VZCZCXRO1911
RR RUEHCI
DE RUEHKT #0025/01 0080427
ZNR UUUUU ZZH
R 080427Z JAN 09
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC 9626
INFO RUEHBJ/AMEMBASSY BEIJING 6773
RUEHLM/AMEMBASSY COLOMBO 7061
RUEHKA/AMEMBASSY DHAKA 2375
RUEHIL/AMEMBASSY ISLAMABAD 5107
RUEHLO/AMEMBASSY LONDON 6289
RUEHNE/AMEMBASSY NEW DELHI 2789
RUEHCI/AMCONSUL KOLKATA 4415
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 KATHMANDU 000025 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD ELAB ENRG PGOV NP
SUBJECT: NEPAL: ECONOMIC HIGHLIGHTS FOR THE MONTH OF 
DECEMBER 2008 
 
¶1. (U) Below is a compilation of economic highlights from 
Embassy Kathmandu for the month of December 2008, including 
the following: 
 
-- Inflation Up 
-- Trade Up, Revenue Up 
-- Electricity Crisis Deepens 
-- Tourism Figures Up 
-- Petroleum Products Fall 
-- Remittances Expected To Fall 
-- Head of National Planning Commission Steps Down 
 
Inflation Up 
------------ 
 
¶2. (U) Nepal Rastra Bank (NRB), Nepal's central bank, 
reported in December that year-on-year inflation in Nepal had 
increased to 14.5 percent, from 6.3 percent in the previous 
year.  The NRB attributed the increase to continuing high 
food and transportation costs.  According to a December 30 
World Food Program report, the price for various key 
foodstuffs decline for a second month in line with 
anticipated seasonal price trends, however, it is clear that 
this year's robust production is not enough to reduce prices 
to last year's levels.  Nepal Oil Corporation reduced 
gasoline prices (see item below), but transporters have yet 
to reduce prices accordingly.  The already high chicken 
prices are expected to increase again due to bird flu 
outbreaks in India (Assam and West Bengal).  Likewise, high 
sugar prices will increase because of a labor dispute between 
sugar farmers and the major sugar mill in Lumbini. 
 
Trade Up, Revenue Up 
-------------------- 
 
¶3. (U)  In the first four months of the 2008/2009 fiscal year 
(which began July 15), Nepali exports soared by almost 40 
percent over the comparable period in 2007/2008.  Exports to 
India increased by over 24 percent versus negative growth of 
almost 71 percent a year earlier.  Total imports grew by 
almost 39 percent as compared to 16 percent in FY 2007/2008. 
The Revenue Secretary at the Ministry of Finance was quoted 
on December 23 saying that for the first 5 months of the 
2008/2009 Nepali fiscal year (which began July 15), the 
Government of Nepal (GON) was on target for revenue 
collection.  The Nepali Rupees 43.06 billion (approximately 
USD 61 million at an exchange rate of NRs 70 to the dollar) 
collected represented a 33 percent increase over the previous 
year. 
 
Electricity Crisis Deepens 
-------------------------- 
 
¶4. (U) On December 3, the Nepal Electricity Authority (NEA) 
imposed 45 hours of power cuts ("load shedding") per week 
citing the fall in the production of energy because of a 
decrease in the water flow in Nepal's rivers.  (In September, 
NEA had increased weekly loadshedding to 31 hours.)  On 
December 17, the cabinet declared that an "energy crisis" 
existed, and announced a provisional plan to add some 200 MW 
to the national grid by mid-June by setting up thermal 
(diesel) plants.  Prime Minister Dahal subsequently publicly 
backed the thermal plant idea, which was widely criticized. 
On December 18, NEA increased weekly load shedding to 63 
hours per week -- 10 hours for six days and three hours for 
one day.  NEA's Managing Director warned that load shedding 
would reach 16 hours per day within three months.  On 
December 29, NEA increased load shedding by two hours per day 
to 77 hours per week. 
 
Tourism Figures Improve 
----------------------- 
 
¶5. (U) According to figures released by the Immigration 
Office at Tribhuvan International Airport in Kathmandu, the 
total number of visitors by air to Nepal in 2008 reached 
374,661.  With nearly 550,000 tourists (including arrivals by 
land) in 2008, arrivals increased by 4 percent over 2007, per 
the spokesman of the Nepal Tourism Board, Aditya Baral. 
Arrivals of 526,313 in 2007 had been the previous record for 
visitors to Nepal. 
 
KATHMANDU 00000025  002 OF 002 
 
 
 
Petroleum Product Prices Fall 
---------------------- 
 
¶6. (U) On December 3, the monopoly, state-owned Nepal Oil 
Corporation (NOC) reduced the price of petroleum products to 
take into account the decline in the international price of 
oil.  NOC lowered the price of gasoline, diesel, kerosene and 
aviation fuel each by NRs 5 (USD .06) per liter.  It left the 
price of cooking gas unchanged.  It added a surcharge in 
Kathmandu of 50 paisa (USD .005) per liter of gasoline, 
diesel and kerosene as a "pollution" tax.  Effective December 
27, NOC reduced prices again.  It cut the price of gasoline 
by NRs 5 (USD .06) per liter and diesel and kerosene each by 
NRs 1 (USD .01) per liter.  NOC cut the price of cooking gas 
by NRs 50 (USD 6) per 14 liter cylinder. 
 
Remittances Expected To Fall 
---------------------------- 
 
¶7. (U) On December 15, Krishna Bahadur Manandhar, the Acting 
Governor of the NRB stated that the NRB expected remittances 
would decline by almost 40 percent in the first four months 
of the 2008/2009 fiscal year in comparison to the previous 
year.  The Acting Governor attributed the decline to the 
world economic crisis.  He said that the depreciation of the 
Nepali rupee against the U.S. dollar and the holiday season 
might have raised the inflow temporarily but that increase 
was not sustainable.  He added that Nepal's remittance levels 
were not likely to be affected as severely as most 
remittances came from Gulf countries which had not yet been 
badly hit.  Remittances contribute more than 17 percent of 
Nepal's Gross Domestic Product. 
 
Head of National Planning Commission Steps Down 
--------------------------------------------- -- 
 
¶8. (U) Dr. Pitamber Sharma, who had been appointed on 
September 1 as vice chairman of the National Planning 
Commission (NPC), tendered his resignation on December 19. 
(Note: The Prime Minister is the chairman of the important 
long-term planning body.  End note.)  Sharma was reportedly 
unhappy over the Maoist-led government's appointment of NPC 
members in early November without prior consultation with 
him.  (Note: Even though the public outcry following the 
proposed November appointments meant the appointees have 
never taken up their positions, Sharma was so upset over the 
process he tendered his resignation. End note.) 
 
Comment 
------- 
 
¶9. (SBU) In December, Nepal's new Maoist-led government was 
able to take advantage of the dramatic fall in world 
petroleum prices to reduce prices.  Cooking gas, which is 
important to urban households, however, continues to be in 
short supply.  Other impacts of the global economic crisis 
have yet to hit, including an expected fall in remittances, 
exports and tourist arrivals.  With inflation still 
historically high, and the electricity crisis set to worsen, 
the coming weeks look likely to have little in good news on 
the economic front. 
 
Conclusion 
---------- 
 
¶9. (U) This is Embassy Kathmandu's first economic monthly. 
Post intends to make this a regular feature.  Happy New Year! 
POWELL