Impact of COVID-19 and Nepal government’s relief package on the private sector

The government of Nepal has released a “relief-package” for Covid-19 which has done little to relieve the worries of the private sector.

This relief package is extremely insufficient and short sighted, to say the least, in order to address the issues that the private sector is facing or about to face due Covid-19 and the lockdown. Investment worth billions in many industries in hospitality, services and manufacturing are suddenly at extremely high risk.

We must realize that every major economic and political decisions will be forever marked as “Before Covid-19 and After Covid-19” from now onwards. There will be many countries that will be able to come out stronger from this and there will be countries who may take decades to recover.

All big and small economies in the world are planning to pump billions of money into the economy and stimulate investment and expenditure by means of both fiscal and monitory policies and investment. But Nepalese politicians have not shown any interest in going down that path yet.

After the lockdown is over, we will undoubtedly face a massive recession in the market with very less power of spending for both basic and luxury goods and services. The way people perceive their requirements will have changed a lot too. For example, people will be less willing to travel for a long time, people and businesses will be willing to save more and spend less of their income for such rainy days. IT industries is expected to benefit a lot due to changed behavior of how people meet with each other and or even buy things. We need to put into perspective how well prepared is the Nepalese government and the private sector to face these sudden change in business environment?

All that the Nepalese government seems to have focused on was how to "look good" by giving short term relief such one month long break (which they simply had no option but to do) for paying interests and principles towards bank, which hardly scratches the surface of the issues of the private sector.

One of the biggest fixed expenses of the businesses in Nepal remains the banking and salary expense. A major slump in the economy will mean many big and small businesses going bankrupt and resulting unemployment and even possible liquidation of B and C class banks.

Government simply cannot afford to overlook all these aspects and simply pretend everything will be alright after the lockdown and private sector will continue to drive the economy by paying their taxes and salaries on time.

The remittance income of the country is already hanging in balance due to the global recession that is going to follow following the COVID-19. Middle Eastern countries have already allowed the private sector to give unpaid leave to foreign labors or to even fire foreign labors if required even if they are under employment contract. Those migrant workers will be coming home with an empty pocket and with burden of loan sharks from whom they borrowed money to go abroad in first place.

Years of staggering economy, bureaucracy, poor infrastructure and lackadaisical priority to improve the state of private sectors situation will finally show its effects on the future of the private sector’s ability to weather the ensuing storm that the current global business environment is about to bring on them.

Key policy recommendation that I would like to make is to cut down the interest rate by half to bring it around 5-6% which will spur the investments in the productive sector such as manufacturing and hospitality and also boost the banking industry which is not able to utilize its liquidity for a long time. Secondly, provide stimulus benefits to manufacturing industries bleeding from the current crisis by giving them much needed tax breaks for considerable period of time to help them become competitive to Indian counterparts who are already enjoying such benefits in their home country and competing with Nepalese companies on an uneven ground.

Hence, I strongly urge the private sector and politicians to do more to push the government to rethink their idea of “relief package” considering every possible impact on the private sector, the individuals and the economy as a whole and not just short-term immediate relief but as a long-term vision that is founded on sustainability and oriented for driving the economy’s growth.

- Pravin Tibrewala

References:

https://thehimalayantimes.com/kathmandu/govt-announces-relief-package-highlights/ Government Announces relief package: Highlights (The Himalayan Times, 2020)