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In a first, the Department of Industry (DoI), the government agency responsible for providing services to foreign investors, has developed a mechanism to approve foreign direct investments (FDIs) through the online channel. The mechanism allows the department to approve FDI worth Rs 100 million automatically. The government has already published a notice in this regard in the Nepal Gazette and the system will be implemented on Jestha 1. “Through the newly-developed mechanism, the government can approve FDI worth Rs 100m,” said Ram Chandra Tiwari, Director General of DoI. In the federal budget for the current fiscal year, the government has announced that foreign investment of up to Rs 100m will be approved through an automatic system. Accordingly, DoI has prepared the necessary software infrastructure. In addition, the amendment process of the Foreign Investment and Technology Transfer Regulation, 2077 BS has also been initiated to give it legal recognition. According to Tiwari, DoI has made necessary changes to the regulations and has sent it to the Ministry of Industry, Commerce, and Supplies for approval. The ministry will complete the process and send it to the cabinet for authorization. “We will implement the mechanism after the cabinet approves the regulations,” said Tiwari. “We also aim to increase the FDI threshold through the system in the near future.” At present, approvals of foreign investment proposals require going through paperwork which many investors see as tedious. As a result, there was a lot of trouble in getting foreign investment approved. However, after the implementation of the mechanism, investors can get approval for investments up to Rs 100m online without having to visit the DoI office. In addition, the department will also send the necessary documents to the Office of the Company Registrar (OCR) and include the documents in the registration process. However, investors will have to go to OCR to register the companies themselves. The introduction of the mechanism is expected to ease the approval process for foreign investments. According to Tiwari, the services will be more effective with the implementation of the new system. However, the investments to be approved by other ministries and agencies will not be done through this system. The technology has been developed in such a way that only investments in the areas specified in the regulations can participate in the automated process. Foreign investors can invest 100 percent or through a joint investment agreement with Nepali partners. The information on investment approval will be automatically sent to the bodies concerned such as the Nepal Rastra Bank and OCR etc. through the system. This system has already been implemented in Nepal's neighboring countries including India and Bangladesh. In Nepal, most FDIs are less than Rs 100m. So far, DoI has approved 5,545 FDI projects amounting to Rs 421bn.

With strong lobbying by the private sector in the last few days, the major political parties have agreed to make changes in the Bill to Amend the Commission for the Investigation of Abuse of Authority Act, 1991. The lawmakers from the ruling and opposition parties have submitted seeking amendments to the Bill which has provisioned to bring the private sector under the jurisdiction of the Commission for the Investigation of Abuse of Authority (CIAA). The apex bodies of the private sector strongly opposed the Bill after it was endorsed by the National Assembly recently. The Bill has provisioned that the anti-graft body will have the authority to investigate private sector bodies which are connected with the wider public interest. The Bill has widened the definition of public entities by incorporating the entities wholly and partly owned by the government, banks and financial institutions, commissions, corporations, academies and councils, among others. According to Ekram Giri, Spokesperson of the Federal Parliament Secretariat, many proposals for amendment have been received for the Bill related to CIAA. "The deadline for submitting the amendment proposal was Sunday. Many amendments have been proposed," he said, "We will move forward by integrating it." Lawmakers of Nepali Congress Arju Rana, Ramhari Khatiwada and Shyam Ghimire, Premlal Maharjan of CPN (UML), Sumana Shrestha of Rastriya Swatantra Party and Rajendra Pandey of CPN (Unified Socialist) have registered their amendments. If the Bill is endorsed by the House of Representatives incorporating the amendments of the parties, the private sector will be out of the purview of the CIAA. The bill passed by the lower house has to be endorsed by the National Assembly again. The Federation of Nepal Chambers of Commerce and Industries (FNCCI), Confederation of Nepalese Industries (CNI), and Nepal Chambers of Commerce (NCC) jointly met the Prime Minister Pushpa Kamal Dahal, Nepali Congress President Sher Bahadur Deuba and CPN (UML) Chairman KP Sharma Oli arguing that provisions in the bill will discourage the private sector and worsen the investment climate in the country. The private sector delegation was of the view that there are already around two dozen state and government agencies including Nepal Rastra Bank, Nepal Insurance Authority, the Department of Money Laundering Investigation, and the Department of Revenue Investigation to check the irregularities of the private sector. During the meeting with the FNCCI delegation, Prime Minister Dahal committed that the government would not make any law to control the private sector. Nepali Congress President Deuba and UML Chairman Oli also have assured that the private sector will not be discouraged.

The Nepal Telecommunication Authority (NTA) has prepared a preliminary draft of the framework for regulating over-the-top (OTT) platforms. The telecommunications regulator is proceeding with the process of making rules to regulate applications such as WhatsApp, Viber, Emo and Messenger. In the draft titled ‘OTT Regulation Framework’, the applications related to the streaming of voice and video services through the internet have been defined as OTT platforms. The proposed regulation has defined OTT as online services accessed and delivered over the public internet that may be a direct technical/functional substitute for voice/video telephony and text messages. It has been proposed that registration should be mandatory for providing services in Nepal through such applications. “OTT Providers shall be registered in Nepal for providing OTT Services in Nepal,” reads the draft of the regulations. A foreign OTT Provider is required to register a branch office in Nepal, pursuant to the Companies Act, 2006. However, the foreign OTT Provider can also appoint an Intermediary. “Such Intermediary must be registered, as per the Companies Act,” says the draft. The proposed regulation states OTT providers have to maintain security and privacy including network security and data protection issues, related to the consumers. OTT providers have also been asked to establish the Content Delivery Network (CDN) inside Nepal for the purpose of providing faster and more secure services to their Nepali users. Of late, the business of telecom companies in Nepal has declined due to the massive popularity of OTT platforms. As such platforms offer users to connect to other people through the internet, the telephony business of the telcos has taken a beating. According to NTA, the regulatory framework to regulate communication-based OTT services is being brought up keeping in mind issues such as regulatory imbalance, government tax, security threats, and revenue of the telecommunications operators. Over the last few years, debates have increased in the country to bring such service providers under the legal and tax scope. Starting from the current fiscal year 2022/23, a 2 percent digital service tax is being charged on services provided over the internet to Nepalis by non-resident persons. Operators of electronic services such as gaming, video, music and app downloads, streaming services, cloud services, and other services are taxable if their annual turnover exceeds Rs 2 million. The Inland Revenue Department (IRD) issued guidelines on Digital Service Tax from mid-July 2022 making it mandatory for digital service providers such as YouTube, Facebook, Twitter, Netflix, and others to register in Nepal. Recently, the global tech giant Google registered in Nepal's tax system to be the first big company to get registered following the Nepal government bringing a law to bring internet-based companies under taxation. According to IRD, the government will charge a two percent tax on every transaction happening on any of the Google platforms from now onwards. The government made the provision for the registration of internet-based platforms where financial transactions happen for the first time in the current fiscal year budget. Accordingly, a provision for the digital service tax has been introduced.

With the weak revenue collection, the government is struggling in managing resources while the process of formulation of the federal budget for the next fiscal year is gaining momentum. In the last few months, the government has tried to restart economic activities with a series of measures including lifting the import restrictions and land plotting restrictions, but the efforts have not been reflected in the revenue collection.

With resource management becoming an uphill task, the government has decided to scrap the projects that did not start their work by mid-April. The Finance Ministry has decided not to proceed with the projects that are yet to start preliminary works. 

Amid the resources crunch, the government a few months ago introduced austerity measures announcing to curtail expenses in a number of categories. The Finance Ministry has already shortlisted the projects and has sent a circular to the line ministries not to take forward projects that are not in top priority for now. The data of the nine months of the current fiscal year of the Finance Ministry show revenue collection remains dismal even after the import restrictions were lifted. The federal government’s half of revenue comes from taxing imported goods. The Department of Customs (DoC) and Inland Revenue Department (IRD), the key agencies of the revenue regime, have reported poor revenue collection as of mid-April of this fiscal. DoC managed to collect only Rs 34.76bn in revenue in Chaitra (mid-March to mid-April) against the target of Rs 57.29bn.

By the end of the third quarter of the current fiscal year, the department has managed to collect only Rs 285bn against the target of Rs 490bn, which is only 58 percent of the target. The story of IRD is also the same. The department has collected Rs 337bn in revenue as of mid-April, which is less than Rs 342.65bn collected during the same period last fiscal year 2021/22.

With DoC and IRD posting dismal results, the overall revenue of the federal government in the nine months of the current fiscal year has declined by 13.36 percent. The government’s revenue collection stood at Rs 683.20bn as of mid-April compared to Rs 789.26bn collected during the same period last fiscal year 2021/22, according to the Financial Comptroller General Office (FCGO).  The collected revenue has not been enough even to meet the recurrent expenditure of the government which stood at Rs 706.76bn as of mid-April. The total expenditure of the government stood at Rs 943.05bn. 

Continuous improvement in the external sector

With noticeable improvements in the country’s forex reserves, balance of payment (BOP), tourism income and remittance inflow, the recovery in the country’s external sector has continued. The country’s BOP is at a surplus of Rs 148.10bn in the eight months of FY 2022/23 compared to a deficit of Rs 258.64bn in the same period of FY 2021/22. 

In US Dollar terms, the BOP is at a surplus of 1.12bn in the current fiscal year compared to a deficit of 2.17bn in the same period of the last fiscal year. The country’s forex reserves increased by 15.2 percent in the review period. Nepal’s forex reserves stood at Rs 1,401.21bn in mid-March 2023 (Falgun) from Rs 1,215.80bn in mid-July 2022. In US dollar terms, the gross foreign exchange reserves increased by 12.1 percent to Rs 10.69bn in mid-March 2023 from Rs 9.54bn in mid-July 2022.

The central bank said that the foreign exchange reserves of the banking sector are sufficient to cover merchandise imports for 10.8 months, and merchandise and services imports for 9.4 months. Similarly, remittance inflows have increased by 25.3 percent to Rs 794.32bn in the review period. The inflow of remittances had decreased by 1.3 percent in the same period of the last fiscal year. 

Imports start to surge After the easing of the import restrictions, the country’s imports have started to surge again. Nepal imported goods worth Rs 143.123bn in Chaitra (mid-March to mid-April), the highest on a month-to-month basis, in the current fiscal year. The country imported goods worth Rs 139.22bn in Falgun (mid-February to mid-March), an increase of 10 percent compared to Magh (mid-January to mid-February).

Nepal had imported goods worth Rs 142.31bn in Bhadra (mid-August-mid-September), the second highest on a month-to-month basis in FY 2022/23. However, the country’s total imports in the first nine months of the current fiscal year are lower than the last fiscal year. According to DoC, goods worth Rs 1,201.508bn were imported in the current fiscal year compared to Rs 1,466.662bn during the same period of the last fiscal year. The imports during the first nine months of this fiscal have declined by 18.08 percent. 

Trade deficit decreased by 18 percent The country’s trade deficit has decreased by 17.06 percent in the nine months of the current fiscal year. According to DoC, the country’s total trade deficit has been limited to Rs 1,083.22bn in the nine months of FY 2022/23 compared to Rs 1,306.08bn during the same period of FY 2021/22.

The trade deficit declined this fiscal as the country’s total foreign trade shrunk by 18.89 percent during the review period. Both imports and exports have decreased in the current fiscal year. 

Tourist arrivals hit a four-year high in March Continuing the upward momentum in 2023, the arrival of tourists in March hit a four-year high signaling that tourism in Nepal has largely recovered from the impacts of the Covid-19 pandemic. The latest statistics of the Nepal Tourism Board (NTB) show tourist footfalls in March 2023 stood at 99,426, the highest since March 2019.

According to NTB, Nepal welcomed 42,006 tourists in March 2022, 14,977 tourists in March 2021, and 42,776 tourists in March 2020.  According to NTB, 227,755 tourists visited Nepal in the first three months of 2023. Tourist arrivals have surged by 35 percent in March compared to February. Nepal welcomed 55,074 international visitors in January, 73,255 in February, and 99,426 in March. 

Tourism income up by 98.6 percent

With international travel coming back to normalcy, Nepal’s tourism earnings have also recovered significantly. According to Nepal Rastra Bank, Nepal earned Rs 37.12bn in the eight months of FY 2022/23 compared to Rs 18.69bn during the same period of FY 2021/22. The country's tourism earnings nosedived in FY 2019/20, and FY 2020/21 due to restrictions on international travel as countries imposed various lockdowns to contain the spread of the Covid-19 pandemic.

Forex reserves surged by 15.2 percent The country's forex reserves increased by 15.2 percent in the eight months of the current fiscal year. According to the NRB report, Nepal’s forex reserves stood at Rs 1401.21bn in mid-March, 2023 (Falgun) from Rs 1215.80bn in mid-July 2022. In US dollar terms, the gross foreign exchange reserves increased by 12.1 percent to Rs 10.69bn in mid-March 2023 from Rs 9.54bn in mid-July 2022.

NRB in the report said the foreign exchange reserves of the banking sector are sufficient to cover merchandise imports for 10.9 months, and merchandise and services imports for 9.4 months.

Remittance inflow surged by 25.3 percent NRB has said that remittance inflow has increased by 25.3 percent to Rs 794.32bn in the eight months of the current fiscal year. Remittance had decreased by 1.3 percent in the same period of the last fiscal.

In US Dollar terms, remittance inflows increased by 14.8 percent to 6.09bn in the review period against a decrease of 2.6 percent in the same period of the previous year.

Petroleum products imports decline in quantity

The quantity of all petroleum products (diesel, petrol, LPG, and ATF) has declined in the nine months of FY 2022/23. The quantity of diesel imports decreased by 26.85 percent in the review period compared to the same period of FY 2021/22. However, the import value has increased by 6.07 percent.

Similarly, the quantity of petrol imports also declined by 9.25 percent but the import value increased by 5.30 percent.  This is mainly because of the surge in fuel prices caused by the Ukraine-Russia war.