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NepalECONOMIC SETTING, NEPAL
Nepal's economy is irrevocably tied to India. Nepal's
geographical position and the scarcity of natural
resources used in
the production of industrial goods meant that its economy
was
subject to fluctuations resulting from changes in its
relationship
with India. Trade and transit rights affected the movement
of goods
and increased transportation costs, although Nepal also
engaged in
unrecorded border trade with India. Real economic growth
averaged
4 percent annually in the 1980s, but the 1989 trade and
transit
dispute with India adversely affected economic progress,
and
economic growth declined to only 1.5 percent that year as
the
availability of imported raw materials for export
industries was
disrupted.
The Nepalese rupee (Rs or NRs; for value of the
rupee--see Glossary)
was linked to the Indian rupee. Since the late
1960s, the
universal currency has been Nepalese, although as of 1991
Indian
currency still was used as convertible currency. During
the trade
and transit dispute of 1989, however, Kathmandu made
convertibility
of the Indian rupee more difficult.
Agricultural domination of the economy had not changed
by 1991.
What little industrial activity there was largely involved
the
processing of agricultural products. Since the 1960s,
investment in
the agricultural sector has not had a parallel effect in
productivity per unit of land. Agricultural production
continued to
be influenced by weather conditions and the lack of arable
land and
has not always kept pace with population growth (see
table 9,
Appendix).
Nepal suffered from an underdeveloped infrastructure.
This
problem was exacerbated by a weak public investment
program and
ineffective administrative services. Economic development
plans
sought to improve the infrastructure but were implemented
at the
expense of investment in direct production and resulted in
a slow
growth rate. Further, economic growth did not keep pace
with
population growth. Largely dependent on agriculture,
economic
growth also was undermined by poor harvests. The growth of
public
expenditures during the first half of the 1980s doubled
the current
account deficit of the balance of payments and caused a
serious
decline in international reserves.
Data as of September 1991
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