Nepal - Economic analysis of government policies, investment climate and political risk.






NEPAL: Economic Policy Analysis

This site presents an analysis of Nepal's economic policies compared to a revised list of 34 economic policies as prepared by Manjil Shrestha with the McKeever Institute of Economic Policy Analysis (MIEPA) in Fall 2011.

To read the analysis scroll through this site. To learn more about the background policies, click here: Introduction and Policy Recommendations

To learn more about MIEPA, click here Return to MIEPA's Home Page

The study is by Manjil Shrestha, a Nepal native who currently [December 2011] lives in San Francisco; this study presents Nepal's economic policies as compared to the MIEPA list of policies as outlined above. The ratings herein are based on the following rating scale:


5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 2011. Used herein with permission]

To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

Return to MIEPA's Home Page





        1               3.0           9.0             15.0        60 %

        2               1.0           3.0             15.0        20

        3               1.0           3.0             15.0        20

        4               3.0           9.0             15.0        60

        5               3.0           9.0             15.0        60

        6               3.0           9.0             15.0        60

        7               2.0           6.0             15.0        40

        8               1.0           3.0             15.0        20

        9               2.0           6.0             15.0        40

        10              2.0           6.0             15.0        40

        11              4.0          12.0             15.0        80

        12              3.0           6.0             10.0        60

        13              2.0           4.0             10.0        40

        14              3.0           6.0             10.0        60

        15              4.0           8.0             10.0        80

        16              1.0           2.0             10.0        20

        17              1.0           2.0             10.0        20

        18              1.0           2.0             10.0        20

        19              1.0           2.0             10.0        20

        20              2.0           4.0             10.0        40

        21              2.0           4.0             10.0        40 

        22              1.0           2.0             10.0        20

        23              1.0           2.0             10.0        20

        24              1.0           2.0             10.0        20

        25              2.0           4.0             10.0        40        

        26              1.0           2.0             10.0        20

        27              3.0           6.0             10.0        60

        28              2.0           4.0             10.0        40

        29              1.0           1.0              5.0        20 

        30              2.0           2.0              5.0        40

        31              2.0           2.0              5.0        40

        32              4.0           4.0              5.0        80

        33              3.0           3.0              5.0        60

        34              2.0           2.0              5.0        40

   TOTAL               70.0         149.0            365.0        40.8%
                      =====        ======            =====        =====


1) Freedom from Internal Control: 3.00

In the context of Nepal, there is no restriction at all for the people to move from one part of the country to another. The government has granted full right for the Nepalese citizens to move from one part of the country to another part and freely engage in any type of legal income generating activities. This freedom has created opportunity for the people to migrate in big cities such as the capital city Kathmandu, Biratnagar, Pokhara, Birjung, Dharan, Hetauda etc to try their fortune to generate more income and create and expand their wealth. On one hand, the free movement of people form one place to another has led to the economic development of the cities and the urban areas and has raised the living standard of the people whereas on the other hand, it has led to overpopulation and degradadtion of resources in the city areas and very low population along with no economic development in the rural areas. The rural areas of the country are now left with very less human resources and lacks economic development as there are very few people to engage in any types of economic ativity. Moreover, the existing vast natural resources of such rural areas are also not utilized. To control the overgrowing population and degradation of resources in the cities and to foster economic development in the rural areas of the country, the government is now trying to formulate and pass on new rules an regulations to stop over migartion of people in the big cities. But considering the present rules and regulations, which allows people freedom from any internal government control to move from one place to another, this section receives a very high 4.5 .

Source: ;

2) Freedom of speech: 1.00

Freedom of speech is the freedom to speak freely without censorship which is not applicable in the context of Nepal. Although the political leaders have constantly argued that there is freedom of speech in the country, the normal citizens of the country along with the media have always noticed that the freedom of speech doesnot exist in the country.

The Constitution of the country specifies that all citizens shall have freedom of thought and expression and that the Government may not censor any news item or other reading material. However, the Government imposed restrictions on these rights. The Constitution prohibits speech and writing that would threaten the sovereignty and integrity of the country, disturb the harmonious relations among persons of different castes or communities; promote sedition, defamation, contempt of court, or crime; or contradict decent public behavior or morality. WIth so much restriction from the government, neither the general public, nor the press or the media are able to express their thoughts and ideas regarding the national debates, forums, speeches, protests etc. In Nepal, you are not safe to express your ideas about government, social system, politics and justice freely as there is fear of fear of annihilation, murder, banishment, etc. Moreover, the press or the media hardly has any freedom to write anything or express views about any wrong deeds or activities the political parties carry out. On 2008, approximately 50 Maoist-affiliated trade unionists and members of the YCL (the Maoist youth wing) stormed the headquarters of Himal Media, a major publishing company, broke windows, vandalized offices and physically attacked staff members. A press statement issued by the media group stated that they forcibly entered the premises and started beating up staff. It further added that the maoist threatened editorial and administrative staff, saying the media group had written anti-Maoist stories. Moreover, there are so many incidents in which the normal citizens have been attacked by the members of the political parties group just for sharing their ideas and thoughts about the political parties with others. This clearly shows that there is no freedom of speech in Nepal for the media as well as the general public.

Nepal receives a score of 2.00 on this section as there is no freedom of speech for the normal citizens and the press in the country.


3) Police Force: 1.00

The Armed Police Force (APF) of Nepal, only serves the rich and the higher aristrocats people in the society. For the Nepalese police their duty is only to serve the people with power and money, not the normal citizens of the country. Moreover,the police force in Nepal is also very corrupt. The police officials can be found taking bribes almost everywhere from the Nepal-India Border to the daily traffic checking in the cities. Also, the police always seems to be taking advantage of the power that the government has given to them. Many teenagers girls have been molested and raped by police officials especially in the Terai region of Nepal. Recently, a sub inspector named Baburam Jha raped an 18 year old Indian girl who had eloped with an Indian youth to Janakpur town of Nepal. Although there are many evidences against the police officer, there seems to be no strict actions taken against him apart from his suspension. This type of activity has made the common people in Nepal fear form the police. People in the country have started fearing as well as hating the police officials. However, there are some honest police officials who know their duties and responsibilities towards the country and the normal citizen and honestly follow their duty.

The Armed Police Force (APF) of Nepal is a paramilitary force with the basic roles of catalyst in maintaining law and order and containing insurgency cracking down terrorist activities. Its foundation is similar to the paramilitary force.It started with 15 thousand strong force carved jointly out of police and army personnel.The strength by end of 2010 has reached to 40,000.

Most of the Nepalese police officials are corrupt and the police force also seems to be not that strong wih a force of just 40,000. Therefore, it scores a very low 1.00 in ths section,

Source: ;

4) Private property: 3.00

The acquisition of private property in Nepal can be done by inheritance or by investment or by improvement of his existing property. The property can also be bought from others, received as gift from others and also obtained from government with duties under some program. The transfer of property in Nepal is similar to the Anglo-Saxon concept and it requires registration in the concerned government office. Although the original acquisition through capture or control are discussed in some property concepts, it is considered radical and is not accepted as a legal means of property acquisition. Government defends the right of one’s private property through existing norms and regulations in country. However, private property are not always protected in Nepal.

The property right has been utilized in Nepal as the country has well defined property law in land, water and intellectual properties. As compared to the Anglo-Saxon property law, a property holder can enjoy following four types of property right in Nepal: i) withdrawal: the right to enter especially to the public properties and obtain resources (e.g. timber extraction and water diversion),ii) management: the right to regulate internal use patterns and transform the resource by making improvements (e.g. management of community forestry for public properties and management of private property),iii) exclusion: the right to exclude others to enter the private or managed public property, and iv) alienation: the right to sell or lease withdrawal, management, and exclusion rights.

With well defined property laws for personal or real property, Nepal has however not well addressed property right law among aesthetic, environmental and transferable permit areas. Without clear property right laws on community forestry, Nepal is missing the opportunity of Carbon credit, that Nepal would earn from community forestry. Similarly Nepalese laws have not addressed on one’s exercise of his property right causing effects (as nuisances) to others.

According to the private property right index, Nepal scores a low 30 out of 100. This clearly shows that the private properties of the people are not well protected and the property rights are exploited in Nepal. Therefore Nepal scores a very low 2.00 on this section.

Source: ;

5) Commercial Banks: Score 3.00

Nepal seems to be taking a very huge step in the banking sectors in the last decade. Two thirds of the priority and deprived sector lending and investment are provided by the two public commercial banks, Nepal Bank Limited and Rastriya Banijya Bank. The commercial banks in Nepal has actively been helping the business firms and individuals by providing huge amount of loan as investment and giving a reasonable amount of interest for the deposited money. The commercial banks consistently providing loans to the business firms and individuals has led to a big economic growth in teh last decade. The banking sector has not only developed in the urban areas but also has had a huge expansion in the rural parts of the country as well. The government is trying its level best to provide banking facilities in each and every part of the country. Moreover, the money and banking monetary policy 2010/2011 annoounced by the Nepal Rastra Bank, Central Bank of Nepal is sure to implement and regulate more effective plans and policies for the development of commercial banks in the country.


6) Communication system: 3.00

The telecommunication industry in Nepal is a slow growing industry. Influenced mostly by its neighbouring country India, Nepal is gradually developing its telecommunication sector.

Mobiles and Telephones: Nepal has a fairly average telephone network for both Cellular as well as Landline services but only in the urban areas. The telephone network is rarely available in the villages of the country. People in the villages have to walk miles due to lack of transportaion in order to make one phone call to other part of the country. In the urban parts, the phone network is quite modern and is in accordance with the ongoing technologies in the West. There are lots of phone booths or kiosks in Nepal with both STD and ISD services apart from the local service. The local calls are cheap and so are trunk calls. The international trunk calls are very costly in comparison to the rates prevailing in other South-Asian countries. The network is generally congestion free. As far as cellular service is concerned, Nepal is yet to modernize even in the city centered places. The cellular service is not as per international standards but is fair enough in comparison to most of the countries in Central Asia and Sub-Sahara Africa.

Internet: Nepal had a tryst with the Internet service as early as 1997, when the foreign tourists brought the idea of electronic communication with them. Since then, Nepal has convincingly modernized its Internet service only in the cities and towns. Nearly all high-end hotels provide Internet facility in the hotels itself. Apart from that you will find government as well as private operated Internet cafés in every town of Nepal. The major service provider is the government itself but there are private parties too.

Television and Radio: State run and private satellite channels are available in Nepal. Though highly censored, these channels are the only ways for entertainment for inhabitants. Lots of FM channels, that mostly play Indian and Nepalese songs, are available in Nepal. Some of the European and American channels can be heard on Short wave but the broadcast quality is very low and weak.Moreover, the only channel that runs in most of the villages throughout the country is Nepal Television(NTV),the government owned television company with a very bad broadcast quality due to satellite problems.

Newspapers and Magazines:Nepal has many dailies and weeklies. Most of these newspapers are in Nepalese. Very few newspapers are published in English. The contents and editorials of these newspapers are not very convincing and that too come through heavy state censorships. High-end hotels will provide international papers such as New York Times and The Guardian on demand but it will be a postal edition that carries 3-days back news

The communication system is fair only in the urban areas of the country. If we look at the rurual areas, the communciation system is very poor. If we look at the overall scenario of the country by including the urban as well as the rural areas, Nepal seems to have a below average coomunciation system and thus scores a low 2.00 on this section.

Source: ; ; ; ;

7) Transportation: 2.00

Nepal's mountainous terrains and difficult weather conditions is a challenge although necessarry for the government to improve the transportation facilities in Nepal. Being a landlocked country with China to the North and India to the South, roads and aviation are only the two modes of transportaion that are available in the country.Nepal’s total road network and density are low and only 43 percent of the population has access to all-weather roads. More than 60 percent of the network is concentrated in the lowland (Terai) areas of the country. In 2007, the network consisted of 17,282 km of roads. The road network expanded by 5%, on an average a year, over the last decade, with faster growth until 2002.Over the 2003-05 period an additional 575 kms of roads (equivalent to 3.5 percent of the existing length) were built, focusing on connecting district headquarters with the national network and improving access between rural areas and market centers. Nepal’s road network annually increased by 6.7% between FY95/96 and FY03/04, with the largest expansion occurring in roads classified as "district or rural roads", which grew annually by 11% during this period. However, the expansion and development of road transportation seems to be very low compared to its neigbouring countries India and China and other South Asian countries.Moreover, the roads in Nepals are very narrow and congested which has resulted in many preventable road accidents and deaths of people especially in the highways.

With 42 domestic and one international airport, civil aviation plays a vital role in linking the hilly and mountainous parts of the Kingdom. Most of them are green field without modern navigation systems.The international airport at Kathmandu, Tribhuwan International Airport connects Nepal with the countries of Europe, and South and East Asia. The most important role of the air transportation in Nepal is played by the domestic airports. Domestic transportation has helped a lot for the development of trade and tourism in the country as the villages in hills and the mountains are inaccesible with road transportaion. However, with only 1 international airport in the capital city and very few number of domestic airports in the country, the aviation sector needs a lot of attention for improvement from the government.

The country faces several policy, institutional, and financial constraints in the development of its transport sector:

- Lack of integrated sector policies and an effective implementation strategy for the development of rural roads.

- Weak institutional capacity of the local agencies, inefficient incentive structure, poor monitoring, and the lack of accountability of the public sector agencies.

- Weak domestic resource mobilization and heavy dependence on foreign assistance in the road sector.

- About 60 percent of development expenditure for roads is met from donors’ contributions.

- Inadequate and irregular road maintenance resulting in the rapid deterioration of road conditions and quality.

- Poor accessibility in the remote hill and mountainous districts of the country, and insufficient connectivity in 5 district headquarters, which are not connected by road.

- Poor maintenance systems for motor vehicles which leads to an increasing number of polluting vehicles and road accidents.

- High transportation costs for Nepalese exports due to transit and high vehicle operating costs.

- Unreliability of freight transit services, as the average transit time through India varies from 3 to 8 days.

- The backlog of road maintenance is ever increasing, rendering the present local road network unserviceable.

Looking at the transportaion sector of Nepal, which compromises of road and air transportaion as the major transportation in the country, Nepal scores a very low 1.0 on this section.

Source:,,contentMDK:22354865~pagePK:141137~piPK:141127~theSitePK:223555,00.html ;

8) Education: 1.00

Nepal scores a very low score of 1.0 for education.

The Government of Nepal(GON) hasnot been able to provide even the basic education facilities for its citizen, especially in the rural areas. According to a survey in which individuals are considered to be literate if they report that they can read and write, the literacy rate was only 38% which is very low compared in the intenational education ranking. The education that the government provides in some rurual areas is also very unsatisfactory. On the other hand, the educational sector seems to be commercialized in the urban parts of the country. The privates colleges and universities established in the rural areas are very expensive and out of reach of the normal middle class people. The UNited Nations and other international organizations have been playing a very important role for developing education in the rural areas by conducting several educational campaigns and by establishing schools that provide free educations to children. Also, countries like Japan and USA has been providing lots of fund for the development of educational sector.

Source: ;

9) Social Mobility: 2.00

Nepal receives a very low 2.00 on this section. In the context of Nepal, the rich people gets richer and richer and the pooe the people. The society has so many barriers that it is very hard for a common person to succeed on his hard work and determination. The traditional norms and values and the superstition beliefs restricts a person to suceed based on his hard work. Moreover, the corrupt government system adds a lot to this problem as well.

Source: Personal

10) Freedom from outside control: 2.00

The Government of Nepal provides full security to the citizen of its country from outside threats or inteference. Any countries agency, force or security cannot control a Nepali citizen without the consent of the Nepalese government. Every Nepali citizen has his/her own freedom and independence. Infact, Nepali citizens are only subject to law of Nepal.

However, Nepal owns a lot of money to various countries such as India, Japan, USA, UK and to the WOrld Bank as well. Therefore, these countries and the organizations greatly influences Nepal in making any kind of financial and monetary transactions. Although, the government has protected its citizen from outside control or interference, the government hasnot been able to protect its internal financial, monetary and economic matters from other international countries.

Source: ;

11. Protection of foreign currency earning enterprises: 4.00

The Government of Nepal (GON) is trying a lot to increase the international trade activities to foster the economic development of the country. Nepal's import has always exceeded the export since the last decade. Therefore the government is implementing ceratin plans and policies to encourage more and more export trade activities so that the country can have an economic advantage by earning foreign currencies as profit. Apart from it, the government is also planning to set up an organization to do deal with the problems of trade enterprises aas well as allowing funds and donations to such enterprises so that such enterprises would engage in more trade activities and the country would have economic gain. Therefore, Nepal receives a 4.00 on this section.

Source: ; ·

12. Foreign currency transactions: 3.00

Foreign currency in Nepal has to be converted into Nepalese Rupees(code=NRS) which is the national currency of Nepal. The foreigners have to purchase rupee or convert their money into Nepalese rupees for their transactions within the country. The establishment of several banks, private agents and money exchange institutions in the country has made the conversion of foreign money into Nepalese rupees very simple and easy. Also, every business transactions within the country should be done in terms of Nepalese rupees.

The foreign exchange transactions in Nepal needs to be liberalized. The foerign exchange dealers have to seek permission from Central Bank of Nepal for performing most of the transaactions.

Source: Personal

13) Border Control: 2.00

Nepal is a small landlocked country sandwiched between two of the most powerful countries in the world, India and China. Incomparison to India and China, Nepal has a very weak border control. Nepal seems to have frequent border issues especially with India. Nepal shares an open border with India due to which the Indian border forces are always trying to take advantage by allegedly trying for land enroachment.The open border is always operating at the pleasure of Indian interest. India has time and again used the open border issue to threaten Nepal whenever it feels that Nepal is not responding to its interest. There are incidents of major transit points closed for long duration by India without consulting Nepal as a punishment for dealing with other countries without India’s prior knowledge and consent. Apart from it, approximately 2000 Nepalis from villages on Nepal-India border have been displaced due to alleged harassment by Indian border security forces and the villagers are running out of the meager food stuff they brought with them. India seems to be taking advantage of its powerful security forces for domination over Nepal. These act of India are very unlawful and unethical and serious actions are needed to be taken over it, but due to the political instability and weak border security, Nepalese government hasnot been able to do so recently.

On the other hand, Currently, Nepal seems to have a very good mutual understanding with the Chinese Government and the border officials regading with the border that it shares with China. However, due to corrupted border officials and weak border security arrangements, lots of tibeteans enter the territory of NEpal illegally which has created a lot of problems.

Nepal really needs to improve and tighten its border security if she wants to protect her sovereighnty and identity.


14) Currency: 3.00

Nepal receives a 3.00 on this section. The rupee is the official currency of Nepal. The present rupee has the IS2 4217code NPR and is normally abbreviated with the sign Rs. It is subdivided into 100 paisa. The issuance of the currency is controlled by the Nepal Rastra Bank. The most commonly used symbol for the Rupee is Rs. No other currency is used.

The rupee was introduced in 1932, replacing the silver mohar at a rate of 2 mohar = 1 rupee. Initially, the rupee was called the mohru in Nepalese. Its value was pegged to the Indian Rupee in 1993 at a rate of 1.6 Nepalese rupees = 1 Indian rupee.

The Nepalese Rupee (NPR) is made up of 100 paisa. Coins are available in 50p, 25p and 10p denominations while notes are available in groupings of NPR1000, 500, 100, 50, 20, 10, 5, 2 and 1. Currency can be exchanged with authorised dealers such as banks, hotels and licensed money changers and visitors should note that it is illegal to exchange currency with any one who is not authorised to do so.

Almost every country in the world face the problem of counterfeit currency notes, but in Nepal the problem is acute as the country is hit hard by this evil practice brought from India. Fake notes in Nepal in denominations of Rs.100, 500 and 1000 are being flooded into the system and if we are to be believe of sources, most of these notes originate from India.

Source: ;

15) Culture, language, homogeneity: 4.00

Nepal has a very diversiifed and a unique culture. Although Hinduism itself covers 78% of the entire population of the country, other religions such as Buddhism, Muslim, and Christianity are also equally respected and traeated in the country. Hinduism followed by Buddhism, constitute two major religion of Nepal. Both these co-religionists are bound together by a sense of fellow-feeling and bonhomie particulrly displayed in their worship of common deities and joint celebration of many festivals belonging to either religion or culture. Kumari, the Virgin Hindu Goddess, for instance, is selected from a Buddhist clan. A remarkable feature of Nepal is the religious homogeneity that exists. Apart from the Hindus and Buddhists, Muslim form the third largest religious group.

Religion is an integral and deep-rooted part of Nepalese life. Temples, images, sacred paintings are to be seen everywhere.The temples and stupas are rich repositories of wood carving, metal work, terracotta and stone sculpture. In their uniqueness they add glory and grandeur to the cultural scene of the Kingdom and tell a long history of native genius.The exquisite architecture and artistic embellishment of the Nepalese pagodas that enshrine the bronze and stone images of great beauty and, more often than not, treat antiquity, are a unique features of Nepal.

Nepali is the national language of Nepal and is written in Devnagari Script. There are approximately 120 other languages that are spoken in Nepal that includes Maithili, Bhojpuri, Tamang, Avadhi, Tharu and Newari, however most educated Nepalese can also speak and write English In Nepal.

Nepalese culture, languae and religion are a part of Nepali people which resembles their true identity. Nepalese are very much conscious and deep rooted in terms of theor culture, language and religion.

Source: ;

16) Political Effectiveness in Nepal: 1.00

Nepal receives a very low score in political effectivenss due to the ongoing critical situation of the country due to political instability.

The politics of Nepal function within a framework of a republic with a multi-party system. Currently, the position of President (head of state) is occupied by Ram Baran Yadav. The position of Prime Minister (head of government) is held by Dr. Baburam Bhattarai.[1] Executive power is exercised by the Prime Minister and his cabinet, while legislative power is vested in the Constituent Assembly.

According to UNDP's latest report, the major constraint's for poor development of Nepal has to be the political ineffectivenss in the country.The effort of the present governmental body to foster economic development in the country has been failed due to the political ineffectiveness in the country casued by the conflicts and disagreement between the multi governmental parties which mainly includes the the Communist Party of Nepal-Maoists (CPN-M), the Unified Marxist Leninist (UML) and Nepali Congress (NC). Apart from it, the trend of changing government in every six months and the lack of freedom and liberty to implement its developmental plans and policies for the ruling governmental bodies without the constraints of other parties has also caused political ineffectivenss in the country. The political situation is hampering efforts to improve basic infrastructurres such as education, transportaion and electricity.The multiparties need to unite and work peacefully with each other if they want good economic growth in the country through political effectivenss.

Source: ;

17) Institutional Stability: 1.00

Nepal receives another very low 1.00 on this section. Nepal seems to have no institutional stability at all. The Nepalese government is very unstable as it changes every 6 months. The unstable government has been the major reason for the poor economic condition of the country today. Moreover, the condition of the courts and the laws in the country has also been very miserable. There seems to be no proper law enforcement in the country and the law changes every now and then. People have no faith in the supreme court which is the heirachy court of the country as many cases of corruption in the court has been found. The governments changing plans and policies of the educational systems in the country has also made the condition of schools and universities poor in the country. Apart from it, the business houses and enterprises are never consistent due to the lack of safety and smooth business environment. All this has resulted in Nepal to be one of the least institutionally stable country in the world. Therefore, it receives a very low 1.00 on this section.


18) Honest Government: 1.00

A report released by the Transparency International placed Nepal 143rd corrupt country out of 180 countries where the survey was conducted. The index measures the perceived level of government corruption.Based on, Nepal's corruption perception is 2.5 out of 10. Almost each and every government offices in the country are said to be corrupted. The weakening anti-corruption mechanism and unstable poltical situation are said to be the main reason for the overgrowing corruption in the country. The government has said that in recent years, Nepal has prosecuted many government offiers and individuals and it is trying to fight against corruption. However, there seems to be no improvement whatsoever. Every person in Nepal, from a normal citizen to a international visitor visting Nepal, who have to deal with bribe taking officers right at Kathmandu's International Airport have to deal with corruption. Corruption has become a culture in Nepal. According to a news published in one of the daily newspapers in Nepal "The Himalayan Times, the anti corruption committee formed by the government to find out the ongoing corruption in the government offices was itself corrupted and the investigating officers were found to be taking bribes from teh government officers. This clearly shows how much corruption is there in Nepal. The citizens of the country has lost faith from the present government due to the high corruption that prevails in each and every government offices today in Nepal.

Source: ;;

19) Common Law: 1.00

In the context of Nepal, the law exists only for the rich people, not for the poor. The law in Nepal seems to be very unsatisfactory. There are seperate laws for the poor and the rich. Due to this, the rich people which includes the upper middle class and the higher aristrocats people seems to be dominating the rights of the poor. This has resulted in the rich people getting more and more richer and the poor people getting more and more poorer every day. There seems to be no proper laws that guarantees the safety of the people involved in business and financial activites.Murders, kidnapping, robbery activities are increasing rapidly day by day as a result of poor law that runs within the country. Moreover, Nepal's law seems to be mostly influenced from its neighbouring country India. Most of the commercial and financial laws passed by the Government of NEpal(GON) are very similar to that of India. Corruption is at its peak today in Nepal. Almost every government offiers are corrupted. This makes it even more easier for people to break the laws and create their own laws. This has greatly affected the economy of the country. Therefore, strict laws and acts are very important in the country if we want to see some economic improvements.

Source: Personal

20) Central Bank: 2.00

The Nepal Rastra Bank (NRB), established in 1956, under the Nepal Rastra Bank Act 1955 is the central bank of Nepal. The new Nepal Rastra Bank act was brought in 2002 replacing the act of 1955. The new act has provided operational autonomy and independence to the bank. All the commercial banks in the country is supervised by the Nepal Rastra Bank and it also guides the monetary policies of the banks as well as the country. The bank is also one of the primary owner of Nepal Stock Exchange Rate. There has been a regulatory improvement in the economic activities as well as the activities of the domestic financial institution since the new act, which was brought up in 2002. However, it's present monetary policies as well as the banking supervision policies seems not to be satisfactory than in the past as it has not been able to increase the access to financial services especially for urban micro and small enterprises. Therefore the World Bank, UNDP and UNCDF are supporting the Central Bank's effort to access financial services to urban micro and small enterprises (MSE's). Some of the important functions of the Central Bank are

1)To formulate necessary monetary and foreign exchange policies to maintain the stability in price and consolidate the balance of payments for sustainable development of the economy of Nepal;

2)To develop a secure, healthy and efficient system of payments;

3)To make appropriate supervision of the banking and financial system in order to maintain its stability and foster its healthy development; and

4)To further enhance the public confidence in Nepal's entire banking and financial system. Source: ;

21) Domestic Budget Management: 2.00

Increase in the deficit every year has showed that there is no proper budget management in the country. In adittion to this, depending on foreign loan and domestic borrowing shows us that Nepal needs to take some serious step and implement. Therefore, Nepal receives a low 2.00 on this section.

Nepal's total size of the budget is Rs 384.9 billion for the year 2011, almost 14% higher than last year’s budget (and 25.67% higher than revised estimate). The country's recurrent expenditure is Rs 266.61 billion (69.27% of total budget). Capital expenditure is Rs 72.61 billion (18.86% of total budget). Financing, which is a new addition to the expenditure-revenue sheet, is Rs 25.38 billion (6.59% of total budget) and principal repayment is Rs 20.3 billion (5.27% of total budget). Development expenditure is Rs 202.56 billion (52.63% of total budget) and general administration expenditure is Rs 182.34 billion (47.37% of total budget). The former is an increase by 13.41% and the latter 14.47% from last year.

The total income of the government is expected to be Rs 317.83 billion, which is 12.71% higher than last year’s total revenue projection. Total revenue is expected to be Rs 241.77 billion (11% increase over last year), principal refund Rs 5.93 billion and foreign grants Rs 70.13 billion (17.43% of total budget).

The difference between total expenditure and total income is budget deficit, which is Rs 67.07 billion. This is expected to be covered by Rs 29.65 billion foreign loan and Rs 37.41 billion domestic borrowing. Deficit financing is 17.43% of total budget and it has increased by 19.96% from last year.


22) Government Debt: 1.00

Nepal currently is facing a problem of fiscal defecit.When a poor develping country like Nepal loses principal payment capacity and interest payment capacity there raises a situation that whole-borrowed money will be used for debt obligation payment. Today almost each and every sector of Nepal is dependent on foreign assistance. Around 60% of the total government expenditure is financed through foreign aid but almost 70% of the forein aid are composed of loans. Foreign loan seems to be very important in teh economic development of Nepal. However, less than 50% of the forein aid are used by the government for economic development. Most of the aid that the government receives are used to meet the recurring expenses within the development expenditure. Corruption and low quality manpower also misuse the highest amount of aid. This shows us that the government is using less and less amount of money to increase the productive capacity of the Nepalese economy. Today, Nepal's outstanding public debt is nearly 63.7 percent of GDP in one hand, and debt servicing to GDP ratio is nearly 3.9 percent.The average annual ratio of debt servicing to GDP is 2.7 ercent but average annual growth rate of total debt servicing is 15.9 percent and total outstanding debt to GDP is nearly 58.76 percent. The central government debt; total current (LCU) in Nepal was reported at 35725810000000 in 2008 according to the WOrld Bank which has raised from 200483600000000 in 2005. This shows that Nepal's debt is constantly rising every year and if this continues for a longer period of time then Nepal definately would fall in a debt trap. If Nepal falls in a debt trap then Nepal would lose its credit worthiness and will be unable to borrow loan forever. Therefore, the government should pay attention in growth of productivity of public debt and economic growth as well.


23) Economic Statistics: 1.00

Nepal has used a series of five-year plans in an attempt to make progress in economic development. It completed its ninth economic development plan in 2002; its currency has been made convertible, and 17 state enterprises have been privatized. Foreign aid accounts for more than half of the development budget. Nepal's GDP dependency with India has resulted in very little development in the infrastructures as well as the social services sectors. Government priorities over the years have been the development of transportation and communication facilities, agriculture, and industry. HOwever, agriculture remains the major principal economic activity employing around 80% of the total population of the country as well as providing 37% of the total GDP. Although the country has made some progress in the economic sector by improving government administraion and emphasizing rural development, the progress seems to be very steady compared to the progress made by other Asian countries. Nepal was ranked 29th worst of 84 ranked countries (those with GHI > 5.0) on the Global Hunger Index in 2010, between Tanzania and Kenya. Nepal's current score of 20.0 is slightly worse than in 2009 (19.8) but better than its score of 27.5 in 1990.[3]


24) Protection of public health and safety: 1.00

Health and safety always has been a very major problem in the context of Nepal especially for children and women. Nepal's maternal mortality ratio (MMR) of 539/100000 births ranks among one of the highest in the world. Apart from it, the infant mortality rate is also 44.54deaths/1000 live births. The life expectancy rate is also very low which is 56 years. Disease of pregnant women, children, infections, and malnutrition account for two thirds of Nepal's illnesses. Low per capita income of people,superstition, unhealthy and conservative way of thinking and living among the people has also been a major problem. Lack of pure drinking water is the major problem that has resulted to many deaths due to diseases such as typhoids and jaundice among the people especially children. Public health and health system in Nepal are in poor condition specially in the rural areas of the country due to lack of information as well as resources among the general public. Lack of proper hospitals, medical centers and services has resulted in increasing unhealthy population of Nepal. The geographical condition of the country along with the unsystematic and critical political and economic situation of the country has also resulted in poor health condition. The lack of basic ifrastructures such as road and elctricty has resulted in lack of health facilities in the rural areas. The governmnet as well as the NGO's has been trying to improve the health and safety of the people by conducting several campaigns and free medical programmes in th rural areas of the country but with very limited budget in the public health and safety sector, the government as well as the NGO's are very far away from reaching their goal. In conclusion, Nepal's health condition seems to be below the world health standadrd.

Source: ;

25) HIgh wage policy: 2.00

The prevalence of a low wage rate has aggravated the extent of economic exploitation of the workers although there are no specific studies on the degree of exploitation of employees that exists in both the traditional sector of the economy that is agriculture as well as the modern sector of economy which is the industrial sector. In the context of Nepal, around 87% of profit that a company makes directly goes to the higher level people or the people working in the higher post in the company. The labour forces are always left behind in terms of wages as well as the benefits. The minimum wage for a worker in Nepal is rupees 4600 a month which is equivalent to 58 dollars The rate of wage to the labourers is also very low compared to the work that they do.The minimum wages that the labourers get today in Nepal is even not enough for the labourers to fulfil their family subsistence. Low wages of employees has resulted in many strikes throughout the country causing temporory shut down of several industries every year which has greatly affected the economy of the country. Some positive reformations has occured in the last couple of years regading with the wages distribution in the country. However, those reformations seems not to be suffecient. APart from the reformations regular monitoring of the implementation of wages should be very necessary to solve the problem of minimum wage in Nepal.

Wage of workerers are considered to be one of the major reason of industrial disputes in teh developing countries. NEpal is also not an exception to this. Nepal is one of the least developed countries in the world sandwiched between two highly populous countries with strong economy (China and India). The economy of the country is dominated by traditional agricultural providing employment to nearly 76 percent of its labour force. The GDP growth is negligible in comparison with the population growth. Industrialization which is the modern sector is very low although modern industries began operating in Nepal in 1936. The employment generating capacity of the existing industries is quite unsatisfactory.According to a survey conducted by Pant and Manandhar (1999:2009), 65% of the disputes in the industries of Nepal were assosciated with wage and fringe benefits of the workers.

Source: ·

26) Environmental protection:1.00

Nepal is facing the problem of environment deterioation as in many other countries all over the world. Pollution as well as overpopulation specially in the capital city Kathmandu as well as in other urban cities has led to a very huge environment degradadtion. Nepal's Environmental Protection Act (NEPA) which was established in 1997 AD has been failing to implement its long term plans and policies regarding environmental protection. The Government of Nepal(GON) has not paid much attention towards teh environmental protection of the country.The government has neither renewed the old act, nor brought some new act that enhances environmental protection. The growing corruption in the people of the governing bodies has led to the misuse and exploitation of the natural resources.Unsystematic industrialization and urbanization has been the major cause for the environmental degradation. Very large amount of forests area has been destryoed either for the establishment of new factories and industries or for the construction of housinng firms.The only vital role played for the protection of the environment in Nepal today is by the non profit and non governmenatal organization. The non profit organization such as STEP (Society TOwards Environemnt Protection Nepal),VTSeva (Voluntering Together for Seva) and WATO (We Are The ONe), has been actively participating in the environmental programs all across the country.Also, there has been a tremendous amount of help from various INGO's for the protection of the environment. MOreover, various international countries such as the United States, Canda, United Kingdom, Belgium etc are also helping the non profit organizations for environment protection by providing huge amount of monetaray fund as donations.

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27) Strong Army: 3.00

The NEpalese army are the militarty forces of the Federal Democratic Republic Of Nepal.The NA includes the Nepalese Army Air Service and is considered to be superior to Nepalese Police Force. Service is voluntary and the minimum age for enrollment is 18 years. Nepalese Army was also used to be known as The Royal Nepalese Army (RNA) during the monarch rule in Nepal.With an estimated 105000 active duty personnel and a estimated budget of 60 million US dollars, Nepalese army mainly focuses on defending the territorial integrity, sovereighnty and independence of Nepal. APart from it, Nepalese army also focuses on providing assistance to the Civilian Government of Nepal in the maintenance of internal security. Other duties include humanitarian assistance/disaster relief operations, assisting in national development, nature conservation efforts and participation in international peacekeeping mission. The Neaplese soldiers have always been known for their agressivness and couragness since the past. The Nepalese soldiers were able to fight and save their motherland from the British East India company who were highly equiped with guns and bombs compared to Nepalese soldiers who only fought with khukuri(a traditional knife used in war) during the Anglo Nepalese war. The Nepalese Army have always been famous all over the world for its brave soldiers 'GUrkhas' who showed great courage and bravery during the second world war. The Nepalese Army has contributed more than 36,000 peacekeepers to a variety of United Nations-sponsored peacekeeping missions such as United Nations Interim Force in Lebanon (UNIFIL),UNMIH the United Nations Mission in Haiti and many other international as well as national peace keeping programs.

Source: ;

28) Foreign Trade Impact: 2.00

Nepal recieves a very low 2.00 on this section.Nepal foreign trade deficit has increased by 5.8 percent to stand at Rs. 333 billion during the fiscal year 2010/11, up by Rs. 18 billion compared to the previous year. According to a report unveiled by Trade and Export Promotion Center (TEPC), the total export has increased by 5.9 percent to Rs. 64.56 billion while import increased by 5.8 percent to Rs 397.54 billion during the period. The foreign trade has increased by 5.9 percent to Rs 462.1 billion in last fiscal year. The total contribution of import and export stood at 86 percent and 14 percent respectively. Woolen carpet, readymade garment, lentil, textile, iron and steel products, handicrafts, silver ornaments, noodles, cardamom, tea, herbal products, hand made papers, Pashmina were the major exportable items from Nepal during the period.

According to the report, the export of woolen carpet has increased by 15.6 percent to Rs 4.92 billion and readymade garment by 8.7 percent to 4.08 billion compared to the previous fiscal year. They remained the top major exportable items from Nepal. Similarly, Pashmina export rose by 24.2 percent to Rs 1.64 billion, iron and steel products by one percent to Rs 10.12 billion and polyester yarn by 18.5 percent to Rs 5.55 billion during the review year.The export of cardamom, leather, tea, ginger, herbal products, handicrafts, hand-made paper also stood at Rs. 2.04 billion, Rs. 800 billion, Rs. 1.55 billion, Rs. 280 million, Rs. 710 million, Rs. 520 million and Rs. 460 million respectively, according to the report.

India, USA, Japan, Canada, Germany, UK, Australia, Belgium, Netherland, France, China, Italy stood as the major importers of Nepali goods. Similarly, import of petroleum products increased by 36.1 percent to Rs 75.76 billion, iron and steel products by 24.4 percent to Rs 42.17 billion, raw palm oil by 6 percent to Rs 3.98 billion, and chemicals by 16.1 percent to Rs 4.81 billion during the period. Likewise, during this period, Nepal imported gold worth Rs 10.72 billion, chemical fertilizer worth Rs 6.19 billion, clinker worth Rs 8.07 billion, soybean oil worth Rs 8.12 billion, readymade garment worth Rs 6.37 billion and food grain worth Rs 5.03 billion.However, the import of transport vehicles and parts decreased by 20.5 percent to Rs 24.23 billion. Nepal also imported electronic and transport vehicles worth Rs 19.29 billion, medicine worth Rs 11.73 billion, machinery parts worth Rs 26.65 billion and telecommunication worth Rs 10.67 billion during the period.

Source: ;

29) Management of foreign currency budget: 1.00

Nepal receives a very low 1.00 on this section. Nepal's gross foreign exchange reserves has recently declined by 4.4 per cent to Rs 257.05 billion from a level of Rs 268.91 billion as in mid July 2010. The central bank data has further revealed, adding that such reserves had decreased by 14.7 per cent to Rs 244.29 billion in the same period last fiscal year.On a monthly basis, foreign exchange reserve of Rs 761.6 million declined in the month of February-March from the level of previous month of this year. Out of the total reserve, Nepal Rastra Bank’s reserves declined marginally by 2.7 per cent to Rs 199.86 billion from a level of Rs 205.37 billion as at mid-July 2010.

The gross foreign exchange reserves in the US dollar terms also declined by 1.3 per cent to $3.57 billion in mid-March 2011.Such reserves had decreased by 8.1 per cent in the same period last year. Based on the trend of import during the eight months of the current fiscal year, the current level of reserves is sufficient for financing merchandise imports of 8.3 months and merchandise and service imports of 7.1 months, according to the central bank that has termed the forex reserve situation comfortable as it is more than normal reserve that is needed for the import.


30) Layers of Collective Action 2.00

Each and every administrative tasks within the country is performed only with the consent of the central government. For example, the board of directors and principals in the government schools are also elected by the ministry of education which is a part of the central government. Similarly, the governmental hospitals and the metropolitian councils are also run and managed by the officials who are appointed by the central government of the country. There is hardly any role of the locally elected bodies in the administrative activities. Almost all organizations in the country that performs the administrative and regional tasks are dependent on the funding provided by the government. It is the central government who runs each and every administrative activites in the country and there are very few locally elected bodies that can perform administrative tasks.

Therefore, Nepal receives a very low 2.00 n this

The politics of Nepal function within a framework of a republic with a multi-party system. Currently, the position of President (head of state) is occupied by Ram Baran Yadav.The prime minister who is the head of the government and the president who is the head of the state form the central government along with other many small political parties that governs the country. Executive power is exercised by the Prime Minister and his cabinet, while legislative power is vested in the Constituent Assembly. The country also has a presedentially appointed governor who is given certian power by the central government to perform the tasks directed by government.

Source: ;

31) Pro-Business Climate: 2.00

Nepal is among one of the poorest countries in the world. Nepal has not been able to make any type of effecient regulatory changes in it's business investment plans and policies for the last 5 years.The Government of Nepal's(GON) has presently not been able to implement its regulatory plans and policies due to bureaucratic delays and ineffeciency's, political instability, persuasive corruption and presistent insecurity.Other major problems besides the governments incapabiltiy includes lack of direct access to seaports (currently all products imported by ship from third countries enter through Kolkata), difficult land transport, lack of trained personnel, scarce raw materials, inadequate power (especially outside the Kathmandu Valley), insufficient water supply, non-transparent and capricious tax administration, inadequate and obscure commercial legislation, difficulty in obtaining long-term visas for investors, and unclear rules regarding labor relations. According to the GON,there are currently 1336 foreign projects in Nepal with a total worth of around 1.85 billion US dollars. India leads the investment with 43% of the total investment and 373 projects whereas US ranks second with 106 projects and 13 percent of the total investment apart from China, SOuth Korea, Japan and UK.Even though there is so much foreign investment in the country, the government has not been able to utilize the investment neither in the government enterprise, nor in the private enterprises.However, its ranking improved to 116th position this year compared to 123rd of the last year in terms for doing good business in the country. The International Finance Corporation (IFC) of the World Bank Group released a report this year stating that Nepal's shift to 116th position is only due to the scope of improvements seen in the country. The masjor improvement was seen on the Hydroelectricity sector. It is said that lots of foreign investors are very interested in investing in the Hydroelectricity projects in Nepal. Nepal is the second richest country in hydroelectricity generation after Brazil. Therefore, the foreign investors have seen a lot of potential investing in NEpal's Hydroelectricity projects. Apart from it, Improvement in other selected indicators such as Statring a Business, dealing with construction permit, paying taxes, trading across borders has also been other important reasons for NEpal's improvement on the grounds of good prospects for doing business.

Source::// ;

32) Government Enterprises : 4.00

In the context of Nepal, the number of government enterprises are very few compared to the private enterprises. The government owns enterprises such as the telecommuniaction system and the hydroelectricity system. Many of these government enterprises do finance themselves and sometimes need the help of govenment as well as foreign aid. The government enterprises in Nepal havenot been able to satisfy the need of the people. As a result of which people are more attracted to the services provided by the private enterprises than the government enterprises. Therefor Nepal receives a 4.00 on this section.

Source: Personal

33) International security agreements: 3.00

Rare is the person today who has never heard about Gurkha soldiers, the brave troops from Nepals isolated hills who bolster the force of British and Indian armies. Nepali Gurkha soldiers are known all over the world for their courage and bravery. There is a high demand of the Nepali soldiers in the Great Britian and every year thousands of Nepali soldiers are sent to Great Bririan. Apart from it,Nepal has also been sending their brave Gurkha soldiers to the United Nations every year to fight terrorisms happening all around the world. Moreover,Nepal had also sent thousands of Gurkha soldiers to the United States during its war against Iraq. In return, the United States and the United Nations has also helped Nepal a lot to solve the domestic conflict going on between the domestic political patries. Apart from it, Nepal has also negotiated a mutual defense treaty with Gratislavia recently to enhance the safety measures in both the country. Nepal should get a high marks on its international security agreements as it is playing a very important role in providing security not only to a country, but many countries all around the worlds.


34) Protection of domestic enterprise from government mandadted costs: 2.00

GOvernment interference was very strong during the RANA rule period, which lasted from the mid 19th until the mid twentieth century. During their rule there were very few industries other than cottage industries, and they were under very strict supervision.Even after the fall of the Ranas in the mid nineteenth century public enterprise has had very strict restriction from the government .Nepal had a very unstable condition of the private enterprise since the monarchy rule which begun in the mid nineteenth century. The monarch kings who ruled during this period played a very important role for the public enterprise to decline by setting up new strict interventions and by declining to sign any trade treaty with its border countries India and China.Even though The present democratic government has limited its intervention compared to that of the past, the enterprises still needs its own free space. Every year, the government has been injecting huge amount of money in the form of capital, loan and subsidy to the public enterprise but the governments continuous intervention has resulted in a negative net flow of funds between the government and the public enterprise which has resulted in trade defeceit.The government is even trying to privatize more than 50 big public enterprises by ensuring that privatizing these public enterprise would 1) reduce financial and administrative burden. 2)improve operational effeciency of the public enterprise and 3) involve public participation in the ownership and management of the public enterprise. Also, the government is setting new social and economic policy for the public enterprise. For example, the government has recently decreased the amount of accured salary and benefits for the workers in public enterprise which has led to a huge strike in the public enterprise which has resulted in huge strike in the country and temporary shut down of many public enterprises. The government needs to reduce its intervention to the public enterprises and should allow freedom for them to run the enterprises in its own terms and conditions if it wants the country to not face any economic decline.

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