.0 months
of goods and services—a marked improvement from $9.5 billion in
FY2022 that provided only 6.9 months of cover (Figure 8).
#
7.
This monetary policy stance and import restriction measures
resulted in a significant fall in merchandise imports and declining
revenue mobilization. Further, it weakened aggregate demand. Lower
than expected capital spending and recurrent spending rationalization,
partly due to lower revenue mobilization,15 also affected economic
activities and banking sector liquidity. With revenue shortfalls, the
fiscal deficit increased to 6.1% of GDP in FY2023 from 3.2% of GDP
a year earlier (Figure 9). To cover revenue deficits, the government
downsized its budget expenditure by about 14.0% in the first half
INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.
Figure
8: Gross
international
reserves
and foreign
exchange
adequacy
Figure
8: Gross
international
reserves
and foreign
exchange
adequacy
Gross international reserves
$ billion
Import cover
Months
14
16
12
14
12
10
10
8
8
6
6
4
4
2
0
2
Jul2021
Jan2022
Jul2022
Source:
NepalNepal
RastraRastra
Bank. 2023.
Situation. Situation.
http://www.nrb.org.np
Source:
Bank.Recent
2023. Macroeconomic
Recent Macroeconomic
http://www.nrb.org.np
15
Almost 44% of Nepal’s total revenue is generated from customs-related duties.
Jan2023
Jul2023
0
5
6
Macroeconomic Update
Figure 9: Fiscal
Indicators
Figure
9: Fiscal Indicators
Domestic revenue
% of GDP
Grants
Recurrent expenditure
Capital expenditure
Fiscal balance
30
20
10
0
-10
2018
2019
2020
2021
2022
2023R
R=revised budget estimate
R=revised budget estimate
Note: Years are fiscal years ending in mid-July of that year.
Note: Years are fiscal years ending in mid July of that year.
Source: Ministry of Finance.
Budget Speech 2023
Source : Ministry of Finance. Budget Speech 2024
of FY2023 (footnote 3). By the end of FY2023, total expenditures
increased by 5.9% to 23.0% of GDP, mostly reflecting a 9.9% increase
in recurrent expenditure. Capital expenditure, about 4.3% of GDP,
also increased by 8.1% in FY2023. Central government revenue fell
by 9.7% to 16.6% of GDP in FY2023, down from 20.0% of GDP in
the previous year, as both direct and indirect tax collection weakened.
INTERNAL.
This information
is accessibletax,
to ADBand
Management
and staff.
It may decreased
be shared outside ADB
appropriate
permission.
VAT,
customs,
income
excise
duties
by with
8.9%,
24.6%,
3.1%, and 14.2%, respectively in FY2023.16
#
8.
To cover the financing gap, government borrowing has increased
sharply raising the public debt to GDP ratio over a short period of time.
The government debt to GDP ratio had accelerated to 36.7% in FY2020
from 27.0% in FY2019 as the government borrowed heavily to finance
expenditures during the COVID crisis. Debt further increased to 39.9%
of GDP in FY2021, but the increase has since then moderated with
a public debt ratio of GDP of 40.8% of GDP in FY2022 and 41.3%
of GDP in FY2023, comprising 21.0% of GDP in domestic debt and
20.3% of GDP in external debt (Figure 10). Outstanding domestic debt
increased by 14.3% in FY2023 as the government ramped up domestic
debt mobilization since mid-December 2022 to finance its burgeoning
expenditures. Outstanding external debt rose by 6.6% in FY2023
albeit lower than the 9.8% increase in FY2022. Given a high level of
concessional external borrowing and the low cost of debt servicing,
Nepal’s risk of external and public debt distress is low given the low ratios
of external debt to GDP and external debt service to revenue as a result
of high level of concessional borrowing at long maturity (Figure 11).17
16
17
These collectively account for nearly 90% of the government revenue.
Nepal: Staff Report for the 2023 Article IV Consultation, First and Second Reviews Under the Extended Credit Facility Arrangement, Requests for Waivers of Nonobservance of
Performance Criteria, Extension of the Arrangement, and Rephasing of Disbursements-Press Release; Staff Report; and Statement by the Executive Director for Nepal.
Macroeconomic Update
7
Figure 10: Public debt
Figure 10: Public debt
Internal debt
% of GDP
45
40
External debt
Total debt
39.9
40.8
41.3
FY2021
FY2022
FY2023
36.7
35
30
26.5
27.0
FY2018
FY2019
25
20
15
10
5
0
FY2020
Source : Central Bureau of Statistics; Public Debt Management Office
Source:
National Statistical Office; Public Debt Management Office
Figure 11: External debt and debt service payment
Figure 11: External debt and debt service payment
External Debt (% of GDP)
Total Debt Service Payments (% of revenue)
30
25
20
#
INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.
15
10
5
0
FY2017
FY2018
FY2019
FY2020
FY2021
FY2022
FY2023
Source
: Central Comptroller
Bureau of Statistics;
Financial
Office,
Ministry
of Finance;
Public
Debt Debt
Management Office
Source:
Financial
General
Office,Comptroller
Ministry ofGeneral
Finance;
National
Statistical
Office;
Public
Management Office.
B. Economic prospects
#
9.
The economy is expected to expand by 4.3% in FY2024 after
economic growth slowing to 1.9% a year earlier. Key areas of the
economy such as manufacturing and construction, that had contracted
in the previous year, will gradually pick up with the normalization of
economic activities. NRB’s tight monetary policy to fight inflation
INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.
during FY2023 had weighed on economic activity. With moderation
in inflation and comfortable foreign exchange reserves [para 6], NRB
has adjusted its monetary stance by lowering the policy rate by 50 basis
points to 6.5%. This will marginally soften commercial interest rates,
stimulating economic activities. NRB has further relaxed provisions
on working capital loans to revive confidence in the private sector.18
Electricity output is estimated to increase by 900 MW by end FY2024,
18
Large companies can apply for a working capital loan of up to 25% of their total annual turnover/sales. This rule will not be applicable while securing the working capital loan of
up to NRs 10 million. Previously, the NRB had capped such loans at NRs5 million. The NRB has also extended the working capital loan repayment deadline for industrialists who
had borrowed more than the limit, from mid-June 2023 to mid-June 2025. The permanent working capital loans can be provided for up to 10 years compared to the previous
provision of up to 5 years.
8
Macroeconomic Update
to a total of 3,584 MW.19 Industry is thus projected to grow by 6.3%
in FY2024 after a dismal growth of less than 1.0% a year earlier.
The service sector is expected to perform well, particularly with the
boost coming from real estate activities, wholesale and retail trade
and accommodation and food services.20 Services growth will likely
be double the 2.3% expansion in FY2023. Agriculture growth may
however decelerate to 2.5% from 2.7% in FY2023 owing to deficient
rainfall in June and erratic weather conditions, further afflicted by
lumpy skin outbreak in cattle.21
10.
On the demand side, an increase of about 4.9% increase
in private consumption expenditure over the previous year will help
underpin growth. Fixed investment will expand by 4.0% reversing the
previous year’s drag. The government has committed to expediting
capital budget execution in FY2024 with the issuance of guidelines
for its effective implementation.22As the economy gains momentum,
imports will expand by 4.4%, reversing the previous year contraction of
17.2% and accelerate net exports’ drag on growth.
11.
Despite major progress in restoring external stability, fiscal
challenges have persisted. Fiscal policy as reflected in the budget speech
for 2024 therefore aims at rationalizing recurrent expenditure23 while
prioritizing capital budget execution. The total outlay for FY2024 is
NRs1,751.3 billion, or 29.3% of projected GDP, higher than the revised
budget expenditure of FY2023 at NRs1,505.5 billion, or 28.0% of
GDP. Capital expenditures are projected to rise by 29.3% in FY2024
over the final estimate of FY2023. A significant share of expenses of
NRs205.1 billion, or 3.4% of projected GDP, has been allocated for
public construction24 in FY2024. Recurrent expenditures are projected
to increase by 23.1% in FY2024 on a substantial higher allocation for
payment of interest, services, and bank commission. Total projected
revenue and grants (excluding revenue sharing) for FY2024 is NRs1,298.6
billion, or 21.7% of projected GDP, which is 20.4% higher than the
revised revenue and grant estimate of FY2023. The estimated fiscal
19
20
21
22
23
24
Nepal Rastra Bank. Monetary Policy for FY2024. Baluwatar, Kathmandu, July 2023.
A gradual moderation of construction material prices, in addition to the increase of credit line for the first-time home buyers will stimulate the real estate sub-sector. The loanto-value ratio for real estate transactions has been raised from 30.0% of the fair market value to 40.0% within Kathmandu Valley and 40.0% to 50.0% outside the valley. Tourism
has gained momentum post COVID-19. The total number of international tourist arrival in the first 7 months of calendar year 2023 has reached 534,207 compared to the 3-year
average of 580,138 in the corresponding period during 2017 to 2019. This momentum in tourism will help expand accommodation and food service activities.
Paddy plantation as of August 18, 2023, is 92% of the total paddy cultivable area compared to 95% in the year earlier period. Only 82% of paddy planation has been completed in
the Madhesh province, that has the largest fertile land for cultivation. An estimated 1.1 million cattle across the country contracted lumpy skin disease.
The Ministry of Finance issued guidelines for the effective implementation of the budget for FY2024. Contract management will have to be completed by November, else
finances under that contract will be frozen. Transfers of project directors will be based on their work performance. The project monitoring committee will be formed under the
leadership of the Member of the National Planning Commission, comprising members from the Office of the Prime Minister and Council of Ministers, the Ministry of Finance, and
implementing agency. The committee’s suggestions/recommendations will be integrated into a Unified monitoring information system for implementation.
The budget for FY2024 has pledged to streamline expanding recurrent expenditures. The recommendations of the Public Expenditure Review Commission 2018 will be
systematically implemented. About twenty agencies with duplication of functions will be closed down. Agencies with similar mandates will be merged. Tourism Promotion
Development Committees will be handed over to responsible sub-national governments. The budget has cancelled the previous provision of promotional and overtime
allowances for staff. There will be no new purchase of vehicles and furniture and fixtures in FY2024.
Public construction entails investment in road, railways, irrigation, water supplies, and electricity generation, among others.
Macroeconomic Update
9
deficit for FY2024 is NRs145.3 billion, or 2.4% of GDP, much lower
than the deficit of 6.1% in FY2023 (figure 7). But the actual deficit could
be higher if the government does not meet its targeted revenue.
12.
Inflation is forecast to decline to 6.2% in FY2024 from 7.7% a
year earlier on subdued increases in oil prices and a decline in inflation
in India, Nepal’s dominant import source (Table 1). Despite moderation
in inflation and comfortable foreign exchange reserves, the NRB reduced
the policy rate by a mere 50 basis points. This considers any upside
risks to inflation25 possibly emanating from geopolitical tensions, and
extreme weather-related events affecting production and distribution of
agriculture goods.
13.
External risks remain relatively well-contained. Considering the
recent trends in reserves accumulation (para 6) and the NRB’s prudent
monetary stance,26 the NRB’s target of maintaining foreign exchange
reserves sufficient to sustain at least seven months of imports of goods
and services seems achievable. Maintaining a broad money supply growth
of 12.5% may partly depend on remittances. Remittances will remain
buoyant as the number of migrant workers going abroad has sharply
increased over the past two years and has exceeded the pre-pandemic
level.27 Amidst stable remittance inflows and higher imports, the current
account deficit is expected to widen to 1.8% of GDP as growth revives to
4.3% in FY2024 (Table 1).
Table 1: Selected economic indicators (%)
FY2021
FY2022
FY2023
FY2024E
GDP growth
4.8
5.6
1.9
4.3
Inflation
3.6
6.3
7.7
6.2
Current account balance (share of GDP)
-7.7
-12.7
-1.4
-1.8
E=estimated
Source: Government of Nepal and ADB estimates for FY2024.
14.
Possible downside risks to outlook may arise from potentially
stringent measures by the authorities to stem the rise in prices given the
uncertainties centered around geopolitical tensions, a developing El
Niño effect, and the recent suspension of the Black Sea Grain Initiative.
This may depress domestic production and consumption, adversely
affecting growth. The export ban of non-basmati rice by India may
potentially result in food shortages in Nepal, escalating food inflation.
Any intensified geopolitical turmoil and natural disasters may further
dampen growth prospects.
25
26
27
The export ban of non-basmati rice by India may potentially result in food shortages in Nepal, escalating food inflation. However, the government of Nepal has requested the
Indian government for export quotas of 1 million tons of paddy, 100,000 tons of rice and 50,000 tons of sugar.
Amendment to foreign investment and loan management regulation has been proposed to help facilitate the inflow of foreign investment. Banks and financial institutions will assess
international prices of goods against the proforma price prior to opening a letter of credit for imports to detect a tendency of overvaluation of goods, leading to capital flight.
A total of 497,704 workers went abroad for foreign employment in FY2023 compared with 354,660 in the previous fiscal year. Workers’ remittances also increased by 12.1% to
$9.3 billion in FY2023.
10
Macroeconomic Update
THEME CHAPTER
Assessing Customs Reforms and Trade
Facilitation Program in Nepal*
Introduction
15. Since FY1975, when the central bank started keeping records
of foreign trade, Nepal has never recorded a positive balance in
merchandise trade.28 The merchandise trade deficit stood at 5.6%
of gross domestic product in FY1975. Since then, it widened to
reach an all-time high of 35% of GDP in FY2022, before falling to
27% of GDP in FY2023 (Figure 12). A wide trade deficit has always
exerted pressure on the current account, which has remained in
deficit since FY2017 (Figure 13). Like many countries across the
globe, Nepal is trying to promote exports to tip the external balance
in its favor. But export promotion cannot be discussed in isolation.
It goes hand in hand with import facilitation, as nearly 90% of
Nepali exporters rely on imported inputs,29 while capital goods and
technologies also have to be brought in from foreign countries.
Figure 12: Trade balance as % of GDP
Source: Nepal Rastra Bank
28
29
Nepal Rastra Bank. 2023. Macroeconomic Reports (Annual) FY2023. Kathmandu.
Asian Development Bank. 2021. Completion Report, Nepal: South Asia Subregional Economic Cooperation Customs Reform and Modernization for Trade Facilitation Program. Manila.
* This chapter was written jointly with Rupak D. Sharma, Consultant.
Macroeconomic Update
Figure 13: Current account (NRs billion)
Source: Nepal Rastra Bank
16. Being a landlocked nation, Nepal imports and exports goods using
transit corridors and seaport facilities of neighboring countries.
Hence, it is critical to simplify and streamline export and import
processes to support supply chain activities and save time and
compliance costs for legitimate trading. A reduction in transaction
time and cost enables a country to contain costs of imported raw
materials, promote export competitiveness, and keep the prices of
imported consumer goods in check to tame inflation. All these
measures aimed at facilitating legitimate trade through improvements
in customs procedures ultimately help the government to generate
more revenue. At present, customs offices across the country
mobilized 40.8% of the government revenue30 in FY2022, making
the customs administration the biggest collector of financial
resources for the country’s development. Customs reforms therefore
not only facilitate foreign trade but enable the country to generate
more financial resources for overall development.
17. Although Nepal enacted its first Customs Act in 1962 and
established the Department of Customs (DOC) in 1965, meaningful
reforms were introduced in customs administration only in mid1990s after the trade regime was liberalized following elimination
of import license and quotas, reduction in tariffs, and introduction
of full convertibility of the rupee in the current account. Nepal has
since been making attempts to simplify, harmonize, and modernize
its customs procedures so as to facilitate trade, and reap benefit
from its comparative advantage in low cost of labor and natural
resources. These attempts have generated positive results. In the
United Nations Global Survey on Trade Facilitation and Paperless
Trade, Nepal’s trade facilitation score rose to 58.1% in 2023 from
34.4% in 2017 (Table 2).31
30
31
Ministry of Finance. 2023. Budget Speech of FY2024. Kathmandu.
United Nations. 2023. Global Survey on Digital and Sustainable Trade Facilitation (2023). https://www.untfsurvey.org/.
11
12
Macroeconomic Update
Table 2: Global Survey on Trade Facilitation and Paperless Trade Scores (in%)
Countries
2017
2023
India
67.74
93.55
Pakistan
49.46
70.97
Bangladesh
35.48
64.52
Sri Lanka
48.39
60.22
Nepal
34.41
58.06
Maldives
44.09
55.91
Afghanistan
9.68
43.01
Bhutan
23.66
40.86
Source: United Nations
18. But more needs to be done, as customs clearance procedures still
remain focused on exercising controls at border checkpoints,
subjecting around 55% of goods to physical inspection, which is
much higher than in Lao People’s Democratic Republic (42%),
which is another landlocked country with similar customs and
logistics challenges as Nepal.32 As a result, border checkpoints are
congested, and legitimate, low-risk trade suffers from inefficient
processes, and is subject to the same red tape as potentially illicit,
high-risk trade. These constraints are delaying customs clearance
and raising trading costs.
19. This report broadly makes five recommendations that would help
the government achieve its overarching goal of creating paperless
customs so as to save both time and money for trading. First, Nepal
must tap every known source, including development partners, to
further automate customs procedures, as it is bound to lose access
to trade-related preferential treatments upon graduation from the
grouping of least-developed countries in 2026. Second, it must
identify new risk indicators and parameters, and automate the
risk management process to reduce physical inspection of goods.
Third, the government must strengthen the capacity of customs
administration as well as human resources employed there to
execute behind-the-border functions using modern technologies
so as to reduce face-to-face interactions with traders at customs
points. Fourth, Nepal must continue to strengthen its physical
infrastructure to facilitate cross-border trade. And fifth, the
government and the private sector stakeholders, especially traders
and customs agents, must coordinate to hash out differences that
are working as barriers in creating paperless customs.
32
Asian Development Bank. 2023. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic Approach and Policy Based Loan for Subprogram 1
Nepal: South Asia Subregional Economic Cooperation Customs and Logistics Reforms Program. Manila.
Macroeconomic Update
13
20. This report begins by taking stock of Nepal’s compliance with
international agreements on trade facilitation that it has become
a party to and delves into programs and action plans formulated
by the government to simplify and modernize customs procedures.
It then takes a look at roles played by key customs software,
such as Automated System for Customs Data (ASYCUDA) and
other Information and Communications Technology (ICT)
tools to automate customs procedures so as to reduce excessive
paperwork, improve the efficiency of the clearing process, and
increase transparency. The report also assesses the quality of
human resources at the DOC, and discusses the role played by the
development partners in introducing reforms in Nepal’s customs
administration. The report finally makes recommendations on
ways to further facilitate cross-border trade to enable traders to save
both time and money.
Trade Facilitation
21. Cost and time reduction in trade procedures encourages more
trade and attracts foreign direct investment, helping create more
jobs, thereby raising per capita income.33 Thus, countries across
the globe have started focusing on trade facilitation. The primary
goal of trade facilitation is to make imports and exports faster,
cheaper, and more predictable, without undermining the risks
that illicit trade poses on society and the economy. Although trade
facilitation encompasses the entire trade environment, and actors
and processes in a transaction, customs is its key component.34
This is because manufacturing has become global, and the ease
with which goods move beyond borders is critical to the modern
global supply and value chains.
22. Trade facilitation, as a means to promote exports, is high on
Nepal’s development agenda. The 15th Periodic Plan (FY20202024), which envisages transforming Nepal into a middle-income
nation by 2030, has laid focus on expanding exports by simplifying
export business processes.35 The Plan envisages facilitating trade,
both exports and imports, by reducing production and transit costs
through the adoption of technology- and risk-based approaches in
customs procedures.
33
34
35
K. Kim and P. Mariano. 2020. Trade Impact of Reducing Time and Costs at Borders in the Central Asia Regional Economic Cooperation Region. ADBI Working Paper Series. No.
1106. Manila: Asian Development Bank.
United Nations. Trade Facilitation Implementation Guide. https://tfig.unece.org/details.html#:~:text=The%20fundamental%20principles%20of%20trade,simplification%2C%20
harmonization%2C%20and%20standardization
Government of Nepal, National Planning Commission. 2020. The Fifteenth Plan (Fiscal Year 2019/20 – 2023/24). Kathmandu.
14
Macroeconomic Update
23. The recently launched Nepal Trade Integration Strategy, 2023 also
talks in length about the role of trade facilitation in promoting
exports. The five-year strategy recommends simplification in
customs documentation procedure, use of electronic documents for
cross-border customs procedures, deployment of electronic payment
system for all works related to customs, including tax and fees
collection, reduction in physical inspection of goods, especially for
exports of agricultural produce and food products, and establishment
of adequate cargo handling facilities, such as warehouses, at customs
points.36 Removal of these bottlenecks will expedite movement of
goods through customs points, thereby facilitating trade.
24. Nepal has been reducing tariffs on imports of intermediary goods
and removing quantitative restrictions to facilitate trade and make
exports competitive. Yet nontariff-related constraints, especially
institutional, administrative, and technical barriers to trade, such
as inefficient and unpredictable customs procedures, still persist,
despite years of attempts to eliminate them. As per estimates,
nontariff barriers present in developing countries like Nepal
increase the trading cost by 1.8 times, on average, compared to
developed countries.37
25. Nepal’s Parliament ratified World Customs Organization's (WCO)
Revised Kyoto Convention (RKC), a key international agreement,
in February 2017 to facilitate trade by reducing nontariff barriers
at border checkpoints. Acceding to the RKC is a way of telling
the world that Nepal intends to abide by international customs
practices, as it advocates for transparency and predictability of
actions at border checkpoints; standardization and simplification
in goods declaration and submission of supporting documents;
and maximum use of information technology for customs filing
as well as release and clearance of goods.38 The RKC further
advocates for deployment of risk management tools at customs to
separate high-risk cargoes from low-risk ones; minimum necessary
customs control measures to ensure compliance with regulations;
and coordinated interventions with other border agencies.
26. Nepal has made another global commitment to introduce reforms
in customs administration by becoming a party to the World Trade
Organization’s (WTO) Trade FacilitatiUon Agreement (TFA). The
TFA was ratified by the Parliament in January 2017. It contains
provisions for expediting the movement, release and clearance of
goods, including goods in transit; sets out measures for effective
cooperation between customs and other appropriate authorities on
trade facilitation and customs compliance issues; and focuses on
capacity building.39 According to estimates, full implementation of
36
37
38
39
Government of Nepal, Ministry of Commerce, Industry and Supplies. 2023. Nepal Trade Integration Strategy-2023. Kathmandu.
US International Trade Commission. 2017. An Overview of Customs Reforms to Facilitate Trade. Journal of International Commerce and Economics. https://www.usitc.gov/journals.
World Customs Organization. Revised Kyoto Convention. https://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/conventions/pf_revised_kyoto_conv.aspx
World Trade Organization. Trade Facilitation. https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm
Macroeconomic Update
15
the TFA could reduce trade costs by 14.3%, on average, and boost
global trade by up to $1 trillion per year, with poorest countries
making biggest gains.
27. Since the ratification of TFA and RKC, Nepal has been using
these two instruments as yardsticks to measure its success in trade
facilitation.40 Both TFA and RKC intend to simplify international
trade through adoption of modern and efficient customs
procedures. TFA, on the one hand, envisages making exports and
imports of WTO member countries more efficient and less costly
by increasing transparency and improving customs procedures.41
RKC, on the other hand, lays down the global standard for all
modern customs legislation, covering, among others, customs
obligations and controls, customs declarations, and customs
procedures.42 But since RKC came into force earlier than TFA,
many provisions of TFA can be found in RKC. In other words,
TFA is based on the core principles and measures contained in the
RKC.43 So far, Nepal has complied with 93 out of a total of 121
standards set out in the General Annex of the RKC. The remaining
28 standards have been incorporated in the new Customs Bill,
which was approved by the Cabinet on 29 August 2023 and has
been sent to the Parliament for approval. The new Customs Bill
also covers 9 TFA measures that Nepal has not complied with. A
gap analysis conducted by the Ministry of Commerce, Industry,
and Supplies had identified legislative gaps in 9 out of 37 TFA
measures. Once the remaining TFA, as well as RKC, measures
are incorporated in the new customs legislation, Nepal will fully
implement trade facilitation measures recommended by WTO’s
TFA and WCO’s RKC.
Improved Customs Procedures
28. Nepal has been rolling out customs-related reform measures
prescribed by TFA and RKC through the Customs Reform and
Modernization Plans. The DOC of the Government of Nepal has
been introducing these Plans since 2003. These Plans contain
short- to medium-term programs and action plans on customs
reform and modernization. This makes these Plans blueprints
for customs reforms and modernization, and trade facilitation in
Nepal.
29. Based on these Plans, Nepal has automated a number of customs
clearance procedures, which has reduced paperwork; established risk
40
41
42
43
Asian Development Bank. 2019. Borders Without Barriers: Facilitating Trade in SASEC Countries. Manila
H. M. Wolffgang and E. Kafeero. 2014. Old wine in new skins: Analysis of the Trade Facilitation Agreement vis-à-vis the Revised Kyoto Convention. World Customs Journal. Volume
8, Number 2. Brussels.
World Customs Organization News. 2019. On the future of the WCO Revised Kyoto Convention. Brussels. https://mag.wcoomd.org/magazine/wco-news-88/on-the-future-of-thewco-revised-kyoto-convention/
A. A. P. Azcarraga, T. Matsudaira, G. Montagnat-Rentier, J. Nagy, and R. J. Clark. 2022. Customs Matters: Strengthening Customs Administration in a Changing World. Washington,
D.C.: International Monetary Fund.
16
Macroeconomic Update
management units at major customs offices to differentiate between highand low-risk consignments, which have expedited clearance of low-risk
cargoes; and conducted time-release studies to find out average time taken
for clearance of consignments from customs area, identify bottlenecks
in customs clearance process, and prescribe corrective measures to
address possible delays in customs clearance. The implementation of
the Customs Reform and Modernization Plan has also helped Nepal to
lay the groundwork to issue single administrative documents (SADs) for
customs clearance through an online portal; formulate the e-Customs
Master Plan; and launch trade and market access information portals
to provide detailed information about trade- and customs-related laws,
regulations, tariffs, procedures, and documentations to facilitate traders
with limited knowledge about international trade.
30. These measures aimed at reengineering the business process for
customs procedures to adhere to international best practices have
reduced the number of documents that need to be submitted for
imports and exports and cut down cumbersome customs procedures
and long processing times. The World Bank’s Logistics Performance
Index (LPI) —a tool created to help countries identify the challenges
and opportunities they face in trade logistics performance—reflects
the progress made by Nepal. Nepal’s global ranking in LPI’s
‘customs’ indicator, which measures efficiency of customs and border
management clearance, improved from 141 (out of 150 countries)
in 2001 to 122 (out of more than 160 countries) in 2018 (Table 3).
Nepal’s overall ranking in the LPI, which stood at 130 in 2007 and
dropped to 151 in 2012, rose to 114 in 2018.44
Table 3: Performance of Nepal in Logistics Performance Index
Year
Global
Customs
Infrastructure
Score
Rank
Score
Rank
Score
Rank
2007
2.14
130
1.83
141
1.77
144
2010
2.20
147
2.07
131
1.80
143
2012
2.04
151
2.20
125
1.87
149
2014
2.59
105
2.31
123
2.26
122
2016
2.38
124
1.93
149
2.27
112
2018
2.51
114
2.29
122
2.19
123
Source: Logistics Performance Indices of 2007-2018, World Bank
Year
2012
Global
Customs
Infrastructure
Score
Rank
Score
Rank
Score
2.04
151
2.20
125
1.87
Rank
149
International
Shipment
Score
1.86
Rank
151
Logistics Competence
and Quality
Score
2.12
Rank
146
Tracking and
Tracing
Score
1.95
Timeliness
Rank
Score
Rank
149
2.21
153
2014
2.59
105
2.31
123
2.26
122
2.64
104
2.50
107
2.72
87
3.06
92
2016
2.38
124
1.93
149
2.27
112
2.50
109
2.13
140
2.47
109
2.93
104
2018
2.51
114
2.29
122
2.19
123
2.36
129
2.46
105
2.65
98
3.10
89
Source: Logistics Performance Indices of 2012-2018, World Bank
44
Although the World Bank launched the latest edition of the LPI in 2023, it has not covered Nepal’s ranking. It, however, includes selected data on Nepal about number of international shipping, aviation and postal connections, and dwell time.
Macroeconomic Update
17
31. Despite this progress, significant challenges remain. Traders in
Nepal, for example, are spending a lot of time to complete the
documentation process for customs clearance. Customs clearance
is broadly categorized into three parts. In the first phase, all
documents, including declarations, are submitted upon arrival
of cargo vehicles at the customs yard. In the second phase, the
decision on whether to immediately release the goods, release the
goods after document verification, or send the goods for physical
examination is taken. This decision is taken on the basis of the
documents submitted in the first phase. In the third, or the final,
phase, duties are paid, release orders are issued, and goods are
loaded on cargo vehicles. The Time Release Study conducted by
the DOC in Bhairahawa Inland Container Depot in 2019 showed
that 66.8% of the time in clearance of exportable items and 59.5%
of the time in clearance of imported goods were being spent in
the first phase, where documents are submitted (Table 4).45 The
study had found that exporters were spending an average of 11
hours and 38 minutes of the total cargo clearance time of 17 hours
and 25 minutes in the first phase. Importers, on the other hand,
were spending 11 hours, 46 minutes of the total cargo clearance
time of 19 hours, 46 minutes in that stage. Similar studies were
conducted in Biratnagar and Mechi customs in 2016. In Mechi
Customs Office, importers had spent 14 hours and 9 minutes
(75% of the total cargo clearance time), while exporters had spent
15 hours and 26 minutes (85% of the total cargo clearance time)
in the first phase. In Biratnagar Customs Office, importers had
Table 4: Cargo clearance time
Imports
Mechi (2016)
% of total cargo
clearance time
Biratnagar
(2016)
% of total cargo
clearance time
% of total cargo
clearance time
Average time (arrival-exit)
0d 18h 58m
Average time-Phase 1
(arrival to lane assessment)
0d 14h 9m
75.0
0d 19h 13m
79.0
0d 11h 46m
59.5
Average time-Phase 2
(lane assessment to reroute to green)
0d 2h 33m
13.0
0d 1h 53m
6.0
0d 4h 1m
20.3
Average time-Phase 3 (green to final exit)
0d 2h 16m
12.0
0d 7h 14m
15.0
0d 3h 59m
20.2
Exports
Mechi (2016)
1d 4h 20m
Bhairahawa
(2019)
% of total cargo
clearance time
Biratnagar
(2016)
0d 19h 46m
% of total cargo
clearance time
0d 12h 1m
Bhairahawa
(2019)
Average time (arrival-exit)
0d 18h 28m
0d 17h 25m
Average time-Phase 1
(arrival to lane assessment)
0d 15h 26m
85.0
0d 4h 14m
40.0
0d 11h 38m
66.8
Average time-Phase 2
(lane assessment to reroute to green)
0d 1h 40m
8.0
0d 2h 18m
20.0
0d 3h 1m
17.3
Average time-Phase 3 (green to final exit)
0d 1h 22m
7.0
0d 5h 29m
40.0
0d 2h 46m
15.9
Note: The customs clearance procedure has been divided into three stages:
1. First stage: arrival of vehicle and selection of lane (entry of vehicle, registration of Single Administrative Document (SAD), and selection of lane)
2. Second stage: re-route to green lane (documentary check, physical examination, certification by other government agencies, re-route to green lane)
3. Third stage: exit of goods (payment of duties and fees, approval of SAD, release order, and exit of goods)
Source: Nepal Time Release Study Reports 2017 & 2020, Department of Customs
45
Government of Nepal, Department of Customs. 2020. Time Release Study Report 2020. Kathmandu.
18
Macroeconomic Update
spent 19 hours and 13 minutes (79% of the total cargo clearance
time), while exporters had spent 4 hours and 14 minutes (40% of
the total cargo clearance time) in the first phase. All these results
show most of the time in customs clearance process is spent in
document preparation—although 2019 results are relatively better
than those of 2016.
32. Exporters need to produce five documents including commercial
invoice, packaging list, and certificate of origin, among others,
before sending goods abroad. To import, traders need to submit
10 documents, including foreign exchange control form, single
administrative document, shipping bill (bill of export), document
of insurance, packing list, and excise invoice, among others.
The time release studies conducted in 2016 as well as in 2019
showed that most of these documents are not generated by the
customs administration but by other government or private
agencies, indicating a huge amount of time in cargo clearance
being consumed not in the customs but elsewhere. This was one
of the reasons for the introduction of the single window system
for submission of all customs-related documents. The DOC has
developed the Nepal National Single Window System, which has
roped in 48 government agencies under a single platform. Of these
agencies, 38 issue licenses, permits, certificates, and other approvals
required for customs clearance, 7 are reporting agencies, and the
remaining 8 are integrating agencies. All these agencies exchange
information with the customs administration in real time using
the single window system, which has made the customs clearance
process efficient and transparent.
33. One of the major features of the Customs Reform and Modernization
Plan FY2022-2026, which is currently under implementation,
is commercial operation of this ‘single window system’, as some
of the processes still have to be conducted manually. Over its
implementation period, the Plan aims to initiate paperless export
process, and take customs valuation database online and update
it on real-time to enhance accuracy and predictability of customs
valuation and collect fair and accurate revenue. The DOC has
developed an online monitoring system to keep tabs on progress in
implementation of all the programs and action plans incorporated
in the Plan.
34. Successful implementation of the Plan will reduce the number
of documents required for imports by 2 and for exports by
1 by June 2024;46 cut down average time taken for exports and
imports by at least one hour by June 2025;47 introduce automated
statistics management system by June 2025; and enable customs
46
47
As per the Customs Regulations 2007, currently 5 documents have to be submitted for exports and 10 for imports along with the declaration form.
Average time taken for export and import--from the time the clearance lane is determined in the Nepal Customs Automation System (NECAS) to the time it is sent to the green
lane--is 4 hours, 01 minute for imports and 3 hours, 01 minute for exports.
Macroeconomic Update
administration to conduct post-clearance audits, under which
authenticity of declarations made by traders at the time of customs
clearance will be verified after goods are released from the customs
yard, which will curb financial misdemeanors and improve speed
and efficiency of customs procedures.
Paperless Customs
35. Over the years, the prime focus of customs reforms and
modernization has been on digitalization and automation, as
modern customs administrations across the globe have been
deploying information and communication technologies to
streamline border processes, reduce excessive paperwork, improve
the efficiency of the clearing process, and increase transparency.
36. Initiatives taken so far to digitalize and automate customs procedures
have helped the DOC to reduce its staff number despite rampant
growth in trade volume. In FY1998, for example, when Nepal just
initiated the customs automation process, DOC had 1,559 staff in
its payroll. At that time, the DOC was generating NPR 8.5 billion
in customs revenue. By FY2020, the DOC’s revenue had jumped by
over 14-fold to NPR 123 billion, but its staff number had dropped by
over 20% from 1998 level to 1,228 (Table 5).
Table 5: Customs revenue versus employees
FY1998
FY2020
Customs revenue (in NPR bn)
8.5
123
Declarations (in units)
~600,000
~900,000
Employee number
1,559
1,228
Employee Type in FY2020
No.
Share (%)
Total no of employees
1228
100
Revenue section
641
52.2
Revenue officers
162
13.2
IT staff
54
4.4
Non-officers including drivers
432
35.2
Source: Department of Customs
37. The DOC initiated the customs automation process by introducing
ASYCUDA in January 1998.48 ASYCUDA is customs management
software developed by the United Nations Conference on
Trade and Development (UNCTAD) that covers most foreign
trade procedures, allows Electronic Data Interchange between
traders and customs, and can be configured to suit the national
48
Asian Development Bank. 2002. Program Performance Audit Report on the Industrial Sector Program in Nepal. Manila.
19
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Macroeconomic Update
characteristics of individual customs regimes.49 It has helped Nepal
to generate customs-related data instantly, which has facilitated the
DOC to conduct data analysis on real-time to make improvements
in various areas. Before the installation of the system, the DOC
used to take as long as six months to generate annual customs data.
38. Until 2016, the ASYCUDA was off-line in Nepal. The DOC
first introduced the web-based version of ASYCUDA called the
ASYCUDAWorld at Mechi Customs (Jhapa) in January 2016. Today,
it covers 99.99% of Nepal’s foreign trade. ASYCUDAWorld comes
with real-time processing tools for customs data management. It
allows online submission of customs declaration, based on which
consignments are forwarded for physical examination, document
checking, or clearance without physical examination by using a risk
management system (Box 1).
39. One of the special features of ASYCUDA is that it allows the
addition of new or advanced programs (modules) to the software
at any time to suit the needs of customs administration. Such addon modules can cover customs functions such as risk management,
transit operations, or new security standards.50 For example, the
Box 1: Salient features of ASYCUDAWorld
ASYCUDAWorld comes with following functionalities:
(i)
pre-arrival processing for trucks;
(ii)
risk management—adoption of standard operating procedures and a risk management framework;
(iii)
computerized recording of entry and exit of vehicles at customs gates;
(iv)
broker self-assessment;
(v)
assignment system;
(vi)
officer’s declaration holdings;
(vii) automatic group assignment for physical checking of cargo;
(viii) user-defined reports;
(ix)
partial clearance procedure;
(x)
single administrative document valuation page;
(xi)
source code versioning system;
(xii) exchange rate automation with the central bank;
(xiii) formation of specialized clusters for immediate support; and
(xiv) separation of release from final determination of duties
Source: Asian Development Bank, Nepal: South Asia Subregional Economic Cooperation Customs Reform and Modernization for Trade Facilitation Program
49
Asycuda. About Asycuda. https://asycuda.org/en/about/
Macroeconomic Update
21
decision on whether to forward goods for physical inspection is
taken by the selectivity module. Modules have also been formulated
to facilitate collection of taxes and fees through an e-payment
facility added to ASYCUDA, which has reduced transaction time
and cost for traders. Earlier these activities were either conducted
manually or on the basis of approvals extended by customs head
or concerned customs officials. Today, these procedures have been
fully automated. But the addition of significant number of modules
to ASYCUDA poses the threat of slowing down the entire system.
To avoid that, separate web portals are developed, which are later
interfaced with ASYCUDA. For example, the single window system
that allows online submission of documents for customs clearance
has been interfaced with ASYCUDAWorld. So, ASYCUDAWorld
has emerged as the core system to help Nepal introduce paperless
customs to enable customs clearance without the presence of
traders in customs offices. The reduction of human intervention
at customs points is expected to curb bribery and other forms of
corruption and make cross-border trade more efficient.
40. But paperless customs demands effective risk management
so as to prevent fraud and illegal entry of drugs, arms, and
other contraband goods, which can pose national security risk
and prompt the government to suffer revenue losses. Nepal is
yet to implement risk management of highest standard, as is
evident from problems related to illegal entry of prohibited and
restricted goods through the formal channel every now and then.
WCO’s Framework of Standards to Secure and Facilitate Global
Trade (SAFE Framework) recommends use of automated risk
management systems to identify risky consignments to facilitate
trade. Nepal has also added risk management module to the
ASYCUDAWorld to automate the risk management system. This
module gathers intelligence about the nature of consignments that
has arrived at the customs yard and sends them to green, yellow,
or red channel depending on the level of risk. If the goods are sent
to the green channel, they can be released without examination.
Yellow refers to documentary checks prior to release of the cargo;
and red indicates physical examination of the consignment prior
to release. The DOC also has the provision for blue channel,
which allows immediate release of goods on condition they be
subject to a post-clearance audit by the customs administration
at a later date. However, it is not being used at the moment as
the post-clearance audit is yet to gather momentum. Nonetheless,
the automated feature on risk management that forwards goods
to green, yellow, or red channel has reduced physical inspection,
thereby expedited customs clearance process, while allowing the
50
United Nations Conference on Trade and Development. 2011. UNCTAD Trust Fund for Trade Facilitation Negotiations-Technical Note. No. 21. https://unctad.org/system/files/
official-document/TN21_Asycuda.pdf.
22
Macroeconomic Update
customs administration to cope with growing volume of foreign
trade, without compromising on security.
Capacity Building
41. Although automation of customs procedures is the government’s
priority, it is a complex undertaking. It requires necessary analytical
and project management skills to properly specify and manage user
and technical requirements, develop an achievable implementation
and roll-out plan, and keep the overall project on track.51 Then
there are hurdles even after implementation of such transformative
projects, as sufficient number of well-trained human resources is
required to ensure their seamless operation. Several years ago, the
situation was challenging in Nepal on this front, as qualifications
of most of the staff of the DOC were not aligned with the technical
expertise needed to execute behind-the-border functions using
modern technologies.
42. For example, until 2016, when Nepal was using the third version
of ASYCUDA, called ASYCUDA++, not many customs officials
had computer operation skills; and they relied on information
technology (IT) officials to do the entries. All this changed after the
introduction of ASYCUDAWorld, as it required each user unit to
operate the workstation (computer) on his or her own. At that time
customs officials had no choice but to build their capacity; and the
DOC played a facilitator’s role in fostering a quality workforce.
43. WCO defines capacity building as developing or acquiring the
skills, competencies, tools, processes, and resources needed to
improve the capacity of the administration to carry out its allotted
functions and achieve its objectives. It says capacity building
programs should respond to country-specific needs and be designed
to fit the individual political, economic and social circumstances
of each customs administration. Research by WCO Secretariat,
member administrations and donor organizations identified a
range of factors that contribute to the success of capacity building
initiatives.52 They are, the need for:
• accurate diagnosis of capacity building needs and the
development of country-specific responses;
• sustained high-level political will and commitment;
• enhanced co-operation and coherence;
• greater ownership and participation of customs personnel;
• realistic government and donor expectations;
51
52
United Nations. Trade Facilitation Implementation Guide. https://tfig.unece.org/contents/customs-automation.htm
World Customs Organization. 2003. Customs Capacity Building Strategy. Brussels.
Macroeconomic Update
• adequate human and financial resources to be devoted to
capacity building initiatives.
44. With the automation process gathering pace, DOC is focusing on
institutionalizing the capacity building process to enable present
and future staff members to cope with changes taking place in the
customs administration. It has thus designed training modules
for 10 different specific technical tasks, such as post-clearance
audit, risk management, advance ruling, expedited shipment, and
pre-arrival processing. A few years ago, the DOC also conducted
a needs assessment among its staff members for areas in which
training is needed. The staff identified five areas: classification,
valuation, risk management, automation, and policy. Although
the 10 training modules designed earlier cover these areas, the
DOC has acknowledged five areas identified by its staff as major
thematic areas for capacity building. Based on this, the DOC has
started producing resource persons for each of these areas. These
resource persons must be capable of providing technical expertise
and building capacity of other staff members. Recently, the DOC
accredited 10 of its staff as resource persons for Harmonized System,
an international classification system for goods. These people were
selected from among over 300 participants who had attended a
12-day training course. They had to undergo another advanced
training course before being certified as resource persons. DOC is
planning to emulate this practice to fill resource gaps in other areas
as well.
45. Nepal intends to build a robust customs administration with
qualified human resources, as DOC plays a crucial role in
collecting financial resources for country’s development. To
enhance its efficiency, the DOC has established new sections at its
headquarters to support behind-the-border functions. For instance,
it now has a separate risk management section and has recruited
trained personnel. Lately, it has also reviewed its organizational
chart (organogram) to facilitate inter-section coordination.
46. Although the DOC is making attempts to build knowledge
and expertise in specific areas, Nepal’s civil service system has a
mandatory two-year staff rotation requirement. Many complain
that this provision makes retention of technical expertise within
one agency for a longer period a challenge. But customs is a
highly sensitive area. And WCO’s Revised Arusha Declaration,
a tool to prevent corruption and increase the level of integrity
in customs, stresses on the need to “remove opportunities for
customs personnel to hold vulnerable positions for long periods
of time.” WCO acknowledges the need to “provide opportunities
to attract and retain qualified staff.” At the same time, it advocates
for “promoting integrity”, which is crucial to fighting corruption,
protecting borders, and creating a business-friendly environment.
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Macroeconomic Update
47. The private sector everywhere seeks customs administration
with high level of integrity. It expects customs procedures to be
predictable; customs administration to identify causes that breed
corruption; and customs staff to be relocated and transferred without
being biased or expressing favoritism. To address these issues,
WCO in January 2019 launched the Anti-Corruption and Integrity
Promotion (A-CIP) Program—which is aligned with the Revised
Arusha Declaration—to restrict corrupt behavior and promote
good governance in customs services. Based on this program, the
DOC has started conducting Customs Integrity Perception Survey
among customs officials and private sector stakeholders to assess
the progress made by the customs administration in promoting
integrity and combating corruption.
48. Although Nepal’s private sector has commended the initiative taken
by the DOC to conduct the survey so as to keep itself informed, it
has complained the recommendations made through the survey have
not been implemented. WCO’s 2023 Report on ‘A-CIP Program
Implementation Highlights & Lessons Learned’ has underscored
the need for collaboration between the private sector and customs
administrations in combating corruption, which results in revenue
loss, distortion of trade, and loss of legitimacy of institutions and
states. The report recommends: (i) implementing consultation
mechanisms with private sector for increasing transparency and
predictability; and (ii) developing joint agendas with private sector
on integrity and anti-corruption matters.
53
Development Partners’ Support
49. A modern, 21st century customs administration has multiple roles
to play. In addition to being a revenue-collection enforcement
body for the government, it has to facilitate trade, protect national
borders, work as an important link in the supply chain, and play a
key role in the fight against corruption. To adapt to new customs
requirements, and to keep pace with the evolving international
trade environment, reforms must be introduced simultaneously on
multiple fronts. A large part of support for introduction of reforms
in Nepal’s customs administration goes to development partners
that have provided financial and technical support to simplify,
harmonize and modernize customs procedures.
50. For example, the United Nations Conference on Trade and
Development (UNCTAD) helped roll out ASYCUDA++ and
ASYCUDAWorld. The World Bank helped introduce the Nepal
National Single Window, and the Nepal Trade Information Portal,
53
World Customs Organization. 2023. Annual Report on Anti-Corruption and Integrity Promotion (A-CIP) Program Implementation Highlights & Lessons Learned. Brussels.
Macroeconomic Update
a one-stop window for information on imports and exports via
Nepal. It also helped build inland container depots in Bhairahawa,
Biratnagar and Kathmandu, and improve quarantine laboratory
facilities. Similarly, WCO has provided technical experts to DOC
to conduct training, provide advisory services, support execution
of Time Release Studies, and hold workshops.
51. The Asian Development Bank (ADB) is another development
partner that has extensively supported Nepal to introduce
reforms in customs. The ADB has so far supported six programs
related to trade facilitation in Nepal since 1996 through grants
and concessional loans. [See Box 2 for project details.] The first
customs-related program introduced by the ADB helped roll out
ASYCUDA++, with the support of the UNCTAD, to enhance
efficiency and effectiveness of customs operations. This laid
the groundwork for automation of customs processes in Nepal.
The ADB has since helped implement the ASYCUDAWorld
and introduce electronic payments for customs procedures. It is
currently helping Nepal to establish paperless export processes,
conduct post clearance audits, and strengthen DOC’s valuation
capacity by taking the customs valuation database online.
52. Although ADB’s major focus has been on automation of customs
procedures, it has also supported Nepal to introduce legal, regulatory,
and procedural reforms. For example, the ADB has helped the DOC
to (i) prepare for accession to the RKC; (ii) conduct the midterm
review of the Customs Reform and Modernization Plan 2013‒2017
and formulate the CRMP 2017-2021, and CRMP 2022-2026; (iii)
formulate e-Customs master plan; (iv) establish customs client service
desks; and (v) conduct Time Release Studies, among others. It has
also collaborated with the World Customs Organization to introduce
Box 2: ADB-supported trade facilitation projects in Nepal
1996-1998 :
TA.2459-Nep: Efficiency Enhancement of Customs Operation (ASYCUDA component 0.883 M).
2007 – 2010:
Loan No. 2097 NEP – STFP, ASYCUDA - Consolidation of Customs Automation (0.6 million). (Validation Report – PCR rated
Successful)
2011 – 2017:
Grant G0225 - STEP, TF Component (3.664 million). (Validation Report - Successful)
2013 – 2015:
Grant 0322 - SASEC Trade Facilitation Program (Nepal). (Grant 15 million + TA 1.5 million). (Completion Report – Program is
rated Successful)
2017 – 2019:
Loan 3546 NEP, SASEC Customs Reform and Modernization for TF Program. (Loan 21 Million+ TA 1 million). (Completion report
– Program is rated successful)
2023 – 2026:
SASEC Customs and Logistic Reform Program (Loan 150 million in 3 subprograms + TA 1.250 million). (Ongoing)
Source: Asian Development Bank; Department of Customs
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Macroeconomic Update
joint capacity development programs, and holds consultations with
the World Bank on a regular basis on cross-border trade facilitation.
53. ADB has also facilitated regional cooperation and integration for
economic growth, is not only trying to address constraints and
roadblocks to trade facilitation in Nepal, but in the entire South
Asian region, as the ease with which goods move across borders is
critical for global supply and value chains. It has extended support
through the South Asia Subregional Economic Cooperation
(SASEC) Program to establish transparent and streamlined trade
processes and procedures in the region that are on par with
international standards and best practices.54 The SASEC Program
brings together Bangladesh, Bhutan, India, Maldives, Myanmar,
Nepal, and Sri Lanka in a project-based partnership aimed at
promoting regional prosperity, improving economic opportunities,
and building a better quality of life for the people of the subregion.55
54. An example of ADB support to harmonize trade procedures in
the region through the SASEC Program is introduction of the
electronic cargo tracking system in Nepal and India. The system,
launched to ensure seamless movement of goods across the
borders, allows third-country Nepal-bound consignments that
have arrived at ports in Kolkata and Vishakhapatnam in India to
be transported directly to Nepal’s border points without further
checks on the route. This facility has eliminated more than 30 steps
that previously had to be taken to comply with provisions of Indian
customs and ports. Thanks to this facility, Nepali importers or their
representatives need not be present at Indian ports or customs
to forward goods to Nepal. The handlers of cargo containers do
all the work on behalf of importers. This has saved costs related
to transportation, hiring of customs agents, and demurrage, and
other port expenses. The use of electronic cargo tracking system
is currently restricted to cargos coming to Nepal’s dry ports via
railway from Vishakhapatnam and Kolkata ports. The Ministry
of Commerce, Industry, and Supplies is holding discussions with
India to introduce this system on cargoes coming to Nepal via
Indian roads, and in export consignments as well.
55. ADB’s long-term engagement in trade facilitation in Nepal and
South Asia, its collaboration with the private sector to identify
primary causes that create trade barriers, and its studies on shifts
in global trade patterns have enabled it to add value to individual
nation’s quest to conduct cross-border trade in cost-effective and
efficient manner. The Government of Nepal’s confidence in the
54
55
Footnote 10. pp vii
South Asia Subregional Economic Cooperation (SASEC). What is SASEC. https://www.sasec.asia/index.php?page=what-is-sasec.
Macroeconomic Update
partnership with ADB also testifies to ADB’s record of translating
knowledge into effective advisory and analytical inputs for DOC’s
policy formulation.
Conclusions and Way Forward
56. Since the mid-1990s, Nepal has introduced series of reforms in
customs to facilitate foreign trade. Interventions made over the
years to make customs procedures modern, seamless and efficient
have helped Nepal to improve its score in the United Nations
Global Survey on Trade Facilitation and Paperless Trade from
34.4% in 2017 to 58.1% in 2023.
57. Nepal has shown urgency to introduce reforms in customs, as it
is a landlocked nation that relies on transit routes of neighboring
countries to conduct foreign trade. To ensure territorial limitation
does not erode its export competitiveness or deter it from
containing prices of imported raw materials, it has to embrace
customs procedures that correspond to international standards
and best practices. It has already expressed that intent by becoming
a party to two major international agreements aimed at simplifying,
harmonizing, and modernizing customs procedures. Those two
agreements are WTO’s TFA and WCO’s RKC. Nepal has complied
with most of the TFA and RKC measures. The remaining TFA
and RKC provisions that Nepal is yet to implement have been
incorporated in the new Customs Bills which has been forwarded
to the Parliament by the Cabinet.
58. Since 2003, the DOC has been introducing periodic Customs
Reform and Modernization Plans to facilitate the reform process.
Based on these plans, Nepal has improved policies and legal
documents for trade facilitation, automated customs procedures,
and built capacity of the customs administration and its employees.
The main objective of the customs reform and modernization
plans has been to establish paperless customs by fully automating
and digitalizing customs procedures. A key software used by Nepal
in the customs automation process is the Automated System of
Customs Data (ASYCUDA), which has digitalized the customs
declaration process, and automated data validation, and tax and
fee calculation processes. The software also allows DOC to generate
customs-related data instantly, enabling data analysis on real-time.
Before the installation of the system, the DOC used to take as
long as six months to generate annual customs data. Since 2016,
Nepal has been using web-based version of ASYCUDA called the
ASYCUDAWorld, which comes with real-time processing tools for
customs data management. It allows online submission of customs
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Macroeconomic Update
declaration, based on which consignments are forwarded for either
physical inspection, document checking, or clearance without
physical examination by using a risk management system.
59. Over the years, DOC has added modules to ASYCUDAWorld such
as e-payment, which enables traders to pay customs-related taxes
and fees without visiting customs offices. In case modules cannot
be added separate web portals have been designed and linked
to ASYCUDAWorld to facilitate customs clearance process. For
example, the single window system built to digitalize the document
submission process, which consumes over 60% of the time in
customs clearance, has been interfaced with ASYCUDAWorld.
ASYCUDAWorld has thus become the core system to build
paperless customs in Nepal.
60. Initiatives taken to digitalize and automate customs procedures
have helped DOC to reduce excessive paperwork, cut down
cumbersome customs procedures and long processing times,
increase transparency, and embrace international best practices.
These measures aimed at reengineering the business process for
customs procedures have also helped DOC to enhance productivity.
Over the years, DOC has reduced its staff number despite rampant
growth in trade volume. In FY1998, for example, when Nepal just
initiated the customs automation process, DOC had 1,559 staff
in its payroll. At that time, the DOC was generating NPR 8.5
billion in customs revenue. By FY2020, the DOC’s revenue had
jumped by over 14-fold to NPR 123 billion, but its staff number
had dropped by over 20% from 1998 level to 1,228.
61. Building on this success, Nepal must introduce reforms in five
areas to meet its overarching goal of creating paperless customs to
enable traders to save transaction time and money.
•
First, Nepal must rapidly mobilize support from every known
source to give continuity to customs reform process, as it will lose
access to trade-related special and differential treatments following
graduation from the least-developed country category in 2026.
Once the preferential treatments evaporate, Nepali exports will
be subject to higher duties in foreign countries, especially in the
US and Europe. A report titled ‘Nepal after LDC Graduation:
New avenues for exports’ published in 2022 by the International
Trade Centre (ITC), a joint agency of WTO and the UN, estimates
Nepal to lose export revenue of $59 million in 2026, or 4.3%
of projected export income of that year, due to termination of
LDC-specific preferential tariffs.56 This may have negative impact
on the manufacturing sector, whose share in GDP has dropped
from 9% in 1998 to 5% in 2022.57 Against that backdrop, an
efficient customs administration can help Nepal to enhance
its export competitiveness and contain costs of imported raw
Macroeconomic Update
materials. Although DOC is ahead of other trade-related agencies
in automating its procedures, it needs to put in more efforts to
further streamline its processes. For example, ASYCUDAWorld
allows customs agents to submit declarations through the Internet.
But there is a compulsion to submit a hard copy of the declaration
along with other supporting documents to customs office at the
time of customs clearance because of the mandatory requirement
for handwritten signature. DOC should validate the use of
e-signatures to speed up customs clearance.
•
Second, DOC must identify new risk indicators and parameters,
and fully automate the risk management process to reduce physical
examination of goods. At present, more than half of the goods that
arrive at customs points are still subject to physical inspection. This
is delaying the cargo clearance process, affecting both exports and
imports. Progress must be made on this front by strengthening risk
management. This requires installation of equipment like scanners
and sophisticated x-ray machines at customs offices. The images
they generate should then be tallied with customs declarations via
ASYCUDA. This will not only help Nepal to avert risks but facilitate
in mapping new risks related to key customs operation processes
and gather intelligence to further strengthen risk management.
Risk management can be further strengthened if Nepal efficiently
shares information with other customs administrations, especially
those of neighboring countries. Nepal must use platforms like
BBIN Initiative and SASEC Programs to share information and
strengthen its own risk profile.
•
Third, the government must strengthen the capacity of customs
administration as well as human resources employed there to
execute behind-the-border functions using modern technologies so
as to reduce face-to-face interactions with traders at customs points.
The customs reforms made over the years have put Nepal on the
course to building an IT- and officer-based customs administration.
But the share of IT and officer-level staff in total staff is very low.
As of FY2020, only 4% of the total staff at the DOC were IT staff
and another 13% were officer-level staff. The DOC must expedite
its restructuring process. Here, DOC may need support of other
institutions, like the Ministry of Federal Affairs and General
Administration, whose permission is a must to overhaul the
management structure.
•
Fourth, Nepal must continue to strengthen its physical infrastructure
to facilitate cross-border trade. It should not be forgotten that
inadequate hard infrastructure has always affected Nepal’s foreign
trade. It must improve the condition of existing road network or
56
57
International Trade Centre. 2022. Nepal after LDC Graduation: New avenues for exports. Geneva
World Bank. Manufacturing, value added (% of GDP)-Nepal. https://data.worldbank.org/indicator/NV.IND.MANF.ZS?locations=NP
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Macroeconomic Update
construct new ones, especially in northern border crossing points
with China, connect more of its dry ports with railway lines of
neighboring countries, build reliable communications network
to provide faster Internet service to customs offices, and develop
robust energy system to ascertain stable power supply for customs
operations. Also, logistics facilities such as plant quarantine offices
should be established at appropriate locations to facilitate exports
of agricultural produce, herbs, and food products.
•
Fifth, the government and the private sector stakeholders,
especially traders and customs agents, must coordinate to hash
out differences that are working as barriers in creating paperless
customs. For the DOC to become a trade facilitator, rather than a
trade regulator, it must put more trust in the private sector. WCO’s
RKC and the WTO’s TFA have provisions on recognizing traders
as “trusted traders” or “authorized operators” on the basis of their
track record in compliance with customs regulatory requirements.
The customs administration should use those facilities to reduce
physical examination of consignments. At the same time, the
private sector should also work in a predictable manner and not
take undue advantage of the provision on voluntary compliance
of customs regulatory requirements. The customs administration
and the private sector should thus hold consultations on a regular
basis to resolve differences, and design capacity building programs
or refresher courses to ensure traders, especially customs agents
who are directly involved in customs clearance process, learn about
latest developments in their field of work.
62. In a nutshell, Nepal must pursue broad-based customs reforms
encapsulating hard as well as soft infrastructure reforms to create
paperless customs. A paperless custom will reduce in-person
interactions, curb corruption, and prepare the country for crises like
COVID-19 that may disrupt the supply chain. This will eventually
facilitate trade. Traditionally, the roles of customs administrations
were limited to that of revenue collection and border protection.
Lately, customs administrations worldwide have started playing the
role of a trade facilitator, as ease in conducting international trade
leads to improvement in business environment and contributes to
economic growth.
63. Although progress made by Nepal over the years has facilitated
trade, Nepal must conduct studies on a regular basis to identify
bottlenecks, identify areas where it lags behind peers, create
standard operating procedures, and adapt to the requirements of
a rapidly changing world. Hence, Nepal must conduct Business
Process Analysis (BPA) of Trade Procedures to evaluate trading
time and cost, identify processes that are inefficient, generate
awareness for reforms, and compare performance with peers on
a regular basis. Simultaneously, time release studies, and customs
Macroeconomic Update
integrity perception surveys should also be carried out in regular
intervals. Considering Nepal’s LDC graduation in 2026 and LDCspecific support that it is bound to lose after the graduation, the
government need to conduct analytical studies that will help a
landlocked country with physical remoteness from ports and access
to global trading hubs to introduce reforms in targeted areas, gain
competitive edge, and support external trade balance.
31
32
Macroeconomic Update
Appendix 1: Country Economic Indicators
Item
A. Income and Growth
1. GDP per Capita ($, current)
2. GDP Growth (%, in market prices)
a. Agriculture
b. Industry
c. Services
2019
2020
Fiscal Year
2021
2022R
2023P
1204.0
6.7
5.2
7.4
6.8
1166.7
(2.4)
2.4
(4.0)
(4.5)
1276.7
4.8
2.8
6.9
4.7
1398.6
5.6
2.2
10.8
5.3
1396.9
1.9
2.7
0.6
2.3
B. Saving and Investment (current and market prices, % of GDP)
1. Gross Fixed Investment a
2. Gross National Saving
33.8
42.1
30.5
32.2
29.3
31.5
28.5
29.0
25.2
31.7
C. Money and Inflation
1. Consumer Price Index ( average annual % change)
2. Total Liquidity (M2) (annual % change)
4.6
15.8
6.2
18.1
3.6
21.8
6.3
6.8
7.7 b
11.4 b
D. Government Finance (% of GDP)
1. Revenue and Grants d
2. Expenditure d
3. Overall Fiscal Surplus (Deficit)
22.4
27.3
(5.0)
22.2
27.6
(5.4)
23.3
27.2
(4.0)
20.5
23.7
(3.2)
16.9 c
23.0 c
(6.1) c
(33.3)
(6.9)
12.5
5.2
22.8
(27.3)
(0.9)
(7.6)
(18.9)
22.5
(31.1)
(7.7)
31.0
26.6
22.1
(33.7)
(12.6)
43.9
21.9
20.4
(26.0) b
(1.4) b
(19.9) b
(22.0) b
22.7 b
F. External Payments Indicators
1. Gross Official Reserves ($ million)
Months of current year’s imports of goods)
2. External Debt Service (% of exports of goods and services)
3. Total External Debt (% of GDP)
9,500.0
7.8
8.2
15.2
11,646.1
12.7
10.9
20.9
11752.6
10.2
4.6
21.5
9,535.0
6.9
3.4
20.8
11,735.6 b
10.0 b
11.6 e
20.3 e
G. Memorandum Items
1. GDP (current prices, NPR billion)
2. Exchange Rate (NPR/$, average)
3. Population (million)
3,858.9
112.9
28.4
3,888.7
116.3
28.7
4,352.5
117.9
28.9
4,933.7
120.8
29.2
5,381.3
130.7 b
29.5
E. Balance of Payments
1. Merchandise Trade Balance (% of GDP)
2. Current Account Balance (% of GDP)
3. Merchandise Export ($) Growth (annual % change)
4. Merchandise Import ($) Growth (annual % change)
5. Remittances (% of GDP)
GDP = gross domestic product; P = preliminary; R = revised
Note: FY2023 covered 17 July 2022 to 16 July 2023
a Refers to gross fixed investment and does not include change in stocks
b Based on FY2023 annual data. Nepal Rastra Bank
c Based on FY2023 annual data. Financial Comptroller General Office
d Includes other receipts
e Based on FY2023 annual data. Public Debt Management Office
Sources: Ministry of Finance. FY2024 Budget Speech. Kathmandu; Nepal Rastra Bank. 2023. Current Macroeconomic and Financial Situation. Kathmandu; National Statistics Office. April
2023. FY2023 National Accounts Statistics. Kathmandu; Financial Comptroller General Office. 2023. Daily Receipts & Payments Status (as of 16 July 2023). Kathmandu; National Statistics
Office. 2022. National Population and Housing Census 2021 (National Report). Kathmandu; Public Debt Management Office. 2023. Public Debt Monthly Progress Report (as of mid-July 2023).
Kathmandu.
Macroeconomic Update
33
Appendix 2: Country Poverty and Social Indicators
Item
A. Population Indicators
1. Population (million)
2. Population growth (annual % change)
B. Social Indicators
1. Fertility rate (births/woman)
2. Maternal mortality ratio (per 100,000 live births)
3. Infant mortality rate (below 1 year/1,000 live births)
4. Life expectancy at birth (years)
a. Female
b. Male
5. Adult literacy (%)
a. Female
b. Male
6. Primary school gross enrollment (%)
7. Secondary school gross enrollment (%)
8. Child malnutrition (% below 5 years old)
9. Population below poverty line (international, %)
10. Population with access to safe water (%)
11. Population with access to sanitation (%)
12. Public education expenditure (% of GDP)
13. Human development index
14. Rank/total number of countries
15. Gender-related development index
16. Rank/total number of countries
C. Poverty Indicators
1. Poverty incidence
2. Proportion of poor to total population
a. Urban
b. Rural
c. Mountain
d. Hills
e. Terai
3. Poverty gap
4. Poverty severity index
5. Inequality (Theil Index)
6. Multidimensional poverty index1
1990s
Period
2000s
Latest Year
18.5
2.1
(1991)
24.8
1.2
(2006)
29.5
0.9
(2023)
(2023)
5.1
539.0
82.0
55.0
54.0
55.0
35.6
19.4
53.5
57.0
43.8
57.0
68.0
45.9
22.0
2.0
0.341
152/173
0.33
148/163
(1996)
(1996)
(1991)
(1991)
(1991)
(1991)
(1996)
(1996)
(1996)
(1996)
(2001)
(1995)
(1995)
3.6
281.0
48.0
62.0
63.0
62.0
48.0
33.8
64.5
122.0
54.4
49.0
30.9
83.3
30.0
2.9
0.429
136/177
0.511
106/140
(2004)
(2006)
(2006)
(2001)
(2001)
(2001)
(2004)
(2004)
(2004)
(2004)
(2004)
(2006)
(2004)
(2006)
(2006)
(2005)
(2005)
(2003)
(2003)
(2003)
2.3
151.0
22.8
68.’5
70.4
66.6
71.2
63.3
81.0
118.5
79.0
36.0
18.7
91.2
80.4
4.4
0.602
143/191
0.942
143/191
(2016)
(2021)
(2021)
(2021)
(2021)
(2021)
(2021)
(2021)
(2021)
(2017)
(2016)
(2016)
(2018)
(2022)
(2022)
(2016)
(2021)
(2021)
(2021)
(2021)
42
(1996)
31
(2004)
25.16
(2011)
23.0
44.0
57.0
40.7
40.3
11.75
4.67
…
…
(1996)
(1996)
(1996)
(1996)
(1996)
(1996)
(1996)
9.55
34.62
32.6
34.5
27.6
7.55
2.7
…
…
(2004)
(2004)
(2004)
(2004)
(2004)
(2004)
(2004)
15.46
27.43
42.77
24.32
23.44
5.43
1.81
…
0.074
(2011)
(2011)
(2011)
(2011)
(2011)
(2011)
(2011)
(1996)
(1995)
(2019)
… = not available, GDP = gross domestic product,
Sources: Central Bureau of Statistics. 2012. National Population and Housing Census 2011. Kathmandu; Central Bureau of Statistics. 2017. Annual Household Survey 2016/17. Kathmandu;
Central Bureau of Statistics. 2011. Poverty in Nepal (2010/11). Kathmandu; Ministry of Health. 2017. Nepal Demographic and Health Survey 2016. Kathmandu; Ministry of Health and
Population, and National Statistics Office. 2022. National Population and Housing Census 2021 - A Report on Maternal Mortality. Kathmandu; National Statistics Office. 2022. National
Population and Housing Census 2021 (National Report). Kathmandu; United Nations Development Programme. 2022. Human Development Report 2021/2022. New York; World Bank. World
Development Indicators database. http://data.worldbank.org/data-catalog/world-development-indicators (accessed 17 September 2023).
1 UNDP replaced Human Poverty Index with Multidimensional Poverty Index from Human Development Report 2011.
34
Macroeconomic Update
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