Financial Crisis Impacts Nepal by Rg028Pj

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									   The Financial Crisis and its Impact
          on the Services sector

                         Deepali Fernandes

           Second National Services Assesment Workshop
               Kathmandu, 27th-28th October 2009

      Division on International Trade in Goods, and Services and
                               Commodities
                                UNCTAD

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                       Outline
     • the global economic crisis and trade
     • impact of crisis on services
     • impact of crisis on
        • Tourism
        • IT and software services
        • Migration
     • policy responses


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           The global economic crisis

     • global recession first time in 70 years
        • financial crisis  macroeconomic crisis
     • falling trade, production and consumption, major
       markets:
        • overall world output to decline by 1.3% in 2009
        • IMF predicts negative GDP growth for ICs of -
           3.8% (2009)
     • impact varies across countries and sectors
     • firms faced with tighter credit conditions and weaker
       demand  laying off and non creation of new jobs


UNCTAD/CD-TFT                                                  3
          global economic crisis: how have
        developing countries been impacted?

     • contracting demand transmitted recession to
       developing countries
           retraction of world trade, cross border capital
             flows, unemployment, fall in remittances,
             reduction in labour mobility
     • GDP growth predicted to decline
        • Africa  from 5.2 to 2%, Latin America and the
          Caribbeanfrom 4.2 to -1.5%, Developing Asia
          from 7.7 to 4.8%
     • low income countries with a high dependence on few
       commodities, services or remittances most hard hit


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          global economic crisis: how have
        developing countries been impacted?

     • private capital flows fallen, UNCTAD estimates:
        • global FDI inflows fell 54% in 1st, quarter of 2009
        • FDI inflows to developing countries in 2008 
          USD 549 billion, 2009 expected to fall by 25%
     • reversal in poverty reduction targets
            • number of poor living on less than 2 dollars a
              day could rise by 40 million, those living on 2
              dollars a day by more than 100 million
     • economic recovery expected in late 2009 or 2010,
       however
        • recovery in developing countries, likely to face a
          longer time lag

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                Nepal and the crisis

     • so far Nepal more insulated
        • good macroeconomic management, non
          integrated financial markets
     • however, indirect impact likely through trade
         • i.e export earnings, external financing for
           infrastrucuture
         • contraction of merchandise exports
     • links to India, China
         • risk of negative spill over from slowdown in
           economies in terms of investment, tourism


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                Nepal and the crisis

  • recovering from inflationary impacts of food and energy
    crisis (2008)
      • Nepal can benefit from lower commodity prices - oil
  • current impact on migrant workers
         • remittances, reabsorbtion
  • services sector expected to offset other sectors given
    limited impact of crisis on  remittances and tourism
  • economy expected to recover in 2010
      • Asia expected to lead this recovery


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                Nepal and the crisis




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           What has been the impact on
                Services sectors?

   • fall in discretionary spending by households
       • declining household wealth, tight credit conditions
   • limited decline in demand for necessary services
       • e.g. health, water, energy, education,
         telecommunications, business and professional
   • contraction of demand for income sensitive services
       • e.g tourism, transport, construction
   • decline in consumer goods sector  distribution services
     and employment in supply chains



UNCTAD/CD-TFT                                                  9
        Services- varying sectoral impact
     • impacts vary across sectors
        • most pronounced in financial, distribution,
          construction, manufacturing, automobile, tourism
     • impacts vary across countries
     • heavy impact on SMEs
        • banks not lending, SMEs end of payment chain
        • Nepal services sector charachterized by SMEs
     • impact on balance of payments situation
        • financing gap expected in 2009
        • Gap could worsen with expected decline in
          remittances, FDI and official aid

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      Services- construction, tourism
     • construction services every region to fall in spending
        • globally, construction market to shrink to USD 5.6
          trillion in 2009
        • GCC countries  (2008) decline of 80% in value of
          new construction contracts
     • Tourism demand contraction of 3% in 2009
        • 5 million job cuts in 2009
     • UNWTO figures indicate
        • (late 2008) intl tourist arrivals flatttened in ICs
     • Nepal remains attractive tourist destination
        • Tourism receipts seem stable for the moment


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    Services : IT and software
     • DCs incl. Nepal, benefit from a low-wage skilled labor
       force
     • 2009, global IT spending expected to decline by 4.7 %
     • largest dip in IT budgets, likely in professional, telecom,
       technology at 10 %, manufacturing at 8 %, utilities and
       financial services - 4 %
     • However longer term perspective, resillience and recovery
        • NASSCOM estimates crisis impact in 2009 with,
           rebound from 2010 onwards
     • industry faced with dual challenge
        • protectionist tendencies versus cost cutting benefits
     • reverse outward investment by IT companies to EU/US
        • resulting in flow of capital, job creation

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      What is the Impact on employment
                and migration?
  • global unemployment expected to rise
     • from 5.7% (2007) to between 6.5-7.4% (2009)
  • number of unemployed expected to increase by
     • between 30-59 million workers compared to 2007 pre
       crisis levels
     • 11-17 million in ICs, 19-42 million in DCs
  • bad econ. conditions  unemployment  migration
      • more restrictive policies for labour movement
      • labour migration flows fall globally
      • Less remittances


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                Impact on Migration
     • crisis most pronounced in migrant employing sectors
     • falling employment results in fall in migration
        • UN DESA  annual growth rate of global non-
           refugee migrant lower in 2005-2010 than 2000-
           2005, UK  45% reduction in migrants from
           Eastern Europe
     • possible bankruptcy of migrants  poverty
       implications
     • introduction of restrictive policy responses
        • financial incentives – Spain, Japan, UK
        • close-off entry of new migrants – Korea, US

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       Impact on Migration: remittances

     • remittances usually more resilient to economic
       downturn than aid and investment flows
     • drop in remittances possible due to a reduction of
       jobs in many services sectors industries
        • remittance flows to developing countries USD 328
          billion (2008)
        • Represents over half the value of FDI inflows
          ($550 b) and more than twice ODI ($119 b)
        • expected to fall sharply for developing countries in
          2009 by 7.3%


UNCTAD/CD-TFT                                                    15
                Migration and Nepal

  • migration key contributing sector
     • ADB: remittances account for 20% of GDP
     • Nepal (2007) earned nearly Rs 100 billion from
       remittances
     • Major destinations: India, Middle East, Southeast Asia
  • during the crisis
     • remittances remain resilient, supporting domestic
       consumption and current account
     • remittance growth slowed
  • with decline of capital  role of remittances as a“crisis
    smoothener”

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                 Policy responses

     • need for a global response for
        • fulfilling pledges for development
          assistance, maintaining aid flows,
          supporting social safety nets, labour
          intenstive infrastructure, SMEs and AfT
     • address issue of financing gaps for DCs
        • in 2010 likely to be between USD 200-700
          billion

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                  Policy responses

     • diffrentiated sectoral policy responses
        • some may require reduction in number of workers,
          others addressing condition of employment
     • resist pressure for trade protection
        • renewed commitment to the Doha round,
          multilateral monitoring of trade related measures
          and policies being undertaken
     • reform of national and international
       regulation of financial markets

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                   Policy responses

     • IT sector and tourism sector
        • good time to take stock
        • build on south-south and regional trends i.e India,
          China, Gulf focus
        • optimal use of available financing including G-20,
          Aid for Trade

     • Migration
       • re-integration of returnees, scaling up of skills
       • bilateral discussions and policies


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        Thank you for your attention!



                Deepali.Fernandes@unctad.org

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