Kathmandu's deserted streets and quarantine shops admist lockdown
As a result of the impact of COVID-19, Nepal and Myanmar’s economic growth has been derailed. For the FY 2019/20, GDP growth rate in Nepal is estimated at 1.8 percent while Myanmar’s growth rate is estimated at a mere 0.5 percent – a significant drop from the 6.8 percent growth rate in the previous year.
In response, the following income and commercial tax cuts and deferrals have been announced to ease the burden and better the cash-flow situation for businesses:
The Government of Nepal announced a fund of NPR 50 billion (US$ 418 million) to provide concessional loans for affected SMEs at a 5 percent interest rate. Commercial banks are also required to ensure credit disbursement of at least 15 percent of their total loan portfolio in agriculture and 10 percent in the energy sector – a policy move to please key demands from the private sector – but targets have yet to be met. Myanmar’s COVID-19 Economic Relief Plan (CERP) also includes a COVID fund of MMK 100 billion (US$ 71.3 million) which will provide one-year loans 1 percent interest. CERP has also committed to increasing the fund to MMK 200-500 billion depending on the market conditions by the end of 2020. Despite this commitment, many SMEs face difficulties accessing the loan and many others are deterred by the short loan repayment period.
Tourism-related services, wholesale and retail trade, manufacturing, and construction were amongst the hardest hit sectors in both countries. Nepal’s tourism industry alone suffered an estimated business loss of over $330 million since the nationwide lockdown was imposed in late March. The Nepali government has now given a go-ahead to hotels and restaurants to reopen their businesses with domestic and international flights resuming in mid-August. Similarly, Myanmar’s Tourism Strategic Road Map is planning to reopen its tourism industry for travel within ASEAN and Asia by the fourth quarter. The Union of Myanmar Travel Association (UMTA) predicts that it will take another six months for the entire sector to be fully operational again.
The pandemic’s impact on the agriculture sector and food security – a prominent contributor to Nepal and Myanmar’s workforce employment and national GDP – has also been part of the focus for COVID relief. Disruptions in the domestic supply chains and international trade routes posed a major challenge for obtaining inputs as well as for delivering harvested goods for both countries. Myanmar’s agricultural sector is proving to be more resilient than many had anticipated; crop production is still expected to increase but the sector’s growth is expected to reduce to 0.7 percent this fiscal year and performance across agri-subsectors is mixed. In contrast, smallholder farmers in Nepal experienced severe losses during the lockdown. As a relief, the Ministry of Agriculture and Livestock Development of Nepal has established a digital market and declared a 25 percent subsidy on the transport of agricultural products considering the COVID 19 crisis.
While restrictions are being eased with caution and business activity resumes, economies will still experience the long-term impacts of COVID-19. The biggest challenge will be employment generation and stimulating demand in the economy by ensuring disposable income in the hands of the people. Myanmar’s economy saw a strong start to the fiscal year and with limited outbreak of the pandemic and its economic growth is expected to bounce back up to around 7 percent in FY 2020/21. But this recovery is largely dependent on the prevention of a second wave of the outbreak. Nepal’s economic growth in the following year is likely to remain subdued with marginal recovery in FY 2021/22. Since the outbreak, remittance inflow in Nepal has reduced by 43.4 percent between March and May 2020 as many migrant workers return, which in turn is also contributing to the rising unemployment rate. The government expects to absorb this excess labor via its Prime Minister’s Employment Program. Until a vaccination is universally available, economic stability and recovery at the national and global level is still under question.