Nepal

GDP (US$ Billion)

24.47 (2017)

World Ranking 105/192

GDP Per Capita (US$)

834 (2017)

World Ranking 166/192

Economic Structure

(in terms of GDP composition, 2017)

Services
(51.50%)
Industry
(13.50%)
Agriculture
(27.00%)

External Trade (% of GDP)

48.9 (2016)

Currency (Period Average)

Nepalese Rupee

104.51 per US$ (2017)

Political System

Unitary multiparty republic

Overview

Nepal is one of the poorest countries in the world, with a GDP per capita of only USD835. After years of transition, Nepal is headed for political stability following local, provincial and federal elections in 2017. Although economic activity rebounded strongly in Nepal in 2017, the country still faces increasing domestic and external risks. The Nepalese economy will benefit from infrastructure investment by both the Indian and Chinese governments.

 

Sources: World Bank, Fitch Solutions

 

Major Economic/Political Events and Upcoming Elections

June 2017
Pushpa Kamal Dahal was replaced as Prime Minister by the Congress leader Sher Bahadur Deuba under a rotation agreement reached the previous April and set to last until elections in February 2018.

 

February 2018
The new cycle of legislative elections came to an end with the February 7 indirect election of the National Assembly. The names of members elected under the Proportional Representation system to the seven provincial assemblies were announced on January 17 and to the House of Representatives on February 14, 2018.

 

May 2018
The main group of Nepal's Maoist former rebels and the Communist UML party merged on May 17 to form Nepal's biggest left party. Officials said the two constituents of the ruling coalition had formed the Nepal Communist Party, which now heads the nation's first majority government in 19 years.

In the same month, Indian Prime Minister Narendra Modi and Nepal Prime Minister K P Sharma Oli jointly launched the building work of Nepal's biggest hydroelectric project. Costing USD1 billion, the 900MW hydropower project will be built by state-run Indian firm Satluj Jal Vidyut Nigam Limited.

 

August 2018
The Indian government stated that it will help the Nepalese government by building a rail link between Kathmandu and the Indian border town of Raxual in the eastern Bihar state, with the aim of facilitating passenger and cargo movement to the landlocked nation.

 

September 2018
Nepal's new government awarded China's Gezhouba Group Corporation a contract to build the USD2.5 billion Budhi Gandaki hydroelectric project. In addition, there will be a China-Nepal railway, connecting the Tibetan City of Shigatse with Kathmandu. The railway will cover a distance of more than 660km.

The Asia Development Bank agreed to provide USD150.0 million in development assistance to Nepal. The funds will be channelled towards two projects: a USD130.0 million concessional loan for the Urban Water Supply and Sanitation Project and a USD20.0 million additional loan for the SASEC Power System Expansion Project.

 

November 2018
The World Bank approved USD133.0 million worth of credit to enhance Nepal's domestic transport infrastructure. The funds will be directed towards the construction and maintenance of safe, resilient and cost-effective bridges along Nepal's Strategic Road Network.

 

Sources: BBC Country Profile – Timeline, Fitch Solutions

Major Economic Indicators
Graph: Nepal real GDP and inflation
 
Graph: Nepal real GDP and inflation
 
Graph: Nepal GDP by sector (2017)
 
Graph: Nepal GDP by sector (2017)
 
Graph: Nepal unemployment rate
 
Graph: Nepal unemployment rate
 
Graph: Nepal current account balance
 
Graph: Nepal current account balance
 

e= estimate, f = forecast

Sources: IMF, World Bank

Date last reviewed: March 22, 2019

External Trade

Merchandise Trade

Graph: Nepal merchandise trade
 
Graph: Nepal merchandise trade
 
 

e= estimate

Source: IMF

Date last reviewed: March 22, 2019

Graph: Nepal major export commodities (2017)
 
Graph: Nepal major export commodities (2017)
 
Graph: Nepal major export markets (2017)
 
Graph: Nepal major export markets (2017)
 
Graph: Nepal major import commodities (2017)
 
Graph: Nepal major import commodities (2017)
 
Graph: Nepal major import markets (2017)
 
Graph: Nepal major import markets (2017)
 

Sources: Trade Map, Fitch Solutions

Date last reviewed: March 22, 2019

Trade in Services

Graph: Nepal trade in services
 
Graph: Nepal trade in services
 
 

Source: WTO

Date last reviewed: March 22, 2019

Trade Policies
  • Nepal joined the World Trade Organization (WTO) in April 2004 as its 147th member.

  • In the latest World Economic Forum (WEF) Enabling Trade Index (2016) which measures institutions, policies and services to facilitate trade in countries, Nepal was ranked 108th out of 136 countries.

  • Nepal benefits from the Generalized System of Preferences (GSP), but it does not participate in the Global System of Trade Preferences (GSTP) among developing states.

  • Nepal's average tariff rate, at 11.72%, is the second highest in the South Asia region (out of eight countries), with weapons and automobiles being subject to the highest applied most favoured nation (MFN) tariff. Cement faces an unbound tariff in order to develop the domestic industry, as Nepalese consumption of cement is mostly met by domestic production. Tariff escalation on certain products, including paper printing and publishing, textiles and leather, and chemicals, exists between first stage processing, semi-processed and fully processed products. However, these tariffs aim to collect revenue rather than protect the processing or manufacturing industry.

  • Nepal does not allow the import of used items, the definition of which is often interpreted to include refurbished products (with the exception of refurbished aircrafts).

  • Import duty rates in Nepal vary from 0% to 80%. Live animals, fish and most primary products are exempt from import duties if imported from India, while a duty of 10% is applied on imports of these items from countries other than India.

  • Infrastructure of standardisation and conformity assessment in Nepal is not sufficient as the country lacks an accreditation system and testing facilities. This makes it difficult for Nepalese exporters to compete in global markets due to, for example, exports of food, plant products, animal products and agricultural products requiring sanitary and phytosanitary certificates issued by the Ministry of Agriculture and Cooperatives.

Sources: WTO – Trade Policy Review, Fitch Solutions

Trade Agreement

Trade Updates

In June 2018, Nepal and mainland China signed Memorandums of Understanding (MoUs) on various projects that fall under the framework of the Belt and Road initiative, as well as on matters pertaining to trade and economic cooperation at an event held at the Nepali Embassy in Beijing.

Multinational Trade Agreements

Active

  • The South Asian Preferential Trade Agreement (SAPTA): This agreement was originally signed in 1993; however, the scope of SAPTA was limited; therefore, it was expanded to the South Asian Free Trade Agreement (SAFTA), which is a plurilateral Free Trade Agreement (FTA) between Nepal, Bhutan, Afghanistan, Bangladesh, India, Maldives, Pakistan and Sri Lanka. The agreement covers trade in goods and entered into force in January 2006; Afghanistan later joined in August 2011.

  • Nepal-India Partial Scope Agreement: The bilateral Partial Scope Agreement between Nepal and India covers trade in goods and entered into force in October 2009. India is Nepal's largest import source. As of 2017, Nepal imported 65.7% of its total imports from India, of which minerals, mineral fuels, mineral oils and products of their distillation, as well as bituminous substances, made up the highest percentage.

Under Negotiation

The Bay of Bengal Initiative on Multi-Sectoral Technical and Economic Cooperation (BIMSTEC): This plurilateral FTA is currently under negotiation. The agreement will focus on the trading of goods between Nepal, Bhutan, Myanmar, Sri Lanka, Bangladesh, India and Thailand. The bloc will bring together 1.5 billion people, or 21% of the world's population, and will have a combined GDP of more than USD2.8 trillion.



Sources: WTO Regional Trade Agreements database, Fitch Solutions

Investment Policy

Foreign Direct Investment

Graph: Nepal FDI stock
 
Graph: Nepal FDI stock
 
Graph: Nepal FDI flow
 
Graph: Nepal FDI flow
 

Source: UNCTAD

Date last reviewed: March 22, 2019

Foreign Direct Investment Policy

  1. Invest Nepal is the country's information source and agency that is tasked with investment promotion and business facilitation. The entity aims to serve as a single reference point for sector-specific information for foreign and local investors.

  2. In February 2015, the government of Nepal issued the Foreign Investment and One-Window Policy 2015, which replaced the Foreign Investment Policy of 1992. The new policy outlines priority sectors for foreign investment, which include hydropower, transportation infrastructure, agro-based and herbal processing industries, tourism, and mines and manufacturing industries. The Foreign Investment and One Window Policy also establishes currency repatriation guidelines, outlines visa regulations and arbitration guidelines, allows full foreign ownership in most sectors and creates a 'one window committee' for foreign investors.

  3. The Foreign Investment and One Window Policy opened the retail sector to foreign investment for the first time; however, there are some conditions. Foreign multi-brand retail stores (such as Walmart or Tesco) are now permitted, provided the investor has operations in more than two countries and invests more than USD5.0 million in fixed capital. The policy also states that foreign investors will be treated the same as local investors, and industries run by foreign investors cannot be nationalised. The new policy is also aimed at simplifying visa policies for investors and family members, and assisting foreign investors with land acquisition, industrial security, and repatriation of investment and profits.

  4. Foreign and domestic private entities are allowed to establish and own business enterprises and engage in various forms of profit-generating activities. However, the Foreign Investment and Technology Transfer Act of 1992 restricts certain sectors from foreign investment, including small-scale and 'traditional' industries (such as handicrafts, wood carvings and artwork), real estate, certain types of primary agriculture and agribusiness and weapons production. The Foreign Investment Policy of 2015 lowered the number of restricted sectors, but these changes will not be implemented until parliament approves the draft Foreign Investment bill. Approval and registration requirements vary depending on the sector in which a foreign entity intends to invest.

  5. Other than the restricted sectors mentioned above, 100% foreign investment is allowed in most sectors. Some limits on foreign ownership are imposed for certain services sectors, such as banking and financial institutions, where foreign investment is only permitted through joint venture, with a minimum of 20% and a maximum of 85% foreign ownership. Branch operations of a foreign bank are only permitted in the wholesale banking sector, not in the retail banking sector. The minimum capital requirement is USD20.0 million to operate a branch office of a foreign bank in Nepal, and an additional USD5.0 million is required for each new branch office.

  6. The Nepal Stock Exchange does not allow foreign investors to own or trade any publicly traded companies on the exchange. Stock trading is only permitted to citizens of Nepal.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, Fitch Solutions

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme Main Incentives Available
The government of Nepal is developing the country's first Special Economic Zone (SEZ) in Bhairahawa in southern Nepal, near the border with India. The government eventually plans to have up to 15 SEZs throughout Nepal. In August 2016, Nepal's Parliament approved the SEZ Act, which provides numerous incentives for investors in SEZs, including exemptions on customs duties for raw materials, streamlined registration processes and guaranteed access to electricity. The act also bans labour strikes in SEZs.


 
General incentives Businesses which invest in exporting industries are given investment incentives, as are those which invest in certain 'priority' industries, such as tourism, civil aviation and hydropower.



There is no discrimination against foreign investors regarding export/import policies or non-tariff barriers.



The government of Nepal offers tax incentives to encourage industries to locate outside the Kathmandu Valley.

Sources: US Department of Commerce, Fitch Solutions

Taxation – 2019
  • Value Added Tax: 13%
  • Corporate Income Tax: 20-30%

Source: Ministry of Finance, Nepal

Important Updates to Taxation Information

Revenue collection is expected to hover around NPR728.4 billion, which is very close to the target. Revised foreign development cooperation mobilisation is estimated to be NPR36.2 billion and NPR74.9 billion as grants and loans respectively.

Source: Ministry of Finance, Nepal

Business Taxes

Type of Tax Tax Rate and Base
Resident company: Corporate Tax rates Nepal levies 30% on banks and financial institutions, alcoholic beverages and tobacco products and 25% on others
Excise duty - Varies from 0-40%

- There is a legal provision to levy excise duties on domestic production as well as the import of excisable goods and provision of excisable services
Customs duty - Varies from 0-80% on the transaction value. Nepal has already incorporated the sixth version of the Harmonized Commodity

- Description and Coding System since May, 2017, as approved by the World

Customs Organization
Social security contributions According to the Ministry of Labour, Employment and Social Security, the employers have been asked to submit their employees' database before May 21, 2019. Both the workers and the employers are expected to make their contribution to the fund mandatorily from May 22, 2019 onwards
Value Added Tax
 
- 13% (GST – standard rate)

- 0% for certain specified goods including rice, pulses flour, fresh fish, meat, eggs, fruits, flowers, edible oil, piped water and wood fuel. This includes social welfare services including medicine, medical services, veterinary services and educational services
Insurance premium 1.5% paid to non-resident insurance companies (withholding tax)
Rent 10% (withholding tax)

Source: Ministry of Finance, Nepal

Date last reviewed: March 22, 2019

Foreign Worker Requirements

Localisation Requirements

There are no formal localisation policies in Nepal, but many foreign businesses and foreign workers have complained about the difficult process for obtaining work visas. The government of Nepal generally limits the number of expatriate employees permitted to work at a company.

Visa/Travel Restrictions

Citizens of India do not need a visa to enter Nepal and are granted Freedom of Movement. Most other passports are granted a visa on arrival once the required fee is paid.

Sources: Government websites, Fitch Solutions

Risks

Sovereign Credit Ratings


 
Rating (Outlook) Rating Date
Moody's
 
Not rated
 
N/A
Standard & Poor's Not rated N/A
Fitch Ratings Not rated N/A

 

Competitiveness and Efficiency Indicators


 
World Ranking
 
2017 2018 2019
Ease of Doing Business Index
 
107/190 105/190 110/190
Ease of Paying Taxes Index
 
142/190 146/190 158/190
Logistics Performance Index
 
N/A 114/160 N/A
Corruption Perception Index
 
122/180 124/180 N/A
IMD World Competitiveness N/A N/A N/A

Sources: World Bank, Transparency International

Fitch Solutions Risk Indices


 
World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 106/202 105/202
Short-Term Economic Risk Score
 
51.5 56.5 54.8
 
Long-Term Economic Risk Score 46.1 51 51.8
Political Risk Index Rank N/A 158/202 158/202
Short-Term Political Risk Score 42.7 44 44.0
 
Long-Term Political Risk Score 49.5 49.5 49.5
Operational Risk Index Rank N/A 145/201 146/201
Operational Risk Score 37.4 38.1 37.5
 

Source: Fitch Solutions

Date last reviewed: March 22, 2019

 Fitch Solutions Risk Summary

ECONOMIC RISK

Nepal saw a broad-based recovery in 2017 as economic activity picked up, inflation moderated, government revenue and spending rose and remittances grew. Over the medium-to-long term, however, growth will decelerate before stabilising to a rate of around 4.1%. The focus on infrastructure development will see construction and manufacturing benefit over the next five years. Private consumption growth will remain subdued due to the high debt burden incurred by households. The slow recovery of exports, increase in lending rates, the ongoing credit crunch in the banking sector and a dynamic political environment will continue to pose challenges.

OPERATIONAL RISK

Nepal is transitioning into a federal democratic state to better represent the country's myriad minority groups. Nepal's population is highly diverse, ethnically and linguistically. The country completed its first local elections in 2017, which took place in three phases. Provincial and parliamentary elections were completed in December 2017. That said, significant adjustments need to be made to the government structure. Businesses in Nepal are challenged by risks of natural disasters and extreme weather conditions, such as the flooding in mid-August 2017 which caused severe disruption and damage to existing supply chains, especially through the southern plains. Nepal's geographic location on the boundary of two large tectonic plates makes the country particularly prone to earthquakes. Another earthquake of a similar magnitude to that seen in 2015 would hinder the progress of infrastructure projects.

Source: Fitch Solutions

Date last reviewed: March 18, 2019

Fitch Solutions Political and Economic Risk Indices

Graph: Nepal short term political risk index
 
Graph: Nepal short term political risk index
 
Graph: Nepal long term political risk index
 
Graph: Nepal long term political risk index
 
Graph: Nepal short term economic risk index
 
Graph: Nepal short term economic risk index
 
Graph: Nepal long term economic risk index
 
Graph: Nepal long term economic risk index
 

100 = Lowest risk, 0 = Highest risk

Source: Fitch Solutions Political and Economic Risk Indices

Date last reviewed: March 22, 2019

Fitch Solutions Operational Risk Index


 
Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Nepal Score 37.5 40.9 33.3 34.9 41.1
South Asia Average 41.9 43.7 40.2 43.4 40.5
South Asia Position (out of 8) 6
 
6 6 7 5
 
Asia Average 48.7 50.6 48.2 46.0 50.1
Asia Position (out of 35) 26 29 27 23 24
 
Global Average 49.6 49.7 49.9 49.0 49.8
Global Position (out of 201) 146 155 158 147 126

100 = Lowest risk, 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Graph: Nepal vs global and regional averages
 
Graph: Nepal vs global and regional averages
 
Country
 
Operational Risk Index
 
Labour Market Risk Index
 
Trade and Investment Risk Index Logistics Risk Index Crime and Security Risk Index
India 50.7 44.6 53.7 61.8 42.8
Bhutan 50.6 44.5 44.6 50.9 62.5
Sri Lanka 50.1 45.0 49.0 58.2 48.4
Maldives 48.8 50.3 45.6 39.5 59.9
Bangladesh 38.4 50.1 28.9 39.0 35.5
Nepal 37.5 40.9 33.3 34.9 41.1
Pakistan 34.9 36.9 38.3 43.1 21.4
Afghanistan 24.5 37.3 28.5 19.7 12.3
Regional Averages 41.9 43.7 40.2 43.4 40.5
Emerging Markets Averages 46.7 48.1 45.5 47.4 46.0
Global Markets Averages 49.6 49.7 49.9
 
49.0 49.8

 

100 = Lowest risk, 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Date last reviewed: March 22, 2019

Hong Kong Connection

Hong Kong’s Trade with Nepal

Graph: Major export commodities to Nepal (2018)
 
Graph: Major export commodities to Nepal (2018)
 
Graph: Major import commodities from Nepal (2018)
 
Graph: Major import commodities from Nepal (2018)
 

Note: Graph shows the main Hong Kong exports to/imports from Nepal (by consignment)

Graph: Merchandise exports to Nepal
 
Graph: Merchandise exports to Nepal
 
Graph: Merchandise imports from Nepal
 
Graph: Merchandise imports from Nepal
 

Note: Graph shows Hong Kong exports to/imports from Nepal (by consignment)

Exchange Rate HK$/US$, average

7.75 (2014)

7.75 (2015)

7.76 (2016)

7.79 (2017)

7.83 (2018)

Sources: Hong Kong Census and Statistics Department, Fitch Solutions

Date last reviewed: March 22, 2019


 
2017
 
Growth rate (%)
 
Number of Nepalese residents visiting Hong Kong 4,867 -26.9
Number of Nepalese residing in Hong Kong 9,479
 
1.6

Sources: UN, Hong Kong Tourism Board


 
2017 Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong 54,482,538
 
3.5
Number of South Asians residing in Hong Kong 36,680
 
1.5
 

Sources: Hong Kong Tourism Board, UN, Fitch Solutions

Date last reviewed: March 22, 2019

Commercial Presence in Hong Kong


 
2016
 
Growth rate (%)
 
Number of Nepalese companies in Hong Kong N/A N/A
- Regional headquarters
- Regional offices
- Local offices

Source: Hong Kong Census and Statistics Department

Chamber of Commerce (or Related Organisations) in Hong Kong

Nepal Chamber of Commerce (Hong Kong)

Address: 1/F, 125 Shanghai Street, Yau Ma Tei, Kowloon, Hong Kong

Email: info@nepalchamber.hk

Tel: (852) 3488 1938

Fax: (852) 3488 1938

Source: Nepal Chamber of Commerce, Hong Kong

Consulate General of Nepal (Hong Kong)

Address: Unit 715, Concordia Plaza, 1 Science Museum Road, Tsim Sha Tsui (East), Kowloon, Hong Kong

Email: cgnhk@biznetvigator.com / cnghongkongnp@gmail.com

Tel: (852) 2369 7813

Fax: (852) 2824 2970

Source: Consulate General of Nepal in Hong Kong

Visa Requirements for Hong Kong Residents

Hong Kong residents with valid passport may obtain Tourist Visa from the Consulate General of Nepal in Hong Kong or Gratis Tourist Visa on arrival at all immigration entry points of Nepal.

Source: Consulate General of Nepal in Hong Kong

Date last reviewed: March 22, 2019

 

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