Nepal Mongolia Bhutan

Country Profile 2002 Nepal Mongolia Bhutan This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at http://www.eiu.com/schedule The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

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China China India Bhutan Pakistan India Bangladesh Pakistan Nepal Mongolia (a) Mongolia (a) Bangladesh Bhutan Nepal 0 20 40 60 80 100 0.0 0.2 0.4 0.6 0.8 1.0 China Mongolia (a) Bhutan India Nepal Bhutan India Pakistan Bangladesh Nepal Pakistan Bangladesh Mongolia (a) China 0 2 4 6 8 0 2 4 6 8 10 Country Profile 2002 www.eiu.com The Economist Intelligence Unit Limited 2002

Nepal 1 Contents Nepal 5 Basic data 6 Politics 6 Political background 7 Recent political developments 9 Constitution, institutions and administration 10 Political forces 12 International relations and defence 13 Resources and infrastructure 13 Population 14 Education 14 Health 15 Natural resources and the environment 15 Transport, communications and the Internet 17 Energy provision 19 The economy 19 Economic structure 20 Economic policy 21 Economic performance 23 Economic sectors 23 Agriculture 24 Mining and semi-processing 24 Manufacturing 24 Construction 24 Financial services 25 Other services 26 The external sector 26 Trade in goods 29 Invisibles and the current account 29 Capital flows and foreign debt 30 Foreign reserves and the exchange rate 32 Appendices 32 Membership of regional organisations 33 Sources of information 34 Reference tables 34 Population 35 Energy consumption 35 Government finances 35 Gross domestic product 36 Gross domestic product by expenditure 36 Gross domestic product by sector 37 Consumer prices, national data

2 Contents 37 Consumer prices, IMF data 37 Money supply and interest rates 37 Production index of manufacturing industries 38 Tourism 38 Foreign trade 39 Balance of payments, IMF series 40 External debt, World Bank estimates 40 Foreign reserves 40 Exchange rates Mongolia 41 Basic data 42 Politics 42 Political background 42 Recent political developments 43 Constitution, institutions and administration 44 Political forces 45 International relations and defence 45 Resources and infrastructure 45 Population 46 Education 46 Health 46 Natural resources and the environment 47 Transport, communications and the Internet 47 Energy provision 48 The economy 48 Economic structure 48 Economic policy 50 Economic performance 50 Economic sectors 50 Agriculture 51 Mining and semi-processing 51 Manufacturing 52 Construction 52 Financial services 52 Other services 52 The external sector 52 Trade in goods 54 Invisibles and the current account 54 Capital flows and foreign debt 54 Foreign reserves and the exchange rate 56 Appendices 56 Sources of information 57 Reference tables 57 Population 57 Labour force

Nepal 3 58 Government finances 58 Government revenue 58 Government expenditure 59 Money supply and credit 59 Gross domestic product 59 Gross domestic product by expenditure 60 Gross domestic product by sector 61 Consumer prices 61 Crop production 61 Livestock numbers 61 Meat production 62 Mineral production 62 Output of selected industrial products 62 Main trading partners 63 Balance of payments, IMF estimates 64 External debt 64 Net official development assistance 65 Foreign reserves 65 Exchange rates Bhutan 66 Basic data 67 Politics 67 Political background 68 Recent political developments 69 Constitution, institutions and administration 69 Political forces 70 International relations and defence 71 Resources and infrastructure 71 Population 71 Education 72 Natural resources and the environment 72 Transport and communications and the Internet 72 Energy provision 73 The economy 73 Economic structure 74 Economic policy 74 Economic performance 75 Economic sectors 75 Agriculture 75 Mining and semi-processing 75 Manufacturing 75 Construction 76 Financial services 76 Other services 76 The external sector 76 Trade in goods

4 Contents 77 Invisibles and the current account 77 Capital flows and foreign debt 77 Foreign reserves and the exchange rate 78 Appendices 78 Membership of regional organisations 79 Sources of information 80 Reference tables 80 Government finances 80 Interest rates 80 Gross domestic product by sector 81 Consumer price index 81 Agricultural production 81 Electricity production and exports 81 Exports to India by product 82 Imports from India 82 Trade data by country 83 Balance of payments, IMF series 83 External debt, World Bank estimates 83 External debt, national data 84 Foreign reserves 84 Exchange rates

Nepal 5 Nepal Basic data Land area Population Main towns 147,181 sq km 22.7m (2001 census) Population in 000, 2001 estimates (Central Bureau of Statistics) Kathmandu (capital) 671.8 Biratnagar 166.6 Lalitpur 162.9 Pokhara 156.3 Climate Weather in Kathmandu (altitude 1,337 metres) Languages Measures Currency Fiscal year Time Public holidays in 2002 Temperate (harsh with extreme cold at high altitudes) Hottest month, July, 20-29 C (average daily minimum and maximum); coldest month, January, 2-23 C; driest month, December, 3 mm average rainfall; wettest month, July, 373 mm average rainfall Nepali (official). There are other national languages and English is widely used in commerce Metric system; local units also used include 1 seer=0.933 kg; 1 maund=40 seer; 1 ropani=0.05087 ha; one bigha= 0.6773 ha Nepalese rupee (NRs)=100 paisa. Effectively pegged since 1993 to the Indian rupee at a rate of NRs1.6:Rs1. Annual average exchange rate in 2001: NRs74.95:US$1. Exchange rate on October 23rd 2002: NRs76.8: US$1 July 16th-July 15th 5 hours 45 minutes ahead of GMT National Unity Day, January 11th; Martyrs Memorial Day, January 30th; Spring Day, February; National Democracy Day, February 19th; Shiva Festival, March 1st; Women s Day, March 8th; Holi Festival, March 17th; New Year s Day, April 14th; Ram s birthday, April 21st; Buddha s birthday, May 26th; King Gyanendra s birthday July 7th; Krishna s birthday, August 30th; Teej (women only), September 9th; Rishi Panchami/Rakshya Bandhan, September 11th; Rain God Festival, September 20th; Ghatasthapana and Dasain, October 12th-17th; Festival of Lights, November 5th-6th; Constitution Day, November 9th; various regional holidays

Nepal 6 Politics Nepal is a constitutional monarchy. King Gyanendra is the head of state and Hinduism is the state religion. There are no significant restrictions on political parties. Following five years of unstable governments, the Nepali Congress (NC) won a firm majority in May 1999, but since then Nepal has had three prime ministers, the last of which was Sher Bahadur Deuba, owing to factionalism within the NC. Mr Deuba dissolved parliament in May 2002 and called for a general election in November. However, in early October he asked King Gyanendra to delay the election. The king responded by dismissing Mr Deuba and assuming executive power. He subsequently appointed Lokendra Bahadur Chand as prime minister. Political background The Gorkha principality unites Nepal from the 18th century A constitutional monarchy is formed in 1951 Party-less panchayat democracy The modern history of Nepal dates from the second half of the 18th century when one of the many principalities of the region, Gorkha, began to expand under the leadership of Prithivi Narayan Shah. Before the expansion was halted by the British in 1814-16, more than 75 of the small hill principalities had succumbed to the Gorkha armies, bringing all of the sub-himalayan hill areas between Bhutan in the east and the Sutlej River in the west under its control. Nepal s Shah monarchy dates back to 1768 when Prithivi Narayan Shah conquered Kathmandu. The Shah dynasty retained its political prerogatives until 1846, when Jung Bahadur Rana gained political control, extracting a decree from the king that left only a nominal role for the monarch and transferred all sovereign powers to the Rana family, who ruled as hereditary prime ministers. This system endured for just over a century, with the Ranas presiding over an isolationist regime that kept most Nepalese in dire poverty. In 1950, however, King Tribhuvan fled to India, sparking a revolt against Rana rule. He returned to Nepal in January 1951 under an accord brokered by the Indian prime minister, Jawaharlal Nehru, that recognised the pre-eminent role of the monarch, legalised political parties and permitted non-rana prime ministers. For eight years the king ruled the country as political parties developed and a constitution was drafted. King Mahendra (who reigned between 1953 and 1972) issued Nepal s first constitution in 1959 and the first democratic election for a national assembly was held that year, resulting in a victory for the Nepali Congress (NC) under Bishweshwar Prasad Koirala. In 1961 King Mahendra declared democracy a failure and dismissed the government. In 1962 he promulgated a new constitution establishing a new political structure, the party-less panchayat system. This system banned political parties and created panchayats, or councils, at the village, district and national levels. These panchayats advised the king, who regained absolute power. Protests against the panchayat system broke out in 1979, prompting King Birendra (1972-2001) to hold a constitutional referendum in which voters were asked to decide between continuing the panchayat system with some reforms

Nepal 7 and reintroducing a multiparty system. A narrow majority voted in favour of a reformed panchayat system. Direct, but still non-party, elections to the 140-member National Panchayat (parliament) were held in 1981 and 1986. Recent political developments A constitutional monarchy is established in 1990 In April 1990 the panchayat system collapsed. This was partly the result of a year-long economic blockade by India and was inspired by the downfall of authoritarian regimes in eastern Europe. From February 1990 the Movement for the Restoration of Democracy (MRD) consisting of the NC and the United Left Front (ULF), a coalition of seven leading communist factions organised popular demonstrations that led to the system s disintegration. The last panchayat prime minister, Lokendra Bahadur Chand, resigned on April 15th 1990. On November 9th King Birendra promulgated a new constitution under which he became a constitutional monarch and multiparty democracy was guaranteed. Important recent events October 1997 A coalition government comprising the National Democratic Party (NDP), the Nepali Congress (NC) and the Nepal Sadbhavana Party (NSP) is formed. The new prime minister is the NDP s Surya Bahadur Thapa. April 1998 The NC forms a minority government supported by the Communist Party of Nepal- Marxist-Leninist (CPN-ML) and the NDP, with Girija Prasad Koirala as prime minister. May 1999 A parliamentary election gives the NC a firm majority in the 205-seat House of Representatives, with 111 seats (later bolstered by election victories to 113). Krishna Prasad Bhattarai becomes prime minister. March 2000 The NC president, Mr Koirala, ousts Mr Bhattarai and becomes prime minister. June 2001 A shootout at the royal palace on June 1st leaves King Birendra and nine members of the royal family dead. Crown Prince Dipendra is said to have killed them before shooting himself. The late king s brother, Gyanendra, becomes king on June 4th. Mr Koirala resigns on July 19th and Mr Deuba becomes prime minister on July 22nd. November 2001 After an escalation of Maoist violence the government asks King Gyanendra to declare a state of emergency. The government declares the Communist Party of Nepal (Maoist) a terrorist organisation and sends the army to fight the rebels. October 2002 King Gyanendra dismisses the government after Mr Deuba tries to delay a planned election. Lokendra Bahadur Chand is appointed prime minister.

8 Nepal Democratic elections and coalition governments The NC wins a majority King Birendra is murdered The NC, led by Girija Prasad Koirala, won a majority in the May 1991 election, but he resigned in July 1994 after losing the support of dissidents within his own party. An election in November 1994 returned a hung parliament, in which the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) was the largest party. The following five years saw five unstable and unproductive coalition governments. In the third parliamentary election, held on May 3rd and 17th 1999, the NC won a majority. Krishna Prasad Bhattarai was prime minister for ten months before being toppled by Mr Koirala, who became prime minister for the fourth time in March 2000. Crown Prince Dipendra is believed to have shot dead his father, King Birendra, and nine other members of the royal family on June 1st 2001. However, conspiracy theories abound, fuelled by Prince Dipendra s popularity and the contradictory evidence offered by eyewitnesses. Prince Dipendra became king while in a coma on June 2nd, but died the following day. King Birendra s brother, Gyanendra, was crowned on June 4th as the 13th king of the Shah dynasty. Continued factionalism in the party, non-co-operation from Mr Bhattarai s supporters and an uneasy relationship with the new king caused Mr Koirala to resign on July 19th 2001. Sher Bahadur Deuba, the current prime minister, was the leader of Mr Koirala s opponents in the ruling party. Immediately after his appointment Mr Deuba brokered a truce with the Maoist insurgents and invited them to talks. On October 28th King Gyanendra declared his son, Paras, crown prince. The timing, during the king s traditional address during Dasai, the most important Nepalese festival, seemed to be chosen to catch the political parties, which had been debating the role of the royal family, off guard. King Gyanendra declares a state of emergency Violent attacks by Maoist insurgents led King Gyanendra to declare a state of emergency on November 26th 2001, embroiling the government in its second major crisis in less than six months. In May 2002 Mr Deuba dissolved parliament in preparation for the holding of a new general election, planned for November. However, in early October he asked the king to postpone the election, owing to the security situation. On October 4th King Gyanendra dismissed the government and said that he would form an interim government before holding a general election. He quickly appointed a leader of the National Democratic Party (NDP), Lokendra Bahadur Chand, as prime minister. The Maoist insurgency Nepal s democratic governments have been tarnished by horse-trading and corruption. This has contributed to the growth of an armed insurgency, led by the Communist Party of Nepal-Maoist (CPN-M). In August 2002 the military estimated there were about 3,000-4,000 hardcore guerrillas, a further 10,000-15,000 local militias and 150,000-200,000 supporters. By November 2001 the Maoists had effectively neutralised the central government administration and formed peoples governments in over 20 districts. Peace talks fail

Nepal 9 Sher Bahadur Deuba s government held the first round of peace talks with the Maoists on August 30th 2001 after calling a ceasefire on August 23rd. The Maoists responded immediately and called off all pre-planned attacks. The government and the Maoists met again in early November 2001, but the rebels called off the talks on November 21st. The Maoists demands include the formation of an interim government and the writing of a new constitution that recognises Nepal as a republic the rebels argue that a republic was inaugurated with the royal massacre in June 2001. The government says that it is ready to discuss constitutional changes which might include changes to royal and prime ministerial powers but not Nepal s multiparty democracy and constitutional monarchy. The Maoists made fresh overtures for talks after November 2001, but the government has said that talks cannot take place unless the rebels surrender their weapons or are disarmed. Fighting escalates On November 23rd 2001 the Maoists launched their first frontal attack on the military. In response, on November 26th the government declared a state of emergency and sent the army to disarm them. Nepal remained under a state of emergency until August 29th 2002. According to the military, security forces had killed about 3,800 Maoists (or suspected Maoists) by October 2002 and the Maoists had killed 205 soldiers. Human-rights groups have accused both the Maoists and the security forces of excesses, especially since the emergency was imposed. One campaigning group, the Informal Sector Service Centre (INSEC), said in early October 2002 said 4,677 people had died since the state of emergency was imposed and that 6,479 people had died since the Maoists launched their people s war. The government clamped down on the pro-maoist press and arrested pro-maoist journalists immediately after ordering the state of emergency. A newspaper editor, Krishna Sen, who is said to be a member of the Maoist central committee, was arrested on May 20th and is believed to have been killed in custody. In mid-august the Paris-based Reporters sans Frontières accused Mr Deuba of turning Nepal into the world s biggest prison for journalists. The Maoists have continued to launch surprise attacks against the security forces: on February 16th 2002 they overran the military barracks at Mangalsen in Accham district, killing over 137 security personnel and civilians. The rebels overran the joint army-police garrison in Gam, Rolpa district, in early May and attacked the military barracks at Khara, Rukum district, on May 7th, but were repelled. The rebels struck again on September 7th-8th 2002, attacking police bases at Bhiman, Sindhuli district, about 150 km from Kathmandu, and Sandhikharka, 300 km West of the capital, the following day. Government offices were destroyed and over 100 security officials killed. The Maoists target infrastructure The Maoists have attacked and damaged telecommunications towers, hydroelectric installations and Village and District Development Committee (VDC and DDC) offices. They began targeting VDCs and DDCs, the elected local-level institutions and the seat of grassroots democracy, in late March 2002. By May they had plundered over 1,000 VDC buildings. The official estimate of the losses in terms of damaged infrastructures was US$250m and the government estimated that repairs alone could cost about US$100m. Newspapers reported that the state-owned insurance company had received claims of about NRs350m (US$4.6m) for insurgency-related losses. The Maoist attacks on infrastructure are aimed at causing maximum disruption. In mid-july 2002 the government increased spending on the military and police and cut funding for development projects. The budgetary allocation to the army and the police in 2002/03 was NRs13.53bn (US$176m), compared with NRs10.3bn in 2001/02. Donor money has also gone towards bolstering the war effort. The US and the UK have announced special aid packages, of US$20m and US$10m respectively, aimed at helping the military and India has provided hardware (including two helicopters). China has said that it supports the government s actions, but has not provided military support. In November 2002 the government and the Maoists were both making positive comments about talks, but no real progress had been made. Constitution, institutions and administration The lower house holds the power The 205-member House of Representatives, or lower house, which is currently dissolved, is the effective legislative body and is elected by universal suffrage every five years. The party with the majority of seats elects a leader, who is appointed prime minister by the king. The prime minister names the council of ministers, also appointed by the king. The upper house, the National Assembly,

10 Nepal comprises 60 members, of whom 35 are elected by the House of Representatives, 15 are elected by the heads of local and regional development committees (local government units) and ten are appointed by the king. Members serve staggered six-year terms. The National Assembly has the right to initiate bills (except finance bills) and to review, amend and reject bills passed by the House of Representatives. The lower house may override, by a simple majority vote, any action taken by the upper house. Under certain conditions the king may declare a state of emergency, but the House of Representatives must ratify such a decision within three months. After an interim upper house election on June 26th 2001, the CPN-UML emerged as the largest party in the National Assembly with 23 seats, leaving the NC government reliant on the support of the king s nominees and other opposition parties to get legislation passed. The NC had 21 seats in the upper house. The king had appointed only nine of his 10 nominees and one member had resigned his seat in early September 2002, leaving only 58 National Assembly seats filled in early October. However, the constitutional situation since the dismissal of Mr Deuba is opaque. A fairly independent judiciary Since 1990 the judiciary has often been called upon to interpret the new constitution. Despite the extent to which politics pervades public life in Nepal, the judiciary has largely remained above the political fray, although allegations of corruption have been levelled against it. The judiciary comprises 75 district, 16 appeals and one special court, and a Supreme Court. Political forces A handful of major national parties and some regional parties have been established, all of which are plagued by factionalism. The Nepali Congress The Nepali Congress (NC) was established in 1947 in India, and many of its early leaders, including Bishweshwar Prasad Koirala (the prime minister in 1959-61), had close ties with the Indian National Congress. The Koirala family still plays a dominant role in the party. The NC opposed Rana rule in the late 1940s and the panchayat system in the 1970s and 1980s. Since the restoration of democracy it has maintained itself as the natural party of government despite failing to develop a clear ideological identity. It advocates democratic socialism, but has become the champion of free-market liberalisation. The main factional division is that between the supporters of two septuagenarians, Girija Prasad Koirala and Krishna Prasad Bhattarai. The extent of the discontent within the party became clear in May 2002, when Sher Bahadur Deuba the prime minister and a protégé of Mr Bhattarai was expelled from the party for disobeying a party order asking him not to extend the state of emergency. Mr Deuba then tried to engineer a coup within the party, but the Election Commission (EC) on September 17th ruled that the NC, now dominated by Mr Koirala s faction, could use the NC s traditional election symbol in the election called for November 13th. It took the EC over three months to make this decision and this gave Mr Deuba only one week to register a new party; in late September he launched a rival party, the Nepali Congress-Democratic.

Nepal 11 The communist parties The original Communist Party of Nepal was established in the late 1940s, but Nepal now boasts an array of rival communist parties with similar-sounding names. The Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) was formed in 1990 when the Communist Party of Nepal (Marxist-Leninist) and the Communist Party of Nepal (Marxist) merged. The UML split once more in 1998 when a hardline faction led by Bam Dev Gautam formed the Communist Party of Nepal-Marxist-Leninist (CPN-ML), but this splinter won no seats in the May 1999 election. The CPN-ML remerged with the parent CPN- UML on February 15th 2002, but part of it remained independent. Nepal has numerous other small communist parties, some of which have occasionally won parliamentary seats. Main political figures Lokendra Bahadur Chand A senior leader of the National Democratic Party, Mr Chand was appointed as prime minister in October 2002, having twice served as prime minister before 1990. Sher Bahadur Deuba Nepali Congress (NC) prime minister in September 1995-March 1997 and July 2001- October 2002. Mr Deuba is now the leader of the Nepali Congress-Democratic following his expulsion from the NC in May 2002. Girija Prasad Koirala The president of the NC and a former prime minister (1991-94, 1998-99 and March 2000-July 2001). Krishna Prasad Bhattarai A former NC prime minister (1990-91 and May 1999-March 2000). Ram Chandra Poudel A former deputy prime minister and a senior NC leader. He has sat on the fence throughout the recent NC squabbling and chose to stay in the party led by Mr Koirala after the expulsion of Mr Deuba in May 2002. Madhav Kumar Nepal The general secretary of the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) and the leader of the main opposition in parliament. He was deputy prime minister from December 1994 to September 1995. Bam Dev Gautam The leader of the Communist Party of Nepal-Marxist-Leninist (CPN-ML) that broke away from the CPN-UML only to reunite with it in early 2002. He was formerly deputy prime minister and CPN-UML general secretary. King Gyanendra Head of state. The Maoists The Maoist insurgency that began in February 1996 has two main leaders. Puspa Kamal Dahal, who goes by the nom de guerre Comrade Prachanda, leads the Communist Party of Nepal-Maoist (CPN-M). Prachanda became chairman of the party in February 2001 and also presides over the party s central military

12 Nepal commission. The other influential leader is a former town planner, Baburam Bhattarai, who was previously president of the United People s Front of Nepal, essentially a front organisation for the CPN-M. The Maoists want to overthrow the constitutional monarchy and establish a communist republic. Other parties Composed of politicians from the defunct panchayat system, the National Democratic Party (NDP) played the role of kingmaker in the 1994-99 hung parliament. In 1998 it split into the two factions, the NDP-Thapa and the NDP- Chand. After the 1999 election the NDP-Thapa was the third largest party in parliament, but the NDP-Chand was voted out of parliament. The NDP-Thapa and a faction from the NDP-Chand merged after the election, but the party s influence in the last parliament was minimal. Election results (Nov 15th 1994 and May 3rd-17th 1999) Smaller parties in parliament, such as the Nepal Workers and Peasants Party (NeWPP), the National People s Front (NPF), the United People s Front Nepal (UPFN) and the Nepal Sadbhavana Party (NSP), have also become largely redundant in the power equation, although the Nepal Sadbhavana Party has considerable influence in the plains districts bordering India and has been represented in parliament in every election since 1990. 1994 1999 No. of votes % of total No. of seats % of total No. of votes % of total No. of seats % of total Nepali Congress (NC) 2,545,287 33.4 83 40.5 3,214,068 37.3 111 54.1 CPN-UML a 2,352,601 30.9 88 42.9 2,728,725 31.7 71 34.6 NDP b 1,367,148 17.9 20 9.8 899,511 10.4 11 5.4 NSP c 265,847 3.5 3 1.5 277,239 3.2 5 2.4 NPF d - - - - 121,394 1.4 5 2.4 UPFN e 100,285 1.3 0 0.0 70,119 0.8 1 0.5 NeWPP f 75,072 1.0 4 1.9 48,015 0.6 1 0.5 CPN-ML g - - - - 567,987 6.6 0 0.0 NDP-Chand h - - - - 293,952 3.4 0 0.0 Independents 471,324 6.2 7 3.4 242,877 2.8 0 0.0 Total incl others 7,625,348 100.0 205 100.0 8,618,896 100.0 205 100.0 a Communist Party of Nepal-Unified Marxist-Leninist. b National Democratic Party; in 1999 NDP-Thapa (Thapa faction). c Nepal Sadbhavana Party. d National People s Front. e United People s Front Nepal. f Nepal Workers and Peasants Party. g Communist Party of Nepal-Marxist-Leninist. h National Democratic Party, Chand faction. Source: Election Commission. International relations and defence A minnow between regional giants The relationship with India dominates Nepal s position between two regional powers, India and China, obliges it to conduct its external relations pragmatically. A policy of non-alignment globally as well as regionally has persisted, but close historical links with India have made Nepal more susceptible to pressure from the south. It is a member of the South Asian Association for Regional Co-operation (SAARC), whose headquarters are in Kathmandu. Relations with India revolve around the 1950 Peace and Friendship Treaty that gives India an advantageous position in security matters, investment and

Nepal 13 employment opportunities. Moreover, because Nepal is landlocked, it is subject to Indian pressure when bilateral trade and transit agreements come up for renewal. Several trade and transit treaties have been agreed since 1989, as has a major treaty providing for joint development of the water resources of the Mahakali River, but disputes over border demarcation have persisted for over 20 years and a dispute has recently broken out over India s construction of embankments near the border, which have caused inundation and flooding in Nepal. Nepal and India signed a preferential trade treaty in December 1996 and amended it in March 2002; it should have been renewed automatically, and would have been, had India not formally requested renegotiation of origin rules and safeguards. The revised treaty has fixed quotas for four Nepalese exports, effectively ending preferential treatment for them beyond a certain level. Between 1996/97 and 2000/01 Nepal s exports to India grew almost fivefold to Rs26.03bn (US$540m), and imports from India doubled to Rs45.21bn. The role of China The military is being expanded China has historically served as a counterweight to Indian influence, but with severe limitations imposed by topography in the form of the Himalayan mountain range that separates the two countries. China supported the royalist regime in the early 1960s, whereas India backed armed raids by NC supporters from Indian territory. High-level visits in recent years have strengthened ties, and China has been a substantial aid provider. The Nepalese government upholds the One China policy and discourages political activity by Tibetan exiles within its territory. Nepal s defence forces number about 48,000 men. In 2001/02 the government approved 5,000 new recruits and the military plans to add another 5,000 men in 2002/03. The Royal Nepalese Army and police personnel regularly participate in UN peacekeeping operations. In 2001 the government also began setting up a paramilitary force, the Armed Police Force (APF), which is to comprise up to 15,000 men. Resources and infrastructure Population Rapid population growth According to the 2001 census, Nepal s population was 22.73m people, comprising 102 different ethnic and caste groups. Only 9% of the population lived in urban areas. In terms of geographical distribution, 7.3% live in the mountain districts, 44.3% in the hill districts and 48.4% in the Terai, or plains, in the south. There is steady migration from the impoverished hill and mountain areas to the Kathmandu valley and to the Terai plains region abutting India. The population grew at an annual average rate of 2.4% between 1991 and 2001 and the growth rate has been especially high in the Kathmandu Valley. This has been despite high rates of infant mortality (64.1 per 1,000 live births in 2001/02) and life expectancy of just 59.7 years at birth. (Reference table 1 provides historical population data.) Population by age 2001

14 Nepal Age range (years) Population (m) % of total 0-14 8.94 39.35 15-19 2.38 10.51 20-24 2.01 8.87 25-29 1.72 7.59 30-34 1.48 6.55 35-39 1.31 5.76 40-44 1.08 4.79 45-49 0.92 4.06 50-54 0.76 3.37 55-59 0.60 2.65 60-64 0.52 2.29 65-69 0.38 1.70 70-74 0.27 1.20 Over 75 0.29 1.30 Source: Central Bureau of Statistics, Census 2001. Education Slow progress in education Before 1951 education was virtually non-existent; in that year the literacy rate was just 5%. Since then the education system has been built from scratch, but progress has been agonisingly slow and the system remains patchy and of poor quality. In 2001 adult (above 15 years of age) literacy was 53.7%, male adult literacy was 65.1% and female adult literacy 42.5%. The government is the major education provider and in 2000/01, according to the government, about 84% of primary and secondary school students were enrolled in government schools. Of 37,566 schools at the primary and secondary level, 25,927 are in the public sector. Private schools educate about one million pupils and have higher teacher-student ratios (1:22, compared with 1:44 in public schools). The government spends about 8% of its development budget on education, most of which goes on primary-level education. The government has tried to broaden access to higher secondary-level education: in 2000/01 775 schools offered higher secondary-level education to 49,050 students. The Education Act was amended in 2001 to classify schools into two categories: community schools, which receive government grants, and institutional schools, which are run by trusts or as private companies. In July 2002 the government began handing over school management to village and district development committees, in an attempt to increase the accountability of teachers. Since 2001 the education system has faced a new challenge from the pro-maoist student union, the All-Nepal Free Students Union-Revolutionary (ANFSU-R), which has threatened both teachers and school authorities, and forced many private schools to shut down. So far the Maoists have killed about 30 teachers the whereabouts of another 11 are unknown and caused a further 250 to leave their districts. Security forces had detained or arrested 600 teachers by August 2002 for alleged association with the Maoists. The Maoists demands include free universal education and the nationalisation of private schools. Primary school enrolment statistics are overstated Successive governments have promised to make primary education free and compulsory for all, but it is unclear how many children attend primary school. Official enrolment statistics the government claimed that 3.62m students were

Nepal 15 enrolled at the primary level in 2000 are not credible. Many students never make it past primary school and drop-out rates are high. Total enrolment in lower secondary and secondary schools was 1.3m in 2000. Nepal s largest university, Tribhuvan University (TU), enrols the vast majority of all undergraduates in its 61 publicly funded campuses and 191 privately run affiliated campuses. In 2001/02 the TU had 177,858 students, but produced only 434 graduates in engineering, medicine and forestry at the Master s level. The TU suffers from administrative chaos and many students never obtain a degree. Nepal s four other universities had about 11,000 students in 2001/02. Health A multitude of health problems The government is the main healthcare provider Nepal scores poorly on virtually every public health indicator. Life expectancy at birth is 59.7 years one of the lowest in South Asia up from 43.3 years in 1970-75. The official estimate of infant mortality (64.1 per 1,000 live births in 2000/01) is an improvement from 165 per 1,000 in 1970 and 199 per 1,000 in 1960. In 2001/02 only 14% of deliveries were assisted by trained health personnel, the coverage of health services to pregnant women was 42% and 16.5% of all children under three years of age were malnourished. According to the National Planning Commission (NPC) and UNICEF, 79.9% of the population had access to safe drinking water in 2000, but only 29.4% of the population had access to clean lavatories. The percentage of fully vaccinated children was 54.5% in 2000, up from 43.3% in 1996. In December 2000 Nepal had 455 cases of AIDS and 1,807 people had tested HIV positive. The government is the main institutional health provider, but does a woefully inadequate job. In an efficiency drive in 1995, it closed nearly one-quarter of its hospitals. Since then the number of hospitals has increased, standing at 89 in 2001/02, and the number of beds in government hospitals has reached 5,310, still far below Nepal s needs. Since the early 1980s, hospitals have been supposed to be supplemented by village clinics that provide preventive and simple curative health services. It is difficult to say how many of these clinics are functional, and the Maoists have destroyed many of them and scared away health workers. Trained medical staff generally avoid working in remote areas. Another problem is financial: hospitals and clinics charge on a fee-for-service basis, and most Nepalese have neither insurance nor the funds to pay for health services. Natural resources and the environment A wide range of climates The topography of Nepal varies greatly. In the south are the plains of the Terai and the forest-clad slopes of the lower hills, which rise to about 1,200 metres; in the central region are a succession of mountains varying in height from 1,200 to 3,000 metres; and the Himalayan region consists of mountains ranging from 3,000 metres to the 8,848-metre Mount Everest. Of Nepal s 75 districts, 16 lie in the mountain region, 39 in the middle hills and 20 in the Terai. About 70% of total cultivated land lies in the Terai.

16 Nepal The forested area has declined over the past 30 years because of the extensive use of firewood as fuel, uncontrolled grazing, the clearance of land for cultivation and overexploitation of forests for commercial purposes. In 1994 29% of the land area was forested. A 1993 policy giving ownership and management of forests to local communities has helped to slow the rate of deforestation. In July 2002 11,170 community forest user groups owned and managed 865,352 ha of forests. Both the number of these groups and the area of forest cover that they have helped to regenerate has increased every year since the introduction of the policy. Nepal has 19 national parks, conservation areas, hunting areas and protected buffer zones, which collectively account for 26,971 sq km. Transport, communications and the Internet Roads Railways Air services In March 2001 Nepal had 15,702 km of roads, of which only 4,593 km were covered. The remainder frequently get washed away during the rainy season. Most hill and mountain trails are suitable only for pedestrians and pack animals and ten districts had no road suitable for motor vehicles in 2001. The pace of road building stagnated in the 1980s, but accelerated with the restoration of democracy, and road mileage has more than doubled since 1990. Nepal s road building is reliant on foreign aid. China built the highway linking Kathmandu with Kodari on the Chinese border in 1967 and a second road to China is also being built with Chinese aid. Nepal had 338,894 registered motor vehicles in March 2001, of which almost 60% were motorcycles and over 50% were based in the Kathmandu Valley. A 5.3-km broad gauge railway connecting Nepal s inland container depot in Birgunj with India s rail network was completed in February 2001, but remained unused in August 2002 because Nepal and India could not agree on how to run it. The line would allow direct transport of cargo to Indian ports. Nepal s other rail line is a 51-km spur (of which 22 km are in Nepal) connecting Janakpur with Jayanagar in Bihar, India. The line, built in 1936, was operated by the Nepal Transport Corporation, which the government shut down in 2001. Nepal has 45 airfields, but Tribhuvan International Airport in Kathmandu is the only significant international airport. It handles less than a dozen international flights a day and in June 2001 Singapore Airlines cancelled its services to Nepal. The 1998 revision of the bilateral air agreement with India relieved some congestion and increased the weekly seating capacity on routes to New Delhi from 4,000 to 6,000 and on routes to Bombay from 600 to 1,200. Royal Nepal Airlines Corporation (RNAC), the national carrier, cancelled all flights to Europe in September 2001 to concentrate on regional routes, and there is a private airline that flies to Patna, Calcutta and Varanasi in India. Most international air cargo comes from Bangkok or the Persian Gulf, but delays are common. Most of Nepal s airfields are suitable only for small aircraft. Over 120 helipads help to provide access to many remote mountain areas. The RNAC is poorly run and overstaffed, and has almost been displaced from the main domestic routes by private airlines (allowed since 1992). Nepal has issued air operator

Nepal 17 licences to 32 private companies. In August 2002 it published a list of the RNAC s debtors that included foreign embassies and government departments and ministries. RNAC s payable dues in September 2002 added up to more than Rs2bn (US$42m) and it had only two Boeing 747s and half a dozen small aircraft for domestic operations. The government is planning to break up the corporation into companies handling domestic and international operations before privatisation. Telecommunications Domestic and international telephone links are reliable but expensive. Much of the infrastructure was built with Japanese aid. In April 2002 Nepal signed an agreement with India, whereby India will give NRs13.4bn (US$175m) to build an information superhighway with fibre-optic cable. The state-owned Nepal Telecommunications Corporation (NTC) had installed 312,032 lines by March 2002, but had a backlog of 282,257 applications. Most lines have been installed in the Kathmandu Valley and other urban centres, and services elsewhere are patchy. In mid-march 2002 only 1,761 of the country's 3,914 village development committees (VDCs) had telephone connections. The Maoists have blown up many of the rural telephone systems in the country s mid- and far-western regions. The NTC also provides mobile telephone services. In theory, the telecommunications sector has been liberalised and licences for various services are auctioned to both private and government-owned firms. The sector is regulated by the Nepal Telecommunications Authority (NTA). In practice, however, the NTC holds a monopoly on fixed-line services and has remained the sole licence-holder for mobile phone services. The NTA approved the bid for a second mobile operator in late 2000 and selected a private operator, but the company had not yet begun services. In mid-july 2002 the NTA had licensed 17 Internet service providers, 35 satellite communication users and service providers and eight pager services. The NTA had approved the bid of a private operator to run telecoms services using wireless local loop (WLL) technology, but the bidder refused to obtain a licence stating security reasons. The government plans to license a private operator to run WLL-based telecoms services in 99 VDCs in eastern Nepal by 2002/03. The postal service is fairly widespread and covers every VDC. The broadcast media The press The government licenses and regulates the broadcast media and also runs national radio and television stations. About 80% of the population can receive Radio Nepal, but only 55% of the population can receive Nepal Television broadcasts. The government had licensed a television company, Space Time Network, to broadcast via satellite in 1993, but cancelled the licence in early 2001 over a technicality. Space Time Network is a market leader in cable TV and also runs Channel Nepal, a Nepali-language satellite service, from Thailand in protest at the licensing foul-up. In early 2002 the government licensed three private television companies, some of which are expected to begin broadcasting by early 2003. The press is lively and unfettered. The government owns two major newspapers, one in Nepali and one in English, but several daily and weekly publications in both Nepali and English enjoy fairly wide circulation. There is a

18 Nepal plethora of smaller newspapers and magazines, mostly in Nepali but also in some local languages; many of these are affiliated to political parties. The government shut down newspapers close to the Maoists after November 2001. Most of the newspapers are weeklies with tiny circulations. In mid-march 2002 Nepal had 3,192 registered newspapers and magazines, including 218 dailies and 1,119 weeklies, but less than 185 were published regularly. Energy provision Heavy reliance on firewood Most of Nepal is heavily dependent on traditional energy sources firewood, as well as farm and livestock residues. Energy consumption in 2001 was equivalent to 8.18m tonnes of oil. In 2000/01 traditional energy sources accounted for 86.2% of energy use and in 2001/02 85.3%. Firewood supplies a vast majority of energy needs and this dependence on firewood could devastate Nepal s hill and mountain regions through deforestation and subsequent erosion. (Reference table 2 contains data on energy consumption.) The development of the power sector has been hamstrung by the lack of both a coherent energy policy and investment capital. Total installed capacity in mid-august 2002 was 584.6 mw. The peak load of the state-owned Nepal Electricity Authority (NEA) on December 12th 2001 was 426 mw. Among the independent power producers (IPPs), a Norwegian joint venture (between the Norwegian energy companies, Statkraft, Kvaerner Energy and ABB Kraft, and the local Butwal Power Company) has a generating capacity of 60 mw and a US joint venture (between the US energy companies, Panda Energy and Harza Engineering, and the local firm, Himal International Power) that began operating in January 2001 has a generating capacity of 36 mw. A 144-mw government project, Kali Gandaki A, began supplying to the central grid in May 2002. Another four projects, now under construction, will supply a further 44.5 mw. Of the total capacity, large hydroelectric projects supply over 395 mw, small projects 18.9 mw, diesel 56.7 mw and the IPPs 113.6 mw. The government is building another 70-mw project with German assistance. Hydropower potential is enormous Investment capital is scarce Hydropower is the main source of electricity. Nepal could in theory generate up to 83,000 mw of hydropower, but this potential remains untapped for both technical and political reasons. Water flows on many rivers are highly variable, and there is controversy over Nepal s use of rivers that flow into India. In 1996 Nepal and India agreed on the joint development of the Mahakali River, but progress has been slow. The greatest obstacles are economic. Hydropower is more capital-intensive than thermal power generation, and Nepal lacks the necessary capital. Nepal s average electricity tariff (about 8.7 US cents/kwh) is already one of the highest in South Asia, mainly because it is hydropower-based and because of construction and other inefficiencies. Foreign investors have not been convinced of the financial viability of large projects. Domestic consumers could not absorb the extra capacity, and the only viable customers for Nepalese electricity exports are India s cash-strapped state electricity boards.

Nepal 19 Energy balance, 2001 (m tonnes oil equivalent) Oil Gas Coal Electricity Other Total Primary production 0.00 0.00 0.00 0.35 a 7.05 7.40 Imports 0.84 0.00 0.24 0.03 a 0.00 1.11 Exports 0.00 0.00 0.00-0.03 a 0.00-0.03 Primary supply 0.84 0.00 0.24 0.35 a 7.05 8.48 Losses & transfers -0.07 0.00 0.00-0.39 0.00-0.46 Transformation output 0.00 0.00 0.00 0.16 b 0.00 0.16 Final consumption 0.77 0.00 0.24 0.12 b 7.05 8.18 a Input basis. b Output basis. Source: Energy Data Associates. The economy Economic structure Main economic indicators, 2001 GDP growth (%) 5.8 a Consumer price inflation (%) 2.8 Current-account balance (US$ m) n/a Foreign debt (US$ m) 2,823 b Exchange rate (NRs:US$; av) 74.9 a Fiscal year ending July 15th 2001; b End-2000. Sources: IMF, International Financial Statistics; World Bank, Global Development Finance 2001. Most people rely on subsistence farming Manufacturing is limited Levels of investment and savings are low Around 76% of the economically active population live in rural areas and depend on subsistence farming. The contribution to GDP of agriculture, forestry and fishing has slipped from about 70% in 1974/75 to about 37.8% in 2000/01, because of growth in public utilities, trade and hotels, transport and other services. Most agricultural production takes place in the Terai plains and the fertile valleys of the central hilly regions. About 30% of Nepal is unfit for agriculture or forestry. Farming plots are highly fragmented, with about 11% of cultivated plots smaller than 0.5 ha. The manufacturing sector carpets, garments and handicrafts are the main products accounted for 9% of GDP in 2000/01. Strong Indian competition, poor infrastructure, a limited local market and the lack of direct access to the sea hinders the development of this sector. The services sector accounted for 40.7% of GDP in 2000/01. The largest component of this sector is tourism with its spectacular mountain scenery, Nepal attracts mountaineers and hikers. Trade, restaurants and hotels made up 11.5% of GDP in 2000/01. The principal structural problem is the extremely low rate of saving and investment. Gross fixed investment rose gradually in the early 1990s to peak at 27.3% of GDP in 1995/96. Since then, however, it has declined and in 2001/02 it accounted for 23.6% of GDP. Even this figure stood well above the 2001/02 gross national savings rate of about 13.2%. The total fiscal revenue/gdp ratio stood at