A Bumpy Road Ahead: Covid-19 and its effects on the Nepalese economy

What are the economic impacts of the current lockdown and the Covid-19 crisis? How is it affecting workers and trade unions? FES Nepal talked to economist Achyut Wagle and trade unionist and law maker Binda Pandey; they agree: It might be a time to concentrate on agricultural sector development.

We are just on the verge of understanding the impacts of the Covid-19 pandemic - politically, socially, and economically. It is clear though that Nepal will face some serious challenges in the future. Especially considering the dependence on imports and the fact that the country's trade deficit is largely financed by remittances of migrant workers abroad. Many of these workers might lose their jobs in the global economic turbulences ahead. What will be the consequences? And what could be done to mitigate the effects and protect Nepalese workers?

To mark the annual Labour Day, FES Nepal asked Prof. Dr. Achyut Wagle, an economist at Kathmandu University and Dr. Binda Pandey, Member of Federal Parliament of Nepal and Chair of Trade Union Policy Institute (TUPI) of the General Federation of Nepalese Trade Unions (GEFONT), a few questions about the impact of the Covid-19 crisis on the economy, workers and the trade unions.

FES Nepal: Prof. Wagle, what are the immediate impacts for workers due to the lockdown? And what mid- and long-term consequences do you expect for the Nepalese economy and especially the workers?

Overall, approximately 55 percent of Nepal's 29 million population is in working age between 15 and 60 years. About two thirds of the work force are employed in the agricultural sector. There is a huge amount of hidden unemployment in the entire economy and acute undersupply of employment opportunities. On the supply side, the lack of skills as well as training opportunities is a major problem.

Rural to urban domestic migration is one critical socio-economic dynamic. There is a lack of gainful employment and the people migrating are coming virtually without any skill or training. They invariably end up in low-paying and hazardous jobs in the informal economy, without any prospects of their rights being protected. People coming to the urban centres are also hoping for better education for their children. Most of them cramp three to four member families in a single room accommodation in the cities without proper hygiene and sanitation facilities.

Daily wage-earners are the first to be hit hard by the lockdown in Nepal. Nepal's small and medium enterprises, retail and self-employing enterprises, tourism and related business that employ about two-thirds of urban laborers were immediately hit hard by the lockdown. In the run-up to the Covid-19 lockdown, about 1.5 million people - mainly those surviving on daily wages and their dependents - already left the Kathmandu Valley for their villages. Even now many are continuing to leave larger cities out of fear of widespread Covid-19 cases. Therefore, the prospects of economic revival look even bleaker.

Nepal's highly politicized and fragmented trade union movement has somehow failed to protect the rights of the workers, particularly of those working in the informal and unorganized sectors. But people are not only migrating to the urban centres. The number of workers migrating to foreign countries - mainly the Gulf region, Malaysia and lately South Korea - largely for menial jobs are now believed to have crossed four million. Although credible data regarding migration into and out of the country is sparse.

FES Nepal: Due to the global economic recession many migrant workers might lose their jobs and will return home in the months to come. This will put the Nepalese labor market under additional stress. Do you see any ways the state can deal proactively with this?

Prof. Achyut Wagle: Although, the Nepali economy is so far expected to maintain a positive growth rate between one to two percent, the creation of enough employment opportunities still remains a distant possibility. When migrated workers return, as you rightly mentioned, it puts additional stress on the economy. They bring in twin risks of virus transmission and exacerbate unemployment levels.

Sectors like agriculture might be able to accommodate the majority of returning workers. Returnees technical knowhow and entrepreneurial skills can contribute to upscale the agricultural economy which alone can provide employment and minimize food supply deficits. Nepal imported $3 billion worth of agricultural and processed food products during the last fiscal year 2018/19. Maybe, this is the time to invest in the sector to substitute these imports with local products, at least to some extent. In addition, the agriculture activities in the rural hinterland are likely to be least impacted by Covid-19 and a little nudge and last mile support could easily reinstate or possibly revitalize the entire sector.

But this would require a bold departure in government policies in providing support and promote agro-enterprises, maintain farm-to-kitchen value chains, and provide logistics as well as market access for these products, which is very limited at these times of lockdown. The cash stimulus in proportion to productivity and creation of direct employment opportunities to prevent the country of famine might be the wisest investment for now.

Government of Nepal needs work in both domestic and foreign fronts to make sure that workers are not deprived of payments for the work they have already done. In addition, the government must spend the revenues collected from the workers themselves in welfare, social security and pension funds. These are extraordinarily difficult times and, therefore, need extraordinary efforts; particularly to protect the economically most vulnerable sections and people in society.

FES Nepal: Dr. Pandey, what is the situation among trade unions during lockdown in Nepal? And what can organizations like FES, as friends of the Nepalese labour movement, do to support unions in the wake of the crisis? What might be important aspects to focus on in the days to come?

Dr. Binda Pandey: Like in many countries, Covid-19 has brought Nepal’s organized sectors to a complete halt. ‘Small industries can operate on a limited scope, but they are facing the crunch of raw materials which normally used to come from outside. The agricultural sector is in operation, principally, but due to restrictions on movement – vegetables and seasonal fruits are not being harvested. Many other sectors like, educational institutions, hotels and restaurants, small stalls, travel and tours, parlors etc. are closed and might take some time to re-open, while construction sector may open early.

Lockdown has affected daily-wage workers and workers from the informal sectors like construction, brick-kilns, city-porters, street vendors, transportation sectors, domestic helpers and so on- these are the most vulnerable. Most of them are neither organized nor are they properly documented at local government level. This also makes it difficult for the trade unions to identify them and many are end up without support offered by government relief programs. During the lockdown, movement is restricted for individuals as well as for the organizations and therefore trade unions are unable to find out what the workers' current situation looks like.

After the lockdown is over, in my opinion, we need to focus on three things: First, maintain the database of the workers working in the respective sectors as per the existing legal provisions. This will help to provide support during the time of crisis. Trade unions and other supporting organizations need to be equipped to perform their role effectively in the future. Second, trade unions should activate their local units and link up with local governments down to the ward level. Solidarity organizations like FES can play a catalytic role in developing strategies and piloting the work at the local level together with trade unions/workers and employers.

Third, gender balancing should be part of the process while developing any program at the local level and access to resources should be taken into consideration. Perhaps, we should develop a Gender Code of Conduct at the local level to address the Covid-19 impacts on woman.

FES Nepal: Citizens have been holding out with great resilience and discipline during the month-long lockdown. Do you see special resources that will help the Nepalese people dealing with this crisis?

Dr. Binda Pandey: Covid-19 is not only creating an immediate crisis, but it also rings an alarm bell for humanity. The message is that nature should be nurtured rather than exploited. Similarly, it also signals that we have to change our lifestyle and be closer to nature again. All these will help to live in a healthy way. After the pandemic, many young people will be returning to their villages and we need to engage them in the agricultural and other areas of production within the country by providing them with appropriate skills. Changing the gender role in these sectors is equally important. More gender-balanced participation should be managed.

Trade unions should be involved to identify the possible areas of employment. They should also adjust their priorities and work together with local government for the wider benefit of the workers. Enhancing the entrepreneurial skills of women in line with available local resources and market potential is be important for their livelihood. Market and product diversification are also important for the future so that farmers can sell their products even during crisis. The trade unions should work in tandem with local government in this area in the future.

FES Nepal: Dr. Pandey, Prof. Wagle, Many thanks for your insightful answers to our questions! Of course, we are looking to work with you in the future and - most important of all these days: Stay healthy!

About the Interviewees

Binda Pandey (PhD) is chairing the GEFONT affiliated think-tank Trade Union Policy Institute (GEFONT-TUPI) and represents trade union of Asia Pacific in ILO-GB since 2011. She is also serving as central committee member of Nepal Communist Party (NCP) since 2009 and is a member of House of Representative in the Federal Parliament. Binda holds a Master in Gender and Development Studies from Asian Institute of Technology (AIT) Bangkok and a PhD from Kathmandu University. Her research focused on women empowerment in politics and has been published in English (“Women in Nepali Politics”, 2019) and Nepali (“Samanataka Pailaharu”, 2020). 

Prof Achyut Wagle is currently the Head of Management Science Department at Kathmandu University School of Management. He holds PhD in Economics from Indian Institute of Technology Kanpur, MSc in Economics from University of Birmingham, UK and MA from Tribhuvan University, Nepal. He also held several important public positions like the Adviser to the Prime Minster of Nepal and Advisor to the Governor of Nepal Rastra Bank, the central bank of the country, among others. He is a seasoned weekly columnist to The Kathmandu Post/Kantipur, the most popular daily newspapers of Nepal. His research interests include business environment, regional economy, fiscal federalism and entrepreneurship. 

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