Nepal Mongolia Bhutan

COUNTRY PROFILE 2001 Nepal Mongolia Bhutan This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is updated annually. The EIU s quarterly 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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Comparative economic indicators, 2000 EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

1 Contents Nepal 4 Basic data 5 Politics 5 Political development 9 Constitution, institutions and administration 9 Political forces 11 International relations and defence 12 Resources and infrastructure 12 Population 13 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, forestry and fishing 24 Mining and semi-processing 24 Manufacturing 25 Construction 25 Financial services 26 Other services 27 The external sector 27 Trade in goods 29 Invisibles and the current account 30 Capital flows and foreign debt 31 Foreign reserves and the exchange rate 32 Appendices 32 Regional organisations 33 Sources of information 35 Reference tables 35 Population 35 Energy consumption 36 Government finances 36 Gross domestic product 36 Gross domestic product by expenditure 37 Gross domestic product by sector 37 Consumer prices, national data 37 Consumer prices, IMF data 38 Money supply and interest rates 38 Production index of manufacturing industries 39 Tourism 39 Foreign trade 40 Balance of payments, IMF series 40 External debt, World Bank estimates The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

2 41 Foreign reserves 41 Exchange rates Mongolia 42 Basic data 43 Politics 43 Political development 44 Constitution, institutions and administration 45 Political forces 46 International relations and defence 47 Resources and infrastructure 47 Population 48 Education and health 48 Natural resources and the environment 48 Transport, communications and the Internet 49 Energy provision 49 The economy 49 Economic structure 50 Economic policy 51 Economic performance 53 Economic sectors 53 Agriculture and forestry 53 Mining and semi-processing 53 Manufacturing 54 Construction 54 Financial services 54 Other services 55 The external sector 55 Trade in goods 56 Invisibles and the current account 56 Capital flows and foreign debt 57 Foreign reserves and the exchange rate 58 Appendices 58 Sources of information 59 Reference tables 59 Population 59 Labour force 60 Government finances 60 Government revenue 60 Government expenditure 61 Money supply and credit 61 Gross domestic product 61 Gross domestic product by expenditure 62 Gross domestic product by sector 62 Consumer prices 63 Crop production 63 Livestock numbers 63 Meat production 63 Mineral production 64 Output of selected industrial products 64 Main trading partners 65 Balance of payments, IMF estimates EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

3 65 External debt 66 Net official development assistance 66 Foreign reserves 66 Exchange rates Bhutan 67 Basic data 68 Politics 68 Political development 69 Constitution, institutions and administration 70 Political forces 71 International relations and defence 71 Resources and infrastructure 71 Population 72 Education and health 72 Natural resources and the environment 73 Transport and communications and the Internet 73 Energy provision 74 The economy 74 Economic structure 74 Economic policy 75 Economic performance 76 Economic sectors 76 Agriculture, forestry and fishing 76 Mining and semi-processing 76 Manufacturing 76 Construction 77 Financial services 77 Other services 77 The external sector 77 Trade in goods 78 Invisibles and the current account 78 Capital flows and foreign debt 78 Foreign reserves and the exchange rate 79 Appendices 79 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 84 External debt, national data 84 Foreign reserves 84 Exchange rates The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

4 Nepal Nepal Basic data Land area Population Main towns 147,181 sq km 23.2m (preliminary estimate, 2001 census) Population in 000, 1991 estimates (Central Bureau of Statistics) Kathmandu (capital) 421.3 Biratnagar 129.4 Lalitpur 115.9 Pokhara 95.3 Climate Weather in Kathmandu (altitude 1,337 metres) Languages Measures Currency Fiscal year Time Public holidays Temperate (harsh with extreme cold at high altitude) 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). English is widely used in commerce and there are many regional languages and dialects 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 (NR)=100 paisa. Effectively pegged since 1993 to the Indian rupee at a rate of NRs1.6:Rs1. Annual average exchange rate in 2000: NRs71.1:US$1. Exchange rate on October 30th 2001: NRs76.3: US$1 July 16th-July 15th 5 hours 45 minutes ahead of GMT National Unity Day, January 11th; Martyrs Memorial Day, January 29th; Spring Day, February; National Democracy Day, February 18th; Shiva Festival, February 21st; Holi Festival, March; Horse Festival, March 24th; Ram s birthday, April 2nd; New Year s Day, April 13th; Buddha s birthday, May 18th; King Gyanendra s birthday, July 7th; Rishi Panchami, Rakshya Bandhan and Cow Festival, August; Krishna s birthday, August/September; Rain God Festival, Teej (women only), September/October; Ghatasthapana and Dasain, Festival of Lights, October/November; Constitution Day, November 8th; various regional holidays EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

Nepal 5 Politics A constitutional monarchy Nepal is a constitutional monarchy with King Gyanendra as head of state and Hinduism as the state religion. There are no significant restrictions on political parties. After five years of unstable governments, the Nepali Congress (NC) won a firm majority in May 1999, marred since by party infighting. Nepal has had three prime ministers since the May 1999 election. Sher Bahadur Deuba is the current prime minister. Political development Nepal originates from the Gorkha principality A constitutional monarchy was 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 small hill principalities had succumbed to the Gorkha armies, which had brought all of the sub-himalayan hill areas between Bhutan in the east and the Sutlej River in the west under Gorkha control. Nepal s 233-year 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 in 1953-72) 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. Resentment of the panchayat system provoked a national protest in 1979 that led King Birendra (1972-2001) to hold a constitutional referendum in which voters were asked to decide between continuing the panchayat system with some reforms and reintroducing a multiparty system. A narrow majority voted in favour of a reformed panchayat system. Direct, but still non-party, The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

6 Nepal elections to the 140-member National Panchayat (parliament) were held in 1981 and 1986. A constitutional monarchy is established in 1990 In April 1990 the panchayat system at last collapsed. This was partly the result of a year-long economic blockade imposed by India, as well as the inspiration provided 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 1996: The Communist Party of Nepal-Maoist (CPN-M) disavows the political system and begins an armed insurgency in the western part of Nepal. 1997: The government of the prime minister, Sher Bahadur Deuba, collapses on March 6th. The National Democratic Party (NDP), the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) and the Nepal Sadbhavana Party (NSP) form a government led by the leader of the NDP, Lokendra Bahadur Chand. On October 7th a coalition government comprising the NDP, the Nepali Congress (NC) and the NSP is formed. The new prime minister is Surya Bahadur Thapa of the NDP. 1998: The NC forms a minority government on April 12th with the support of the Communist Party of Nepal-Marxist-Leninist (CPN-ML), a breakaway faction of the CPN-UML, and the NDP, with Girija Prasad Koirala as prime minister. 1999: The third parliamentary election on May 3rd and 17th gives the NC a firm majority with 111, later bolstered by election victories to 113, seats in the 205-seat National Assembly. Krishna Prasad Bhattarai becomes prime minister of the NC government. 2000: In March the NC president, Mr Koirala, ousts Mr Bhattarai and becomes prime minister. 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. Violent attacks by Maoist insurgents led King Gyanendra to declare a state of emergency on November 26th. The government also declared the Communist Party of Nepal (Maoist) a terrorist organisation. Democratic elections and coalition governments The NC, led by Girija Prasad Koirala, won a majority of the seats in parliament in the May 1991 election. But in July 1994 Mr Koirala resigned after he lost the parliamentary support of dissidents within his own party. EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

Nepal 7 A mid-term election in November 1994 returned a hung parliament; the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) won the largest number of seats (88 in the 205-seat parliament), and the NC came second with 83 seats. The following five years saw a succession of five unstable and unproductive coalition governments, preoccupied more with the arithmetic of staying in power and dealing with a growing Maoist insurgency than with the formulation of policy and governance. The NC wins a majority King Birendra is murdered King Gyanendra declares a state of emergency In the third parliamentary election, held on May 3rd and 17th 1999, voters gave the NC a majority in parliament the party won 111 seats in the 205-seat House of Representatives. The CPN-UML was second with 71 seats, and the conservative National Democratic Party (NDP), led by Surya Bahadur Thapa, won 11 seats. Krishna Prasad Bhattarai lasted as prime minister for ten months before being toppled by Mr Koirala, who became prime minister for the fourth time on March 20th 2000. With continual dissidence within his own party from Mr Bhattarai s supporters, Mr Koirala s position was weak and he resigned on July 19th 2001. Sher Bahadur Deuba, the current prime minister, was the leader of Mr Koirala s opponents in the ruling NC. Immediately after his appointment Mr Deuba brokered a truce with the Maoist insurgents and invited them to talks. Crown Prince Dipendra is said to have shot dead his father, King Birendra, and nine other members of the royal family on June 1st 2001 at a routine family gathering. An early government statement pinned the blame on Prince Dipendra. The report by the investigative committee included eyewitness statements that strongly supported the official version of events but also conflicted with each other. The report did not therefore draw a line under the event and conspiracy theories abound, fuelled by Prince Dipendra s popularity. 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. On October 28th King Gyanendra declared his son, Paras, crown prince. The timing, during the king s traditional address on 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. 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. Intense fighting had broken out between government forces and the Maoists, claiming around 200 lives in fighting in late November. The Maoist insurgency Nepal s decade of democracy has been marred by governments unable to meet the expectations of the masses, political horse-trading and corruption. A disturbing reaction to this has been the growth of an armed insurgency, led by the Communist Party of Nepal-Maoist (CPN-M). Hardcore Maoist guerrillas are said to number about 2,000; local militias and other armed groups add up to a further 3,000. The guerrillas have succeeded in terrorising villages across Nepal, The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

8 Nepal while urban campaigns are led by front organisations of women, students and trade unions. The Maoists have effectively neutralised central government administration in over 20 districts; at the end of August 2001 they announced the formation of peoples governments in 14 districts, forcing elected government officials to flee or abide by their rules. The government s efforts to contain the insurgency, which began in February 1996, have been futile. The early efforts mostly amounted to killing suspected Maoists in encounters with the police, although the government of Girija Prasad Koirala in August 1998 introduced a half-hearted amnesty programme for Maoist defectors. According to police statistics, 1,807 people had been killed in the insurgency by July 2001, comprising 1,060 rebels and 440 policemen and 307 civilians killed by the Maoists. The Maoists have looted around NRs237.4m (US$3.3m) from locals and over 100 rural banks. The Maoists are also said to have set up farming collectives and established local financial systems to provide low-interest loans to villagers in many districts where they wield influence. Peace talks begin The government of the current prime minister, Sher Bahadur Deuba, held the first round of peace talks with the Maoists on August 30th 2001. Mr Deuba had been trying to begin talks with the rebels since December 1999, but the process was scuttled by the toppling of the then prime minister, Krishna Prasad Bhattarai, in March 2000. Mr Koirala, as prime minister, also tried to get talks started. His interior affairs minister met a Maoist leader on October 27th 2000 and the government freed two top rebels from custody. The fighting, however, continued until Mr Deuba called for a ceasefire on August 23rd 2001. The Maoists responded immediately and called off all pre-planned attacks. Maoist demands include forming an interim government and writing 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. While the government has been training a new paramilitary force to fight the rebels since the passage of a special bill in August 2001, the Maoists have been activating their urban-based front organisations. The All-Nepal Free Students Union-Revolutionary (ANFSU-R) forced all schools to shut down for a week in December 2000 and May 2001 and for two days in September 2001. Their demands include the nationalisation of private schools, the scrapping of unequal treaties with India and the transformation of privately owned businesses into co-operatives. The All-Nepal Women s Association-Revolutionary (ANWA-R) has made similarly extreme demands. The ANWA-R did, however, manage to force the government to declare four national dry (alcohol-free) days and enforce rules to control alcohol sales. Trade unions that are close to the Maoists are also pressing their demands in industrial establishments. EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

Nepal 9 Peace talks break down and fighting restarts Amid signs of a deterioration of the relationship between the authorities and the rebels and after months of discussion, frustrated Maoist officials called off the talks on November 21st. Two days they later launched co-ordinated attacks on army and police stations. The government responded by authorising the army to join the police in countering the rebel assaults. King Gyanendra reflected the government s concern on November 26th by declaring a state of emergency, which allows the authorities to suspend civil liberties and to restrict press freedoms. Constitution, institutions and administration The lower house holds the power The 205-member House of Representatives, or lower house, is the effective legislative body and is elected by universal suffrage (among those aged 18 years and above) 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 of the legislature, the National Assembly, 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 interim elections for the upper house on June 26th 2001, the CPN-UML emerged as the largest party in the National Assembly. The NC government will need the support of the king s nine nominees and elements of the opposition to get any legislation through the National Assembly. The CPN- UML holds 23 of the 60 National Assembly seats, the NC has 21 and small parties occupy the remaining seats. The king has not yet appointed one of his nominees, so only 59 National Assembly seats are filled. A fairly independent judiciary With the advent of the multiparty system in 1990, the judiciary has often been called upon to interpret the new constitution. Given the extent to which politics pervades public life in Nepal, it is encouraging to note that the judiciary has remained above the political fray. The judiciary has, however, been accused of corruption in the media. Political forces A handful of major national parties and some regional parties have been established. All of them, however, are plagued by factionalism. The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

10 Nepal The Nepali Congress The communist parties The Nepali Congress (NC) was established in 1947 by Nepali activists in India, many of whom had close ties with the Indian National Congress. One of its early leaders was Bishweshwar Prasad Koirala (prime minister in 1959-61) and 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 Nepal s champion of free-market liberalisation. The main factional division pits supporters of the septuagenarian leaders of the NC, Mr Koirala and Mr Bhattarai, against each other. The Communist Party of Nepal was established in the late 1940s, but the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML) was formed only in 1990 as a result of the merger of the Communist Party of Nepal (Marxist-Leninist) and the Communist Party of Nepal (Marxist). The CPN-UML split in 1998 when a hardline faction led by Bam Dev Gautam formed the Communist Party of Nepal-Marxist-Leninist (CPN-ML). The CPN-UML has begun talks with the CPN-ML and other minor communist factions on the forming of a strategic partnership, if not reunification, as a strategy to prevent their grassroots cadre from marching into the Maoists ranks. Main political figures Sher Bahadur Deuba: Prime minister (September 1995-March 1997 and from July 2001 to present) and a leading member of the Nepali Congress (NC). Girija Prasad Koirala: 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). Madhav Kumar Nepal: General secretary of the Communist Party of Nepal- Unified Marxist-Leninist (CPN-UML) and leader of the main opposition in parliament. Deputy prime minister from December 1994 to September 1995. Bam Dev Gautam: Leader of the Communist Party of Nepal-Marxist-Leninist (CPN-ML). He was formerly deputy prime minister and CPN-UML general secretary. His party was voted out of the lower house in May 1999. King Gyanendra: Head of state. 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; he also heads the central military commission. The other influential leader is a former town planner, Baburam Bhattarai, who is president of the United People s Front of Nepal (UPFN), essentially a front organisation for the CPN-M. There are no official estimates of the size of the rebel fighting force the CPN-UML estimates it to be 5,000. EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

Nepal 11 Other parties Composed of politicians from the defunct panchayat system, the Rashtriya Prajatantra Party (National Democratic Party, NDP) played the role of kingmaker in the hung parliament of 1994-99. In 1998 it split into two, the NDP-Thapa and the NDP-Chand, led by its two most prominent leaders. After the 1999 election the NDP-Thapa became the third largest party in parliament whereas the NDP-Chand was voted out of parliament. The NDP-Thapa and a faction from NDP-Chand merged after the election, but the party s influence in parliament is minimal. Smaller parties in parliament, such as the Nepal Workers and Peasants Party (NeWPP), the National People s Front (NPF), the UPFN and the Nepal Sadbhavana Party (NSP, popular in the Terai lowlands), have similarly been made redundant in the current power equation. Election results May 12th 1991 Nov 15th 1994 May 3rd & 17th 1999 Votes Seats Votes Seats Votes Seats No. % No. % No. % No. % No. % No. % Nepali Congress 2,752,452 37.7 110 53.6 2,545,287 33.4 83 40.5 3,214,068 37.3 111 54.1 CPN-UML a 2,040,102 28.0 69 33.6 2,352,601 30.9 88 42.9 2,728,725 31.7 71 34.6 NDP b 871,103 12.0 4 2.0 1,367,148 17.9 20 9.8 899,511 10.4 11 5.4 NSP c 298,610 4.1 6 2.9 265,847 3.5 3 1.5 277,239 3.2 5 2.4 NPF d 121,394 1.4 5 2.4 UPFN e 351,904 4.8 9 4.4 100,285 1.3 0 0.0 70,119 0.8 1 0.5 NeWPP f 91,335 1.3 2 1.0 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 303,723 4.2 3 1.5 471,324 6.2 7 3.4 242,877 2.8 0 0.0 Total incl others 7,291,984 100.0 205 100.0 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 Nepal s geopolitical position as a small country sandwiched between two major 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 its close historical links with India have made it more susceptible to pressure from the south. It is a member of the seven-member South Asian Association for Regional Co-operation (SAARC), whose headquarters are in Kathmandu. SAARC has been in limbo after failing to hold its 11th annual summit in November 1999 after India refused to attend alongside the postmilitary coup leaders of Pakistan. Under SAARC rules every decision is taken unanimously any one country can request postponement of summits. It now seems that a SAARC summit will take place in Nepal early in 2002, depending on agreement among the member countries. The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

12 Nepal The relationship with India dominates The role of China Relations with India revolve around the 1950 Peace and Friendship Treaty that gives India an advantageous position in security matters, investment conditions and employment opportunities. Moreover, because of Nepal s landlocked status, it is subject to Indian pressure when bilateral trade and transit agreements come up for renewal, as in 1989 when India refused to renew trade and transit treaties and blockaded all but two border trade points. Since then several trade and transit treaties have been agreed, as has a major treaty providing for joint development of the water resources of the Mahakali River. Nevertheless, disputes over border demarcation have persisted for over 20 years. There are also more recent disputes, caused especially by India s construction of embankments near the border causing inundation and flooding in Nepal. Five years ago Nepal and India signed a preferential trade treaty, which is supposed to be renewed automatically in December 2001. On August 14th 2001, however, India notified Nepal that it wanted to review and revise the treaty and discuss the rules of origin and the surge of some Nepalese products. The Indian concern was that cheap Chinese products were being shipped through Nepal to India, undercutting local producers. Nepal s merchandise exports to India grew almost fivefold to NRs27.3bn (US$384m) in fiscal year 2000/01 and merchandise imports from India have almost doubled to NRs46.6bn in the five years since the treaty was signed. China has historically served as a counterweight to Indian influence in Nepal, 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 while India backed armed raids by NC supporters into Nepal 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 the political activities of Tibetan exiles within its territory. Nepal s defence forces are small, numbering just 48,000 men. The Royal Nepalese Army and police personnel regularly participate in UN peacekeeping operations. The government is also setting up a paramilitary force, the Armed Police Force, that could comprise up to 15,000 men. Unlike the civilian police that have been fighting Maoist insurgents with second world war 303 Enfield rifles, the Armed Police Force will use automatic weapons. Resources and infrastructure Population Rapid population growth According to the government census conducted in July 2001, the population is estimated at 23.2m people. There are at least 61 different ethnic and caste groups. The population grew at an annual average rate of 2.3% between 1991 and 2001. This has been despite high rates of infant mortality (70 per 1,000 live EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

Nepal 13 births in 2000/01) and low life expectancy at birth (58.3 years in 2000/01). (Reference table 1 provides historical population data.) Population distribution by age (% of total) Age range (years) 1996 2001 a 0-14 41.3 40.3 15-24 19.2 19.0 25-34 13.8 14.5 35-44 10.2 10.2 45-54 7.4 7.4 55-64 4.8 4.9 65 & over 3.4 3.6 a Estimates. Source: Central Bureau of Statistics: Statistical Year Book of Nepal. Migration from the hills to the plains There is steady migration from the impoverished hill and mountain areas to the Kathmandu valley and to the Terai plains region abutting India. The growth rate has been especially high in Kathmandu, whose population rose by 4.8% in 2000 to reach 1.09m. The proportion of population living in the Terai region reached 48.5% in 2001, up from about 44% 20 years earlier. Education Slow progress in education Under Rana rule education was virtually non-existent, and in 1951 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 a low standard. The adult (above 15 years of age) literacy rate rose from about 22.5% in 1980 to 36.5% (19% for women) in 1995, according to the UN Children s Fund (UNICEF). The National Planning Commission (NPC) estimates overall adult literacy in 2000/01 at 53% (about 26% for females), well below the 70% target to be achieved by the end of 2002. The government is the major education provider. According to official figures, about 84% of primary and secondary school students were enrolled in government schools in 2000/01. Of 38,476 schools at the primary and secondary level, 25,087 are in the public sector. The 13,389 private schools have about one million students and higher teacher-student ratios. The average student-teacher ratio in public schools is 44 compared with 22 in private schools. The government spends about 7% of its development budget on education, most of which goes to primary education, which also receives additional funding from the multi-donor Basic and Primary Education Project (BPEP). The government has been trying to broaden access to higher secondary level education; in 2000/01 only 681 schools offered higher secondary level education. The education system faces a new challenge in the pro-maoist student union, the All-Nepal Free Students Union-Revolutionary (ANNFSU-R), which has threatened both teachers and school authorities, forcing many private schools The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

14 Nepal in the districts to shut down. Its other demand is to make education free, which the government says that it cannot afford. The ANNFSU-R also wants the government to nationalise the private schools, which, although expensive, provide better education. Primary school enrolment statistics are overstated The government aims to make primary education free and compulsory for all, but by mid-1999 compulsory primary education had been enforced in just seven of the 40 administrative districts where the BPEP is under way. It is unclear how many children attend primary school. The official enrolment statistics are dated and not credible; the government claimed that 3.9m students aged 6-10 years attended primary school in October 1999, which is about 800,000 above the number of children between the ages of 5 and 9 years estimated to be in Nepal in 2001. The NPC estimates that 70.5% of children of primary school age attend school. Even official statistics cannot disguise the fact that many students never make it past primary school. Drop-out rates are high because many children are forced to leave school and help with household chores. Total enrolment in secondary schools was 920,000 in 1999, about 25% of the claimed rate of enrolment for primary schools. Problems in higher education Nepal has five universities. The largest, Tribhuvan University (TU), enrols over 97% of all undergraduates in Nepal in its 61 publicly funded campuses and 177 privately run affiliated campuses. In 2000/01 TU had 164,682 students but produced only 356 graduates in engineering, agriculture, animal science and medicine. TU suffers from administrative chaos and many students never obtain a degree. The privately run Kathmandu University enrolled 3,988 students in 2000/01, the Mahendra Sanskrit University 3,616 students and the other two institutions a total of 2,117 students. 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 58.3 years one of the lowest in South Asia up from 43.3 years in 1970-75. The NPC estimated infant mortality at 70 per 1,000 live births in 2000/01, an improvement from 165 per 1,000 in 1970 and 199 per 1,000 in 1960. According to the NPC, 68% of the population had access to safe drinking water in 2000/01. Diarrhoea and acute respiratory infections are the main killers of Nepalese children. In 1999 the government estimated the rate of HIV prevalence in adults to be 132 per 100,000 people. The government is the main institutional health provider and 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 increased to 85 by 2000/01 and the number of hospital beds to 5,318. This is still far below Nepal s needs. In 2000/01 there was only one government doctor for every 18,189 Nepalese. Under a national health policy introduced in the early 1980s, hospitals are supposedly supplemented by village clinics that provide preventive and simple EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

Nepal 15 curative health services. The number of sub-health posts in villages increased from 2,579 in 1995/96 to 3,174 in 2000/01. The number of primary health centres is 180, and that of health posts 696. It is difficult to get trained medical staff to work in remote areas and the level of care available is basic. Another problem is financial: hospitals and clinics charge on a fee-for-service basis, and most Nepalese have neither insurance nor the ready cash 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. Nepal has five climatic zones tropical, mesothermal, microthermal, taiga and tundra. Of Nepal s 75 administrative districts, 16 lie in the mountain region, 39 in the middle hills and 20 in the Terai plains along the southern border with India. Most agricultural activity takes place in the Terai, which has about 70% of the total cultivated land, and the fertile valleys in the central hilly regions. 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. Nepal s forest cover in 1994 was 29% of the land area with a further 10.6% classed as shrub land. Deforestation, running at an annual rate of 1.7%, has been slowed by a 1993 policy that gives the ownership and management of forests to local communities. In March 2001 Nepal had 9,874 registered community forest user groups, which managed 748,000 ha of forests. Transport, communications and the Internet Roads In mid-july 2001 Nepal had just 15,458 km of roads, of which less than onethird were tarmacked. The remainder are gravelled or dirt roads, and wash out frequently during the June-September rainy season. Most hill and mountain trails are only suitable for pedestrians and pack animals. The pace of road building, which stagnated in the 1980s, accelerated with the restoration of democracy. Total road mileage has more than doubled since 1990, although most of the increase has been in dirt roads. To build and maintain tarmacked highways Nepal still relies heavily on foreign aid. The main east-west highway in the Terai was built with aid money; the Chinese built the highway linking Kathmandu with Kodari on the Chinese border in 1967. A second road to China, linking Dhunche with Kyirong, north-west of Kathmandu, is being surveyed. A much-needed road through the hills from Kathmandu to Hetauda in the south, which would halve travel time to the Indian border, continues to be held up pending licensing, despite an early 2000 government decision to allow a private company to build it as a build-operatetransfer (BOT) project. Nepal had 263,516 registered motor vehicles in July The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

16 Nepal 2000, of which about 56% were motorcycles. In 2000/01 58 of Nepal s 75 districts were connected by road. Nepal has a 5.3-km brand new, broad gauge railway connecting its new inland container depot (dry port) in Birgunj to India s rail network, allowing the direct transport of cargo to Indian ports. The link was completed in February 2001, but did not enter use until October 2001 because Nepal and India could not agree on the modalities of operation, such as whether to check wagon locks at the border and revenue sharing between private terminal operators and India s state-owned Indian Railways. Nepal s other rail line is a 51-km spur (of which 22 km are in Nepal) connecting the eastern Terai town of Janakpur with the city of Jayanagar in Bihar, India. The line, built in 1936, carried 1.6m passengers and 13,470 tonnes of cargo in 1999/2000. Air services Tribhuvan International Airport in Kathmandu is the only significant international airport. It handles fewer than a dozen international flights a day. The 1998 revision of the bilateral air agreement with India relieved some of the congestion on the major routes from Kathmandu to India, increasing the weekly seating capacity on routes to New Delhi from 4,000 to 6,000 and on routes to Mumbai (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. Most international air cargo comes either via Bangkok or directly from the Persian Gulf, but delays are common. There are 44 domestic airfields, including Kathmandu, of which 32 are suitable only for short take-off and landing (STOL) by small aircraft. Nepal has over 120 helipads, which together with STOL airfields provide access to many remote mountain areas. The RNAC is poorly run and overstaffed, and faces increased competition from more than a dozen private airlines (allowed since 1992) on both domestic and foreign routes. The state-run airline is also highly indebted and cash-strapped. It has leased 18 aircraft since the early 1990s and politicians are said to have taken a cut in the deals. Nepal has issued air operator licences to 31 private companies, of which 19 were operating in mid-july 2001. The domestic air industry carried 1.7m passengers and 10,871 tonnes of cargo in 1999/2000. Telecommunications Telephone links between Kathmandu and the rest of the world and within the country are reliable but expensive. The number of telephone lines distributed reached 275,558 in March 2001, whereas the telephone exchange system had an installed capacity of 317,296 lines. Most of the growth has taken place since 1996. Even so, telephone installation is far short of demand. The Nepal Telecommunications Corporation (NTC) faces a backlog of 277,600 applications. Moreover, most lines have been installed in the Kathmandu Valley, and services outside the valley are patchy. In mid-march 2001 only 1,729 of the 3,913 village development committees (VDCs, the village-level administrative units) had telephone lines. The government plans to connect all the VDCs by 2003. NTC began mobile telephone services in May 1999. It has about 13,000 mobile phone subscribers and plans to add another 50,000 connections in the near future. EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001

Nepal 17 In theory, the telecoms sector has been liberalised, with the Nepal Telecommunications Authority (NTA) as the regulator. Licences for various services are auctioned to both private and government-owned firms. In practice, however, the state-owned 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 but licensing has been delayed by litigation. The new operator is expected to begin services by end-2001. The NTA has licensed 15 Internet service providers, 33 satellite communication users and service providers and eight pager services. The NTA has also approved the bid of a private operator to run telecoms services using wireless local loop (WLL) technology. The broadcast media The press The government is both the licensing and regulatory authority of the broadcast media and also runs national radio and television stations. About 80% of the population can receive the medium-wave broadcasts of Radio Nepal but only 55% can receive Nepal Television (NTV) broadcasts. NTV has begun to broadcast its signals via satellite, which has helped to improve signal quality but at least another five years and more relay stations are needed to achieve nationwide coverage. The government had licensed a television company, Spacetime Network, to broadcast via satellite in 1993, but cancelled the licence in early 2001 over a technicality. Spacetime Network has been concentrating on cable television, a market in which it is the leader. The government has issued FM radio licences to 20 private firms, of which 15 are operating. In October 2000 the government invited applications for private terrestrial television licences, but none has been issued so far. 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 plethora of smaller newspapers and magazines, mostly in Nepali but also in some local languages; many of these are affiliated to political parties including the Maoists. Most of the newspapers are weeklies with tiny circulations. In mid-april 2001 Nepal had 2,870 registered newspapers and magazines, but less than 185 were published regularly. Energy provision Heavy reliance on firewood Most of Nepal is heavily dependent on traditional energy sources, mostly firewood, but also farm and livestock residues. Energy consumption in 2000/01 was equivalent to 8m tonnes of oil. According to provisional official statistics, traditional energy sources accounted for 86% of energy use in 2000/01; this proportion is shrinking, but slowly. Firewood supplies 77% of energy needs; in the long run this heavy dependence on firewood could devastate Nepal s hill and mountain regions through deforestation and subsequent erosion. The proportion of energy accounted for by other sources in 2000/01 was petroleum 9.5%, coal 2.8% and electricity 1.4%. The development of an electricity industry has been hamstrung by the lack of a coherent national energy policy and, more importantly, a lack of investment The Economist Intelligence Unit Limited 2001 EIU Country Profile 2001

18 Nepal capital. Total installed capacity in mid-august 2001 was 440 mw, including power supplied by independent power producers (IPPs). The peak load of the state-owned Nepal Electricity Authority (NEA) in January 2001 was 391 mw. Among the 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. Eight hydropower projects under construction will add a further 229 mw to the central grid over the next few years. Hydropower potential is enormous Investment capital is scarce Hydropower is the main source of electricity. Nepal could generate up to 83,000 mw of hydropower, but this potential has not been tapped for many reasons, some technical, some political. 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 on Nepal s western border but progress has been slow. The greatest obstacles are economic. Hydropower is far more capital-intensive than thermal power generation, and Nepal lacks the necessary capital for major hydropower projects. Nepal s average electricity tariff (8.7 US cents/kwh) is already one of the highest in South Asia, mainly because it is hydropowerbased and because of construction, and other public-sector, inefficiencies. Foreign investors have not been convinced of the financial viability of large projects. Domestic consumers could not absorb the extra capacity, while the only viable customers for Nepalese electricity exports are India s state electricity boards, which are themselves cash-strapped. Energy balance, 2000 (m tonnes oil equivalent) Oil Gas Coal Electricity Other Total Production 0.00 0.00 0.00 0.30 a 7.10 7.40 Imports 0.70 0.00 0.18 0.08 a 0.00 0.96 Exports 0.00 0.00 0.00 0.02 a 0.00 0.02 Primary supply 0.70 0.00 0.18 0.36 a 7.10 8.34 Losses & transfers 0.07 0.00 0.00 0.40 0.00 0.47 Transformation output 0.00 0.00 0.00 0.15 b 0.00 0.15 Final consumption 0.63 0.00 0.18 0.11 b 7.10 8.02 a Input basis. b Output basis. Source: Energy Data Associates. The largest government hydropower project under construction is the 144-mw Kaligandaki A project, being built with a US$453m multilateral loan. It is expected to come on line by March 2002, two years behind schedule. The IPPs running the Khimti and Bhote Kosi projects have 20-year power purchase agreements with the NEA, which will buy all the electricity generated. A Nepalese-Australian venture licensed to build the 750-mw West Seti hydroelectric project will not be able to secure the roughly US$1bn needed for EIU Country Profile 2001 The Economist Intelligence Unit Limited 2001