Economy

Agriculture sustains 81% of the population in Nepal and accounts for about 39% of the GDP; services comprise 42%, and industry 21%. Hilly and mountainous terrain in the northern two-thirds of the country has made the building of roads and other infrastructure difficult and expensive. In 2003, there were just over 8,500 km of paved roads, and one 59 km railway line in the south. Aviation is in a better state, with 48 airports, ten of them with paved runways. There is less than one telephone per 19 people; landline services are not adequate nationwide but concentrated in cities and district headquarters; mobile telephony is in a reasonable state in most parts of the country with increased accessibility and affordability. There were around 175,000 Internet connections in 2005, but after the imposition of the 'state of emergency', intermittent losses of service were reported. Uninterrupted Internet connections have resumed after the brief period of confusion as Nepal's second major people's revolution took place to overthrow the King's absolute power.

The distribution of wealth among people is consistent with that in many developed and developing countries: the highest 10% of households control 39.1% of the national wealth and the lowest 10% control only 2.6%.

The rate of unemployment and underemployment approaches half of the working-age population. Thus many Nepalese move to India in search of work, the Gulf countries and Malaysia being new sources of work. Poverty is acute. Nepal receives US$50 million a year through the Gurkha soldiers who serve in the Indian and British armies and are highly esteemed for their skill and bravery. The total remittance value is worth around 1 billion USD, including money sent from Persian Gulf and Malaysia, who combined employ around 700,000 Nepalese.

The country receives foreign aid from India, Japan, United Kingdom, United States, European Union, China, Switzerland and Scandinavian Countries. The government's budget is about US$1.153 billion, with expenditures of $1.789bn (FY05/06). The inflation rate has dropped to 2.9% after a period of higher inflation during the 1990s. The Nepalese Rupee has been tied to the Indian Rupee at an exchange rate of 1.6 for many years. Since the loosening of exchange rate controls in the early 1990s, the black market for foreign exchange has all but disappeared. A long-standing economic agreement underpins a close relationship with India.

Nepal's workforce of about 10 million suffers from a severe shortage of skilled labour. Agriculture employs 81% of the workforce, services 16% and manufacturing/craft-based industry 3%. Agricultural produce - mostly grown in the Terrai region bordering India - includes rice, corn, wheat, sugarcane, root crops, milk, and water buffalo meat. Industry mainly involves the processing of agricultural produce, including jute, sugarcane, tobacco, and grain.

The spectacular landscape and deep, exotic culture of Nepal represents considerable potential for tourism, but growth in this export industry has been stifled by recent political events.

Nepal's GDP for the year 2005 is estimated at just over US$39 billion (adjusted to Purchasing Power Parity), making it the 83rd-largest economy in the world. Per-capita income is around US$1,402, ranked 163rd. Nepal's exports of mainly carpets, clothing, leather goods, jute goods and grain, with India (53.7%), the US (17.4%), and Germany (7.1%) the main export partners. Import commodities are mainly gold, machinery and equipment, petroleum products and fertilizer, with India (47.5%), the United Arab Emirates (11.2%), China (10.7%), Saudi Arabia (4.9%), and Singapore (4%) main import partners.

Resources

Progress has been made in exploiting Nepal's major economic resources, tourism and hydroelectricity. The most significant private sector financed hydroelectric projects currently in operation are the Khimti Khola (60 MW) and the Bhote Koshi (36 MW).

The environmental impact of Nepal's hydroelectric projects has been limited by the fact that most are 'run-of-river' with only one storage project undertaken to date. The largest under active consideration is the private sector West Seti (750 MW) storage project which is dedicated to exports. Negotiations with India for a power purchase agreement have been underway for several years, but agreement on pricing and capital financing remains a problem. Currently demand for electricity is increasing at 8%-10% a year.

Population pressure on natural resources is increasing. Over-population is already straining the 'carrying capacity' of the middle hill areas, particularly the Kathmandu Valley, resulting in the depletion of forest cover for crops, fuel, and fodder and contributing to erosion and flooding. Although steep mountain terrain makes exploitation difficult, mineral surveys have found small deposits of limestone, magnesite, zinc, copper, iron, mica, lead and cobalt.