Nepal Country Brief - August 2008
Political overview
System of government
The Federal Democratic Republic of Nepal (previously known as the Kingdom of Nepal) has undergone significant political change since 1990. Nepal had been an absolute monarchy from 1959 until 1990. In 1990 a Constitution was drafted which established Nepal as a parliamentary democracy under a constitutional monarch. Multi-party democratic elections were first held in May 1991. The Nepali Congress Party (NC), led by G P Koirala, won this election with a clear majority. After the elections, the government embarked on economic reforms which had a broad inflationary impact, leading to sporadic civil and political unrest. In 1996 this unrest culminated in an insurgency led by the Maoist United People’s Front with the aim of overthrowing the monarchy. Years of unrest and conflict between the Government and the Maoists followed. In 2005, a ceasefire was agreed amid intensifying unrest which followed the King’s decision to dissolve the Government and declare a State of Emergency. In 2006, the ceasefire lapsed and the overall climate of violence increased. Following days of protest and unrest, the King reinstated the parliament in April 2006.
On 21 November 2006, Nepal’s Prime Minister Koirala and the Maoist insurgents signed a Comprehensive Peace Agreement, formally bringing to an end the decade-long “people’s war”. Key features of the Agreement were that Constituent Assembly elections were to be held by June 2007 and the King would lose all formal authority, with a new Constituent Assembly to decide on the future of the institution of monarchy. The United Nations Mission in Nepal (UNMIN) was established in January 2007 to monitor the ceasefire and assist in the Constituent Assembly elections.
On 15 January 2007 the major political parties agreed to an interim constitution that would guide Nepal’s transition to democracy in the lead up to new elections. An interim government consisting of members of the major political parties, including the Maoists, was formed on 1 April under Prime Minister Koirala. The Maoists resigned from the Government on 18 September, 2007, further postponing elections which had previously been scheduled for June and November 2007.
On 23 December 2007, a 23 point plan was agreed to between the government and the Maoists including the immediate declaration of a republic and the introduction of a fully proportional electoral system. The Maoists rejoined the Nepalese Government on 30 December 2007 and elections were scheduled for April 2008.
Recent political developments
The 10 April 2008 Nepalese Constituent Election was the first in Nepal since 1999. The Nepal Communist Party (Maoist) won 220 of the 601 seats in the new Constituent Assembly. This made the Maoists the largest party, although not holding an absolute majority. The Maoist Chairman, and Supreme Commander of the People’s Liberation Army, is former rebel leader Pushpa Kamal Dhala (known as Prachandra).
The Constituent Assembly, in its first meeting on 28 May, declared Nepal a republic, formally abolishing the monarchy. The Constituent Assembly is mandated to draft a new Constitution.
On 21 July, Dr Ram Baran Yadav from the Nepalese Congress Party was elected by the Constituent Assembly as President of the Federal Democratic Republic of Nepal. The Vice-President, Mr Paramanand Jha, a candidate from the Madhesi Janadhikar Forum party, was elected on 19 July.
Economic overview
Nepal’s GDP grew by 2.5 per cent in 2007, after a 2.8 per cent growth the previous calendar year. This low level of growth is attributed to insurgency-related disruptions adversely affecting the industry and service sectors. Average inflation in 2007 was 6.5 per cent. GDP growth is well below the 6 per cent required to begin reducing Nepal’s high levels of poverty. The situation is not helped by an average annual population growth over the past decade of 2.3 per cent.
Nepal is one of the poorest countries in the world, with an estimated per capita income of approximately US$339. Poverty and malnutrition are widespread and 16 per cent of the population is estimated to be without access to safe water. The incidence of disease is high and while health services have improved over the past 20 years, most people still do not have access to professional medical care. Average life expectancy is relatively low at 62 years and the infant mortality rate of 61 per 1,000 births is high. The literacy rate for those over 15 is estimated at 48 per cent. The United Nations Development Programme (UNDP) Human Development Report (2007) ranks Nepal 142 out of 177 countries in terms of the human development index (HDI) (which measures countries’ relative standing in terms of life expectancy, educational attainment and adjusted real income).
Over 80 per cent of the economically active population live in rural areas and support themselves through subsistence agriculture. Despite this, the contribution of agriculture to Nepal’s GDP has declined from 72 per cent in 1974 to 36 per cent in 2006-07, owing to growth in public utilities, trade and tourism. Agricultural production is hampered by adverse climatic conditions, environmental degradation and structural deficiencies such as inadequate rural infrastructure and land ownership/tenancy problems.
Growth in non-agricultural sectors, despite serious constraints, is more promising in the long term. Governments have taken steps to restructure the economy by introducing measures such as tax reform, privatisation of public enterprises, dismantling trade barriers, liberalising the foreign exchange system and fostering the industrial potential of the country, particularly for export-oriented industries.
Nepal has been a member of the WTO since 23 April 2004, the first least-developed country (LDC) to join the WTO through the full working party process. However, it still has to amend or adopt certain laws and regulations in order to comply fully with WTO requirements.
Insufficient tax revenues make it difficult for the government to maintain and develop the basic infrastructure and facilities needed to move forward economically. The Asian Development Bank (ADB) has approved programs to help the government boost revenue collection, prioritize expenditure and strengthen fiscal sustainability.
Two potential growth areas for Nepal are hydropower and tourism. Changes to legislation have opened up the tourist sector further to foreign investment. The insurgency period saw a fall in tourist numbers, but following the comprehensive peace agreement tourist numbers are likely to increase.
Bilateral relationship
Australia’s relationship with Nepal predates the establishment in 1960 of diplomatic links. The Australian Government and private sector have contributed to the economic and social development of Nepal through activities and assistance in the fields of health, education, hydroelectricity, forestry regeneration and sustainable management, civil aviation, and livestock and grain management in Nepal. Our interests are focused on consular relations, development assistance and trade. There are increasing numbers of private Nepalese students coming to Australia. There are also active Nepal-Australia Friendship societies in both countries.
Bilateral economic and trade relationship
Two-way merchandise trade in 2006-07 totalled A$37 million with exports to Nepal valued at A$33 million. Principal exports to Nepal are non-monetary gold, soft oil seeds, telecommunications equipment and fresh vegetables. Main imports are hand-made carpets, pashmina shawls and jewellery. Tourism from Australia to Nepal is traditionally a major item in the invisible account with some 4,500 Australians visiting Nepal each year.
There is some potential for the development of commercial links through the involvement of Australian companies in development project work, funded through international financial institutions like the World Bank. Other areas where there are increasing private commercial opportunities following deregulation include civil aviation, telecommunications and power generation.
The largest Australian investment to date involves the Snowy Mountains Engineering Corporation (SMEC) in a project to develop a US$860 million hydropower scheme on the West Seti River.
In 2002, Note Printing Australia (NPA) entered into an agreement with Nepal’s central bank to supply 50 million polymer ten rupee banknotes. NPA subsequently signed another contract worth A$4 million to supply a further 50 million of the banknotes.
Development Assistance
Australia’s development cooperation program with Nepal began in the 1960s. Australia will provide an estimated $8.2 million in total aid flows to Nepal in 2008-09. The objectives of the current program are to reduce poverty and promote sustainable development. This is being achieved by assisting the Nepalese people with natural resource management, human resource development, water and sanitation and the delivery of health services.