Nepalese Economics | Feature of Nepalese Economics | Macro Indicators
Introduction of Nepalese Economics | Review of Nepalese Economics
Nepal is one of the least developed countries of the world with a very low per capital income and mass poverty.
The structure of the economy is fragile.
The economic environment is not favourable.
The performance of the economy is weak and development indicators are unfavourable.
The economic problems and development challenges are increasing one after another.
The economy has mainly been characterized by a long period of political transition and uncertain economic environment.
Because of such various socio-economic and political obstacles, there is slow economic growth, high rate of unemployment, inequality and poverty in the country.
Among above remarkable features of the economy, there is positive development.
The high remittance inflows are working as the lubricants for the sluggish economy.
Although high remittance inflows yet there is no productive use of this resource.
Rather, it is creating dependency, brain drain and unproductive consumption in the country.
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Accounting Equation |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Final Accounts: Class 11 |
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Adjustment in Final Accounts |
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Capital and Revenue |
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Single Entry System |
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Non-Trading Concern |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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Major Features of Nepalese Economy | Major Characteristics of Nepalese economy
Nepal is a small landlocked country situated between two large economies India and China.
India has three borders in East, West and South and China in North.
Nepal is a least developed country.
The population below poverty line is 18.7% as per FY 2017/18.
The economic growth rate is 2.3% in fiscal year 2019/20 due to Covid-19.
The major features or characteristics of Nepalese economy have been briefly explained as follows:
Low per capita income
The basic problem of the Nepalese economy is low per capita income.
The per capita income of Nepal is USD 1,085 in 2019/20, which is very low compared to the neighbour countries like China (USD 10,244) and India (USD $2,199)
Mass poverty
Due to low per capita income and highly unequal distribution of income, there is mass poverty in Nepal.
Evaluation of 13th interim plan of Nepal shows that there is 21.6% of total population below poverty line.
They are not able to fulfill their basic needs like food, shelter, clothing etc.
Keep in mind (KIM)
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Minimum 2,144 calories intake per day from food item is considered as poverty line. |
Excessive dependence on agriculture sector
Agriculture sector is regarded as the back bone of Nepalese economy.
Around two third (66% of total population) of country’s population is dependent in agriculture sector.
This sector has highest contribution in GDP and employment generation.
The contribution of agriculture in GDP is around 27.1% in FY 2019/20.
Underutilisation of natural resources
Nepal is rich in natural resources like water, forest and mineral resources.
But there is no proper utilization of these natural resources.
Nepal has about 6,000 rivers and potentiality to generate 83,000MW hydro-electricity.
Despite such huge potentiality of hydroelectricity, Nepal has been produced 1,355 MW hydroelectricity in national grid which is near about 1.6% of total potentiality.
Thus, there is underutilization of natural resources in Nepal.
High trade deficit
Nepal is facing high trade deficit problem due to rapidly increasing import and very slowly increasing export.
According to Department of Custom, there is import of Rs 1,196.8 billion but export is only Rs 97.71 billion in FY 2019/20.
In the FY 1990/91, Nepal’s trade deficit was 18.2 billion, which increased to Rs 887.88 billion in the FY 2018/19.
It shows the Nepal’s trade deficit is rapidly increasing.
To reduce this trade deficit, Nepal should increase production of those goods and services, which have comparative and competitive advantage.
Dualistic and mixed economic system
Nepalese economy is dualistic in nature.
It has characteristics of both traditional and modern sectors.
Two third of the labour force are involved in agricultural sector and that contributes about 28.9% to the GDP.
On the other hand, there is modern market-led manufacturing sector.
Here, market-led means influenced or determined by the needs and wishes of consumers.
Similarly, a mixed economic system prevails in the country.
On the one hand, there are 43 public enterprises operating in the economy but market system has been given a freehand to play.
Rapid population growth
There is rapid population growth in Nepal.
According to population census 2010/11, population growth rate of Nepal is 1.35%.
This is higher than the population growth of developed countries.
The main causes of rapid population growth in Nepal are poverty, illiteracy, early marriage, social and religious belief and soon.
Because of rapid population growth, there is existence of unemployment, underemployment and disguised unemployment in the country.
Remittance economy
Due to lack of employment opportunities in the country, a large numbers of Nepalese youths have migrated in foreign countries in search of job or employment.
Nepalese youth have gone especially to the gulf countries and Malaysia for foreign employment.
There, they earn fewer wages comparing other developed countries.
The total number of Nepalese migrant worker by the end of fiscal year 2019/20 was 4.792 million.
The remittance received from the migrant workers in the FY 2019/20 was Rs 592 billion.
It is helping to finance import, improve living standard of people and reduce poverty.
Therefore, Nepalese economy is also known as the remittance economy.
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Major Economic Indicators of Nepal | Macroeconomics Indicators
Economic indicators show the economic activities, their relationship and interdependence in the economy scale.
In other words, economic indicators are the statistical measures of the specific sector of the economy.
They are useful to analyse economic performance of the country as well as making international comparison.
There are many economic indicators.
Economic indicators allow analysis of current economic performance and predictions of future performance.
There are many economic indicators which represent different ways of measuring economic performance.
Among them, the most important economic indicators are GDP, GNP, Per Capita Income (PCI) and price level.
The major economic indicators of Nepal are given in the following table:
Macroeconomics Indicators
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Indicators |
2017/18 |
2018/19 |
2019/20* |
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Nominal GDP at producers’ price (Rs in billion) |
3,044.93 |
3,458.79 |
3,767.04 |
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Nominal GDP at basic price (Rs in billion) |
2,625.99 |
2,920.97 |
3,208.52 |
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Real GDP at producers’ price (base 2000/2001) (Rs in billion) |
887.82 |
949.89 |
971.50 |
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Real GDP at basic price (base year 2000/2001) (Rs in billion) |
797.15 |
850.93 |
870.25 |
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Economic growth rate (%) |
6.3% |
6.7% |
2.3% |
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Per capita gross national income (GNI in Rs) |
105,407.00 |
118,623.00 |
127,466.00 |
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Per capita gross national income (GNI in USD) |
1,010.00 |
1,051.00 |
1,097.00 |
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Consumer price index (base year 2014/15) |
119.60 |
125.10 |
132.20 |
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Inflation rate (%) |
4.2% |
4.6% |
6.5% |
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Balance of payment (Rs in billion) |
1.00 |
-67.40 |
10.00 |
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Foreign currency reserve (Rs in billion) |
1,102.60 |
1,038.90 |
1,048.90 |
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Narrow money supply (Rs in billion) |
669.40 |
762.60 |
806.60 |
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Broad money supply (Rs in billion) |
3,094.50 |
3,582.10 |
4,047.80 |
Source: Economic survey 2019/20 *Estimated
Gross domestic product
Gross domestic product (GDP) is money value of all the final goods and services currently produced within the geographical boundary of a country during a year.
It is calculated by multiplying the final goods and services with its market price.
The GDP can be divided into major three sectors; they are agriculture sector, industry sector and service sector.
There are different types of GDP; they can be expressed as:
(a) Nominal GDP
Normal is also known as GDP at current price
If GDP is calculated by multiplying the market price of current year and quantity, it is known as nominal GDP.
(b) Real GDP
If GDP is calculated by multiplying the market price of base year and quantity, it is known as real GDP.
(c) GDP at producer
The producer price is the amount receivable by the producer.
It includes taxes on products except deductible value, added tax and exclusive of subsidies on products.
Producer prices = Basic prices + Taxes on products (excluding VAT or GST) ⎯ Subsidies on products
(d) GDP at basic price
The basic price is the amount receivable by the producer exclusive of taxes payable on products.
It excludes subsidies receivable on products.
Economic growth
Percentage change in real GDP at basic price is known as economic growth rate.
It shows the health of country’s economy in long run time.
Increase in growth rate means expansion of economic activities of a country.
Higher growth rate implies the increase in total production of a country and vice versa.
Per capita income
Per capital income (PCI) is also known as the per capita GNI (gross national income).
The per capita income of Nepal is very low compared to other many developing countries of the world.
It is calculated by dividing national income by total number of population.
Higher the per capita income, higher will be the economic development.
GDP and GNP indicators do not consider the number of population but PCI indicator considers number of population of country.
PCI indicator is helpful to compare living standard of people of different countries.
If national income is calculated in gross term, it is known as per capita gross national income (GNI).
In national income account of Nepal the per capita income is calculated in gross term.
Consumer price index
Consumer price index measures the general price level.
It also reflects the economic condition of a country.
It examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
Changes in the CPI are used to assess price changes associated with the cost of living.
The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
Inflation rate
Increase in general price level is known as inflation and decrease in price level is known as deflation.
Inflation decreases purchasing power of money
It makes lifestyle of people miserable and increases gap between rich and poor.
Similarly, inflation decreases total production in country.
Balance of payment
Balance of payment (BOP) is the systematic record of all international economic transactions.
BOP is the transaction of both visible and invisible items.
It is the difference between all receipts of foreign currency from foreign country minus all payment of foreign currency to foreign country.
BOP shows the country’s economic situation in comparison to other countries.
Favorable BOP increases the foreign currency reserve in country and vice versa.
Money supply
Money supply implies the stock of total amount of money in the economy.
It is the total rupees acceptable by public in payment of goods and services and settlement of their debts.
It is measured in two ways; narrow money and broad money.
(a) Narrow money supply
The sum of currency in circulation and demand deposit with banks is called narrow money (M1).
(b) Broad money supply
The sum of narrow money (M1) plus time deposits is called broad money (M2).
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Macro Indicators of Seven Provinces
The major macro indicators of seven provinces are given below:
Indicators of Seven Provinces
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Indicators |
Nepal |
Province 1 |
Province 2 |
Province 3 |
Province 4 |
Province 5 |
Province 6 |
Province 7 |
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Bagmati |
Gandaki |
Lumbini |
Karnali |
Sudur Paschim |
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Economic growth rate |
2.3% |
3.4% |
2.3% |
1.2% |
2.7% |
2.0% |
3.6% |
4.1% |
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Provincial contribution to GDP |
100 |
15.8 |
13.8 |
35.8 |
8.9 |
14.2 |
4.3 |
7.2 |
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Population under poverty |
18.7% |
12.7% |
19.8% |
15.3% |
15.5% |
18.2% |
28.9% |
33.0% |
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Unemployment rate |
11.4% |
10.2% |
20.1% |
7.0% |
9.0% |
11.2% |
9.7% |
11.5% |
Source: Economic survey 2019/20
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