State of hunger in Nepal is improving (Global Hunger Index 2013)

IFPRI has published the latest update on Global Hunger Index (GHI), which shows that hunger in Nepal has consistently declined since 1990. The latest GHI score of 17.3 corresponds to 2008-2012 period. It is the second lowest score in South Asia. Sri Lanka has a GHI score of 15.6. In 2005 (data covering 2003-2007), Nepal had a score of 22.3.

In GHI 2012 (data covering 2005-2010), Nepal had a score 20.3, ranking 60 out of 79 countries. In GHI 2013, Nepal ranked 49 out of 78 countries.

2013 Global Hunger Index						Rank
Higher GHI score indicates more hunger	1990	1995	2000	2005	2013	2012	2013
	(with data from 1988-92)	(with data from 1993-97)	(with data from 1998-2002)	(with data from 2003-2007)	(with data from 2008-12)
Bangladesh	36.7	35.1	24.0	20.2	19.4	68	58
India	32.6	27.1	24.8	24.0	21.3	65	63
Nepal	28.0	27.3	25.3	22.3	17.3	60	49
Pakistan	25.9	22.8	21.6	21.2	19.3	57	57
Sri Lanka	22.3	20.7	17.8	16.9	15.6	37	43

The GHI ranks countries on a 100-point scale in which zero is the best score (no hunger) and 100 the worst. This year's GHI reflects data over 2008-2012 period. Hunger level is categorized as follows:

• <= 4.9 is low
• 5.0-9.9 is moderate
• 10.0-19.9 is serious [Nepal falls in this category]
• 20.0-29.9 is alarming
• >= 30.0 is extremely alarming

In order to identify hunger levels and hotspots, the GHI scores countries based on three equally weighted indicators: the proportion of people who are undernourished, the proportion of children under five who are underweight, and the child mortality rate.

In Nepal, the largest contribution to the reduction in hunger score between 2005 and 2013 came from the progress in reducing the prevalence of underweight in children under five years (down from 38.8% in 2005 to 29.1% in 2013).

Excerpts from the report:

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Across regions and countries, GHI scores vary considerably. South Asia and Africa south of the Sahara are home to the highest GHI scores. South Asia significantly lowered its GHI score between 1990 and 1995, mainly thanks to a large decline in underweight in children, but was not able to maintain its fast progress. Social inequality and the low nutritional, educational, and social status of women continue to contribute to the high prevalence of underweight in children under five.

[…]It is not surprising that many of the countries with “alarming” or “extremely alarming” scores have not been among the most stable. Higher GHI scores tend to be typical of countries that experience social or political unrest or are perennially exposed to shocks such as floods and droughts. Natural and manmade disasters can directly affect the food and nutrition security of people and communities that are particularly vulnerable or lacking resilience. By extension, a critical part of building resilience is ensuring food and nutrition security; and conversely, efforts to build food and nutrition security must be designed with a resilience lens. Poor people have long been vulnerable to “hunger seasons,” droughts, and other natural and manmade disasters. In recent years, this vulnerability has been exacerbated by food and financial crises and large-scale humanitarian crises such as the recurring droughts in the Sahel and the Horn of Africa. These short-term shocks have long-term consequences.

Policymakers and practitioners across the development and relief communities now recognize the need to build the resilience of vulnerable populations. More resilience will help them climb out of poverty, remain out of poverty, or avoid slipping into it in the first place. Conceptually, resilience has been expanded to include the capacity not only to absorb mild shocks, but also to learn from and adapt to moderate shocks and to transform economic, social, and ecological structures in response to severe shocks.

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High housing prices in Kathmandu (most can’t afford)

A new study, as reported in The Kathmandu Post, shows that the average price (in Kathmandu, Lalitpur and Bhaktapur) of a housing unit is Rs 12.3 million and an apartment unit Rs 9.2 million.

This is beyond the reach of most of the Nepalese people. The existing demand and price is likely fueled by easy bank credits to developers and prospective buyers. The prices are unsustainable and a further downward correction is warranted to ensure that the prices set during the ‘bubble’ time are not persistently sticky at a high level even during the slowdown in this particular sector. Hopes of rebounding of the real estate and housing prices, which are still high even after about 30% reduction from its peak level around 2010, are not reasonable as this point of time. A majority of Nepalese still cannot afford housing and apartment units prices beyond their lifetime income.

The housing and apartment markets appear to have plateaued as (i) NRB has imposed a 25% cap on lending to real estate and housing sectors; and (ii) the number of customers that the BFIs thought creditworthy (at least in the books!) have pretty much maxed out (unless they broaden their horizon and come up with innovative, affordable stuffs).  

Excerpts from the news piece:

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• 82 percent of housing and 72 percent of apartment projects sold had price range of Rs 5-10 million.
• Of the 858 housing units with a price value between Rs 5-10 million, 702 were sold. Likewise, 829 out of the 1,147 apartment units in the same price category were also sold.
• A higher demand for low end, ready to move in and instant ownership transferable units, the report entitled, ‘Real Estate Market Outlook 2013’, states.
• The average price for housing units stands at Rs 12.3 million, while the price of an apartment unit is Rs 9.2 million. A total 3,708 units of housing and apartments projects, out of 6,282, have so far been sold. This means 41 percent of units are yet to be sold.
• Even between the housing and apartment projects, there is a higher demand for housing units. The study showed that 76 percent of housing projects have already been sold, while only 51 percent of apartment projects have been sold as of July 2013.
• There are a total of 1975 housing units and 4307 apartment units in the valley.
• The real estate sector has recorded a total average investment value worth Rs 64.4 billion, including Rs 24.25 billion in housing projects and Rs 39.75 billion in apartment projects.
• The total investment value in housing projects is 37 percent, while 63 percent is in apartment projects.
• The report has attributed factors such as preference for owner built houses, lack of buyer confidence, change in customer preference and lack of flexible financial plans towards the selling of total units and accomplished projects as major challenges.
• The highest number of housing and apartment projects had been registered and launched in 2007-08, these numbers declined by 52 percent and 50 percent respectively in the next year.

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No blogging for a week more

A short break from blogging. Traveling around India. Blogging may commence from next week.

12 post-2015 development agenda relevant to Asia and the Pacific

Below are the 12 post-2015 development agenda (relevant to Asia and the Pacific) proposed in a new joint study by ESCAP, ADB and UNDP:

1. Zero income poverty – The region should build on its recent achievements in poverty reduction and set an ambitious goal of ‘zero poverty’.

2. Zero hunger and malnutrition – The aim should be universal food security, through among other things, much more attention to agriculture.

3. Gender equality – Gender will need to be assessed comprehensively, with more indicators on empowerment and on violence against women.

4. Decent jobs for everyone of working age – This would require full and productive employment and government commitment as an ‘employer of last resort’ translated into an explicit recognition of employment goals and targets in all policies and programmes.

5. Health for all – Priority should go to maternal, newborn and child health, universal access to sexual and reproductive health, including family planning, and to reducing the prevalence of communicable diseases and controlling the spread of non-communicable diseases.

6. Improved living conditions for all – Everyone should have access to safe and sustainable drinking water and sanitation, as well as basic energy services.

7. Quality education for all – This should start with early childhood care and education, followed by higher quality education at all levels, including adult literacy and lifelong learning, and providing learning and life skills for young people and adults.

8. Liveable cities – The poorest city dwellers should have effective shelter and secure tenure along with essential social infrastructure. They should also have access to affordable, safe and energy-efficient mass transport.

9. Environmental responsibility and management of natural resources – This will mean protecting critical ecosystems while reducing resource intensity and avoiding overexploitation of natural capital. At the same time countries will need to address climate change.

10. Disaster risk reduction – The region has witnessed natural disasters that have wiped out long-term development efforts. Any new development agenda should help mainstream disaster risk reduction in national budgets and development programmes.

11. Accountable and responsive governments – There is a call for more accountable, transparent and effective government at both national and local levels for more capable and efficient management of public resources and service delivery.

12. Strong development partnerships and reformed global governance – Countries in Asia and the Pacific will benefit from global and regional partnerships to manage global public goods, particularly in finance, health, trade, technology transfer, environment, and climate change. The reform of global governance should reflect the Asia-Pacific ascendance in the global economy. The prospect and scope of financial and economic crises and commodity price volatility must be minimized in order to protect development gains.

Linking smallholders to markets

A majority of farmers are smallholders and supporting them is the key to a sustained structural transformation and poverty reduction. Linking them with markets would do a great deal in moving forward in that direction.

It would require (according to to a new report by ODI—Leap & Learning: Linking Smallholders to Markets):

• Business case for smallholders and their partners in supply chains (enabling rural investment climate and provision of public goods)
• Good linking approaches (facilitation, learning, flexibility, clear exit strategies)
• Organizing the links (private sector participation, contracting, cooperatives)

Necessary condition:

• An enabling investment climate (peace, security, macroeconomic stability, property rights, rules pertaining to standard and measurement)
• The provision of rural public goods provisioned by the state (roads, power, education, healthcare, drinking water, agriculture R&D)

Also, enhancing access to inputs, technical advise, insurance, credit and other financial services is required.

Nepalese economy in FY2013: External sector

[This blog post is adapted from Nepal’s Macroeconomic Update, August 2013, published by the ADB. Here is a previous blog post on real sector, fiscal sector and monetary sector.]

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EXTERNAL SECTOR

Exports

Export performance has continued to be sluggish. Merchandise exports (fob) registered a decline of 2.9% in FY2013 in US dollar terms, down from a growth of 6% in FY2012.[1] Exports in FY2013 totaled $981 million, down from $1 billion in FY2012, reflecting weak export demand as well as the continued decline in competitiveness arising from the rising costs of production, power shortages, and political uncertainties. Overall, merchandise exports declined to 5.1% of GDP in FY2013 from 5.3% of GDP in FY2012.

The top five exports to India were pulses ($64.1 million), raw jute ($56.5 million), rice barn oil ($32.8 million), stone and sand ($46.9 million), and polyester yarn ($43.9 million. Meanwhile, the top five exports to other countries were woolen carpets ($69.3 million), readymade garments ($35.2 million), pulses ($30.5 million), pashmina ($18.9 million), and tanned skin ($11.5 million). While the export of agriculture and processed goods is increasing, garments and manufacturing are decreasing (Figure 29).

Figure 1: Top five exports to India and third countries ($ million)

Source: Nepal Rastra Bank

Imports

Merchandise imports (cif) in dollar terms grew by 10.8%, up from 4.5% in FY2012. Of the total imports of $6.2 billion in FY2013, 19.6% was oil imports. In US dollar terms this is equivalent to $1.2 billion, higher than value of the country’s total exports. In FY2012, oil imports accounted for 20.3% of total imports. The high quantity of oil imports reflects the rising demand for petroleum products largely due to the persistent and long hours of power cuts and the depreciating Nepali rupee. Overall, merchandise imports increased to 32.2% of GDP in FY2013 from 29.6% of GDP in FY2012.

The five top imports from India were petroleum products ($1,222.3 million), vehicle & spare parts ($300 million), steel billets ($254.5 million), medicine ($152.2 million), and other machinery and parts ($137.1 million). Top imports from other countries were gold ($297.9 million), telecommunication equipment ($153.9 million), crude soya oil ($121.2 million), silver ($100.2 million), and other machinery and parts ($92.8 million).

Figure 2: Top five imports from India and third countries ($ million)

Source: Nepal Rastra Bank.

Remittances

Remittance income has continued to grow with increased labor migration reaching $4.9 billion (25.5% of GDP) in FY2013, from $ 4.4 billion (23.4% of GDP) in FY2012. Growth of labor migration (those who obtained permits from the Department of Foreign Employment) was 17.9%, higher than the 8.4% growth in FY2012. However, remittance inflow growth decelerated to 11.3% from 26.6% in FY2012. The country received $4.9 billion in workers’ remittances in FY2013, up from $4.4 billion in FY2012. Despite the growth of migrants, the growth of remittance inflows declined partly because: (i) the relatively high wage offering countries such as South Korea and Japan slashed demand for Nepali workers by 24.8% and 17.1%, respectively; and (ii) the demand for Nepali workers in Israel, Lebanon, Afghanistan, Bahrain and Qatar, among others, also fell.

Figure 3: Remittances (% of GDP) and number of labor migrants

Source: Department of Foreign Employment and Nepal Rastra Bank.

A total of 453,543 migrants left to work overseas in FY2013 (daily average of 1,243 migrants), up from 384,665 in FY2012 (daily average of 1,054 migrants). Malaysia, Qatar, Saudi Arabia and the United Arab Emirates have remained the top destinations for Nepali migrants. These destinations combined account for over 85% of total overseas labor migration (Figure 32). As a share of total migration, labor migrants to Malaysia increased from 25.6% in FY2012 to 34.6% in FY2013, largely because of the relatively attractive pay packages offered by Malaysian companies, especially in the industrial and plantation sectors. Consequently, the growth of remittance inflows is expected to be higher in FY2014.[2] In FY2013, the surge in workers’ migration to Malaysia and other countries more than offset the decline in the number of migrants to the countries listed above.

Figure 4: Destination-wise distribution of labor migrants

Note: Migrants to India are not included as they do not require employment permits.

Source: Department of Foreign Employment.

Balance of Payments

Although the country’s external situation continues to be stable, it weakened somewhat in FY2013. Overall, the balance of payments surplus declined to $786.5 million (4.1% of GDP) in FY2013 from $1.6 billion (8.6% of GDP) in FY2012. The year saw a widening of the trade deficit to $5.3 billion (27.1% of GDP) from $4.6 billion (24.3% GDP) in FY2012. The surge in the trade deficit coupled with the deceleration of remittance inflows (growth of 11.3% in FY2013 as against 26.6% in FY2012) sharply lowered the current account surplus of $941.3 million (4.9% of GDP) in FY2012 to $651 million (3.4% of GDP) in FY2013. Both the capital account and financial account registered a significant decline (by 30.8% and 47.8%, respectively) in FY2013. Foreign direct investment registered a decline of 9%, totaling $103.6 million, down from $113.9 million in FY2012. Gross foreign exchange reserves increased from $5.0 billion in FY2012 to $5.6 billion in FY2013, sufficient to cover 10.1 months of import of goods and non-factor services.

Figure 5: External sector (% of GDP)

Source: Nepal Rastra Bank; NRM staff estimates.

Exchange Rate

The Nepali rupee has been continuously depreciating against the US dollar since October 2012, closely following the currency movement of the Indian rupee, to which it is pegged (Figure 34). Overall, the Nepali rupee depreciated by 25.7% between 15 July 2011 and 15 July FY2012 and a further 7.2% between 15 July 2012 and 15 July 2013.

The concerns over the economic slowdown in India, its large current account deficit, and the continued economic woes in the Euro Zone along with concerns over the curbing of quantitative easing by the US Federal Reserve Bank have triggered the weakening of the Indian rupee. The NRB has little traction on exchange rate movements. The sharp depreciation of the Nepali rupee has a number important macroeconomic implications: (i) weaker financial health of Nepal Oil Corporation due the persistent gap between its import costs and selling price, (ii) increased overall import bill as Nepal’s imports are relatively price inelastic, leading to a wider trade deficit; (iii) increased inflation as higher import prices get reflected in retail prices; (iv) increase in Nepal Electricity Authority’s payments to independent power producers whose prices are denominated in foreign currency, and (v) increase in debt service payments. On the positive side, remittance inflows will increase as migrant workers will have more incentives to remit money back home.[3] Similarly, exports could rise to some extent (but subject to recovery of external demand and increase in domestic industrial capacity utilization, which stands at around 60%).

Figure 6: Daily nominal exchange rate (NRs per $)

Source: Nepal Rastra Bank.

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Notes:

[1] The exchange rate used is the average of monthly rates. It was NRs 72.1, NRs 80.7 and NRs 87.7 per dollar in FY2011, FY2012 and FY2013, respectively.

[2] Note that it could still be lower than the 26.6% growth in FY2012.

[3] It may be noted that almost 80% of remittances flowing to households is used for daily consumption and just 2.4% in capital formation.

[Presentation] Remittances in Nepal: Boon or Bane?

Fore more, see an earlier blog post on the same issue.