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Quick Study on Nepal
Population: 24,660,000
Total area: 140,800 sq. km
GDP: $5.9 billion
GDP growth rate: 3.1%
GDP per capita: $241
Major exports: garments, woolen carpets, jute goods,
vegetables, carpet, leather goods
Exports of goods and services: $974 million
Major export trading partners: India 43.7%, US 29.6%,
Germany 7.5%
Major imports: petroleum products, textiles, gold
and silver, vehicles
Imports of goods and services: $1.7 billion
Major import trading partners: India 44.9%, China
9.6%, UAE 8.9%, Singapore 5.1%
Foreign direct investment (net): $28.3 million
2003 Data (in constant 2000 US dollars)
Trade Policy
Score: 5.0
The World Bank reports that Nepal's weighted average
tariff rate in 2004 was 15.6 percent, up from the
14.3 percent in 2002 reported in the 2005 Index, based
on World Bank data. According to the U.S. Department
of Commerce, the government bans or employs quantitative
restrictions on imports of "(a) products injurious
to health·(b) arms and ammunition, explosive
materials·(c) communications equipment, including
computers and home entertainment products such as
television sets and VCRs; (d) valuable metals and
jewelry; and (e) beef and beef products." Corruption
is a problem. Based on the higher tariff rate, as
well as a revision of the trade factor methodology,
Nepal's trade policy score is 0.5 point worse this
year.
Fiscal Burden
Score: 2.8
Nepal's top income tax rate is 25%. The top corporate
tax rate is also 25%. In 2003, according to ADB, government
expenditures as a share of GDP decreased 1%age point
to 16%, compared to the 0.6%age point decrease in
2002. On net, Nepal's fiscal burden of government
score is 0.2 point better this year.
Government Intervention
Score: 2.5
The World Bank reports that the government consumed
10.3% of GDP in 2003, up from the 10% reported in
the 2005 Index. As a result, Nepal's government intervention
score is 0.5 point worse this year. In 2003, according
to the IMF 's Government Financial Statistics Nepal
received 8.53% of total revenues from SOE and government
ownership of property.
Monetary Policy
Score: 2.0
From 1995 to 2004, Nepal's weighted average annual
rate of inflation was 3.52%.
Foreign Investment
Score: 4.0
Nepal permits 100% foreign ownership in some sectors,
simplified licensing and regulations, and opened up
the telecom and civil aviation sectors. But many sectors,
such as business and management consulting, accounting,
engineering, legal services, defense, alcohol and
cigarette production, travel and trekking agencies,
and retail sales, remain closed. According to the
U.S. Department of Commerce, implementation of pro-investment
policies is "often distorted by bureaucratic
delays and inefficiency. There is often a wide discrepancy
between the letter of the law and the law's implementation.
Foreign investors constantly complain about complex
and opaque government procedures and a working-level
attitude that is more hostile than accommodating."
Instability and corruption also impede investment.
The IMF reports that residents may hold foreign exchange
accounts only in specific instances. Most non-residents
may hold foreign exchange accounts. Most payments
and transfers are subject to prior approval by the
government. There are restrictions on most capital
transactions, and all real estate transactions are
subject to controls.
Banking and Finance
Score: 4.0
The government dominates Nepal's banking system, which
consisted of 17 commercial banks, 11 development banks,
five rural development banks, 57 finance institutions,
and six microfinance institutions as of 2004. "While
the financial sector was officially deregulated in
the 1990s, the state retains a tight grip on financial
activities. The government wholly owns one commercial
bank and controls 40% of another, allowing the state
to account for approximately 60% of total banking
sector lending The largest insurance firm is RBS majority-owned
by the government. According to the U.S. Department
of Commerce, "Legal, regulatory, and accounting
systems are neither fully transparent nor consistent
with international norms." The same source notes
that the state-owned banks "have a large number
of non-performing loans and are technically insolvent."
Foreign banks have been permitted to establish joint
ventures since 1984. Majority ownership was not permitted
until 2001 when foreign banks were permitted to own
up to two-thirds of a joint venture.
Wages and Prices
Score: 3.0
The government has eliminated most price controls.
The U.S. Department of Commerce reports that "there
are special subsidies and preferred credit arrangements
for individual public and private companies in select
sectors, such as rural electrification, fertilizer
importation, and the provision of agricultural credit."
The government sets a minimum wage for children from
14 to 16 years old, as well as for unskilled workers,
skilled workers, and highly skilled workers.
Property Rights
Score: 4.0
Nepal's judicial system suffers from corruption and
inefficiency. According to the U.S. Department of
State, the Supreme Court has demonstrated independence,
but "lower level courts remain vulnerable to
political pressure and bribery of judges and court
staff is endemic." The U.S. Department of Commerce
reports that "property disputes account for half
of the current backlog in Nepal's overburdened court
system and such cases can take years to be settled.
Laws and regulations are unclear, and interpretation
can vary from case to case." The Economist Intelligence
Unit reports that "Nepal's 1990 constitution
was effectively suspended in October 2002.The constitutional
abeyance became more pronounced when, on February
1st 2005, King Gyanendra sacked the prime minister
and decided to rule as chairman of the council of
ministers."
Regulation
Score: 4.0
Nepal's regulatory regime is not transparent. The
U.S. Department of Commerce reports that obstacles
to investment include "inadequate and obscure
commercial legislation and unclear rules regarding
labor relations. Policies intended to·implify
necessary interactions between investor and host government
have produced few results.·[I]nvestors constantly
complain about complex and opaque government procedures
and a working-level attitude that is more hostile
than accommodating." In addition, "Facilities
granted under certain Acts or policies are often either
contradicted or negated by another set of rules or
policies· Some companies report that the process
of terminating unsatisfactory employees is cumbersome·
[I]nvestors have identified pervasive corruption as
an obstacle to maintaining and expanding their·nvestments
in Nepal."
Informal Market
Score: 4.0
Transparency International's 2004 score for Nepal
is 2.8. Therefore, Nepal's informal market score is
4 this year one point better than last year.
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