VZCZCXRO4102
PP RUEHCI
DE RUEHKT #0410/01 1340717
ZNR UUUUU ZZH
P 140717Z MAY 09
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC PRIORITY 0194
INFO RUEHBJ/AMEMBASSY BEIJING 6958
RUEHLM/AMEMBASSY COLOMBO 7279
RUEHKA/AMEMBASSY DHAKA 2601
RUEHIL/AMEMBASSY ISLAMABAD 5323
RUEHNE/AMEMBASSY NEW DELHI 3035
RUEHCI/AMCONSUL KOLKATA 4602
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHDC
RHHJJPI/PACOM IDHS HONOLULU HI

UNCLAS SECTION 01 OF 02 KATHMANDU 000410 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ELAB ENRG ETRD PGOV NP
SUBJECT: NEPAL: ECONOMIC HIGHLIGHTS FOR THE MONTH OF APRIL 
2009 
 
¶1. (U)  Below is a compilation of economic highlights from 
Embassy Kathmandu for the months of March and April 2009, 
including the following: 
-- Foreign Direct Investment Plunges 
-- Government Revenue Grows Faster Than Expenditures 
-- Exports Rise, But Imports Rise Faster 
-- Electricity Crisis Abates Slightly 
-- Tourist Arrivals Rise After Three Months of Decline 
 
Foreign Direct Investment Plunges Nearly 33 Percent 
--------------------------------------------- ------ 
 
(U)  Foreign direct investment (FDI) plunged nearly 33 
percent during the first nine months of the current fiscal 
year,  according to the Department of Industry (DOI).  FDI in 
the first nine months of the fiscal year, which started in 
mid-July 2008, totaled Rs. 5.35 billion (USD 67.8 million), 
as compared to Rs. 7.96 billion (USD 101 million) during the 
same period in the previous year.  The DOI reported that the 
decline occurred even though foreign investment in the 
services and tourism sectors increased by more than USD 4 
million.  According to the DOI, 150 FDI-funded projects were 
approved during the first three quarters of the current 
fiscal year, an 8-percent increase over the same period last 
year. The DOI's director of statistics explained that there 
were some "big-budget projects" in construction, 
manufacturing and minerals arrived last fiscal year, but 
"this year big projects did not knock on our door as 
expected."  India remained the largest source of FDI, 
followed by China, Singapore, Brazil and Cyprus.  During the 
period, FDI from the U.S. totaled Rs. 44 million (USD 
557,000), or about one-seventh of the level of investment 
from Cyprus. 
 
 
Government Revenue Grows Faster Than Expenditures 
--------------------------------------------- ----- 
 
(U)  Government revenue grew by 38.6 percent during the first 
eight months of the current fiscal year, outpacing growth in 
total government expenditures, which rose by 14.2 percent, 
according to the Nepal Rastra Bank (NRB), the nation's 
central bank.  The government ended the perod with a Rs. 11.3 
billion surplus (USD 143 million) in contrast to a deficit of 
Rs. 7 billion (USD 88.6 million) in the corresponding period 
of the previous year.  Overall expenditures were up despite 
the fact that capital expenditures fell by 15.9 percent to 
Rs. 14.7 billion (USD 186 million), a decline the NRB blamed 
on a number of factors, including delays in presenting the 
budget and formulating programs and irregular power supply. 
Non-tax revenues nearly doubled to Rs. 17 billion (USD 215 
million) during the period, as compared to last year, largely 
as a result of an increase in dividends public enterprises 
paid to the government, according to the NRB.  According to 
the central bank, there were also significant increases in 
income tax and excise tax revenues, which rose 42.6 percent 
and 27.9 percent respectively.   Income tax revenues totaled 
Rs. 14.5 billion (USD 186 million), with the NRB attributing 
increased receipts to strong administration of the 
government's new Voluntary Declaration of Income Source 
program. 
 
Exports Rise, But Imports Rise Faster 
------------------------------------- 
 
(U)  During the first eight months of the current fiscal 
year, exports rose by 17.1 percent in contrast to a 
2.9-percent decline during the same period last year, 
according to the NRB.  However, the central bank reported 
that export growth was outstripped by growth in imports, 
which surged by 26.1 percent during the period.  Exports to 
India, Nepal's largest market, rose a modest 3.6 percent, led 
by ready-made garments, footwear and toothpaste.  In the 
corresponding period last year, exports to India grew by 24.9 
percent.  Exports to other countries grew by 48.7 percent, 
nearly five times last year's rate.  The NRB attributed this 
robust growth to exports of legumes, pashmina, woolen 
carpets, herbs and paper products.  Officials with the 
government's Trade and Export Promotion Center have 
questioned the NRB's export claims, noting that their figures 
show that exports of both woolen carpets and pashmina have 
 
KATHMANDU 00000410  002 OF 002 
 
 
declined this fiscal year largely as a result of the global 
economic crisis and the easy availability of cheaper Indian 
and Chinese carpets.  Garment Association of Nepal (GAN) 
officials did not dispute the NRB's claim that there has been 
an increase in ready-made garment exports to India, but they 
pointed out that exports to the United States, which once 
accounted for 85 percent of Nepal's global market, have 
plummeted.  In April, according to the GAN, exports dropped 
to the United States amounted to only USD 529,500, about half 
the level in April 2008.  In 2004, the final year the 
Multi-Fiber Agreement's quota system was in effect, Nepal's 
ready-made garment exports to the United States totaled USD 
85.7 million. 
 
Electricity Crisis Abates Slightly 
---------------------------------- 
 
(U)  On April 18, the Nepal Electric Authority (NEA) cut 
load-shedding to 12 hours per day, four hours less than 
previously.  In some areas of the country, however, 
load-shedding remains at 16 hours per day.  At an 
international hydropower conference in Kathmandu in late 
April, an NEA official cautioned that up to 10 hours a day of 
load-shedding is likely "several years."  The week of the 
conference, government negotiations with India on the 
importation of 30MW broke off two days before an agreement 
was set to be signed.  NEA officials blamed the breakdown on 
India, claiming the Indian government put a hold on the 
agreement in response to Maoist-led Nepali government's 
efforts to sack the Chief of Army Staff.  Indian officials 
denied the charge, saying the talks stalled for financial, 
not political, reasons. 
 
Tourist Arrivals Up for First Time in 2009 
------------------------------------------ 
 
(U)  After three consecutive months of decline, tourist 
arrivals at Tribhuvan International Airport, Nepal's sole 
international airport, went up 15.8 percent in April, 
compared to the same month last year.  According to the Nepal 
Tourism Board (NTB), 37,819 tourists arrived by air in April, 
or about 5,150 more than in April 2008.  NTB officials 
attributed the increase to robust growth in the number of 
tourists arriving from elsewhere in Asia, with all nations in 
the region, except Japan, posting positive growth.  India 
accounted for nearly 22 percent of all arrivals.  In a 
prepared statement, NTB officials said that the April's 
growth "underscores the need to focus in the regional market 
at the time of economic crisis."  Despite the April increase, 
overall air arrivals for 2009 remain 8 percent below last 
year's level. 
 
Inflation Remains High 
---------------------- 
 
(U)  During the first eight months of this fiscal year, 
consumer and wholesale prices both increased at nearly double 
 last year's rate, according to the NRB.  The central bank 
said the 13.1-percent increase in consumer prices was driven 
mainly by a 17.1-percent increase in the price of food and 
beverages.  Sugar and sugar-related products prices rose 53 
percent, while vegetable and fruit prices increased nearly 22 
percent.  The NRB reported that the wholesale prices rose 
12.3 percent, driven largely by a 15.3-percent increase in 
agricultural commodities.  According to the bank, wholesale 
fruits and vegetable prices increased 31.8 percent, while 
livestock prices rose 23.2 percent. 
BERRY