Nepal

NEPAL

LOCATION, SIZE, AND EXTENT
TOPOGRAPHY
CLIMATE
FLORA AND FAUNA
ENVIRONMENT
POPULATION
MIGRATION
ETHNIC GROUPS
LANGUAGES
RELIGIONS
TRANSPORTATION
HISTORY
GOVERNMENT
POLITICAL PARTIES
LOCAL GOVERNMENT
JUDICIAL SYSTEM
ARMED FORCES
INTERNATIONAL COOPERATION
ECONOMY
INCOME
LABOR
AGRICULTURE
ANIMAL HUSBANDRY
FISHING
FORESTRY
MINING
ENERGY AND POWER
INDUSTRY
SCIENCE AND TECHNOLOGY
DOMESTIC TRADE
FOREIGN TRADE
BALANCE OF PAYMENTS
BANKING AND SECURITIES
INSURANCE
PUBLIC FINANCE
TAXATION
CUSTOMS AND DUTIES
FOREIGN INVESTMENT
ECONOMIC DEVELOPMENT
SOCIAL DEVELOPMENT
HEALTH
HOUSING
EDUCATION
LIBRARIES AND MUSEUMS
MEDIA
ORGANIZATIONS
TOURISM, TRAVEL, AND RECREATION
FAMOUS NEPALESE
DEPENDENCIES
BIBLIOGRAPHY

Kingdom of Nepal

Nepal Adhirajya

CAPITAL: Kāthmāndu

FLAG: The national flag consists of two red adjoining triangles, outlined in blue and merging at the center; the points are at the fly. On the upper triangle, in white, is a symbolic representation of the moon; on the lower triangle, that of the sun.

ANTHEM: The national anthem begins "May His Majesty, solemn and supremely valiant, be prosperous forever."

MONETARY UNIT: The Nepalese rupee (nr) is a paper currency of 100 paisa. There are coins of 1, 2, 5, 10, 20, 25, and 50 paisa and 1, 2, 5, 10, 20, 25, 50, and 100 rupees, and notes of 1, 2, 5, 10, 20, 50, 100, 500, and 1,000 Nepalese rupees. nr1 = $0.01357 (or $1 = nr73.674; as of 2004).

WEIGHTS AND MEASURES: The metric system is in use, but some traditional Indian standards also are employed.

HOLIDAYS: National Unity Day, 11 January; Martyrs' Day, 30 January; Rashtriya Prajatantra Divas—National Democracy Day, 18 February; Nepalese Women's Day, 8 March; Navabarsha—Nepalese New Year's Day, mid-April; UN Day, 24 October; Queen Aishworya's Birthday, 7 November; Constitution Day, 9 November; National Day (King Birendra's Birthday), 28 December. Hindu and Buddhist religious holidays are based on the lunisolar calendar. Saturday is the general day of rest.

TIME: 5:45 pm = noon GMT.

LOCATION, SIZE, AND EXTENT

A comparatively narrow strip of territory dividing India from China, landlocked Nepal has an area of about 140,800 sq km (54,363 sq mi), extending 885 km (550 mi) se–nw and 201 km (125 mi) ne–sw. Comparatively, the area occupied by Nepal is slightly larger than the state of Arkansas. In its length lie some 800 km (500 mi) of the Himalayan mountain chain. Nepal is bounded on the n by China and on the e, s, and w by India, with a total boundary length of 2,926 km (1,818 mi). Nepal's capital city, Kāthmāndu, is located in the central part of the country.

TOPOGRAPHY

Nepal is made up of three strikingly contrasted areas. Southern Nepal has much of the character of the great plains of India, from which it extends. Known as the Terai, this region comprises both cultivable land and dense jungle, the latter being for the most part a game preserve inhabited by the wild elephant, tiger, and other typically South Asian fauna. Besides being a hunting ground, the forests are worked for their valuable timber. The Terai contains about one-third of Nepal's population and makes up about one-fourth of the total area. The second and by far the largest part of Nepal is formed by the Mahabharat, Churia, and Himalayan mountain ranges, extending from east to west. Their altitude increases toward the north, culminating on the Tibetan border in Mt. Everest (Sagarmatha in Nepali), standing amid other noble peaks.

Three principal rivers originate from glaciers and snow-fed lakes, break southward through deep Himalayan gorges, and enter, respectively, the Karnali, Gandak, and Kosi basins. Flowing toward India, they become tributaries (as are all Nepal's rivers) of the Ganges system. The third area is a high central region, some 890 km (344 sq mi) in extent between the main Himalayan and Mahabharat ranges; this region is known as the Kāthmāndu Valley, or the Valley of Nepal. Overlooked by mountains, the valley, with its fertile soil and temperate climate, supports a thriving agriculture. Here Kāthmāndu, the capital, is situated, with the foothill towns of Bhaktapur and Patan nearby. This is the only region of Nepal that has any considerable population density.

Eight of the world's highest mountains are situated in the Himalaya range on the Tibetan border. Triangulated in 1850, Mt. Everest was officially given the status of the world's highest peak in 1859. The summit (8,850 m/29,035 ft) was reached for the first time on 29 May 1953 by Sir Edmund Hillary, a New Zealander, and Tenzing Norgay, a Sherpa guide.

CLIMATE

Below the Kāthmāndu Valley and throughout the Terai, the climate is subtropical and, in the swamps and forests, extremely humid. The valley itself enjoys the temperate conditions generally found between altitudes of 1,200–3,400 m (4,000–11,000 ft). At 1,300 m (4,300 ft) above sea level, the elevation of Kāthmāndu, the rainy season lasts from June to October; 80% of annual precipitation falls during this monsoon season. Colder weather follows, lasting until the middle of March, when the warm season begins. The warm season increases in intensity until broken by the rains, which account for precipitation of about 150 cm (60 in) annually. Temperatures in Kāthmāndu in January range from an average minimum of 2°c (36°f) to an average maximum of 18°c (64°f); the July range is 20–29°c (68–84°f). Northward of the Kāthmāndu Valley, a subalpine zone continues to altitudes of about 4,300 m (14,000 ft); above that elevation, the country is covered with snow during the long winter, and extreme cold is experienced in the upper Himalayas.

FLORA AND FAUNA

The wide range of climate accounts for correspondingly marked contrasts in flora and fauna between different regions of the country. In the south, the sal (the wood of which is used for railroad ties), sisu, and other subtropical trees are abundant in forests; in the extreme north, junipers are seen even at the altitude of the glacial moraines. Many kinds of conifers also exist in the alpine zone, along with the yew, various hollies, birch, dwarf rhododendrons, and other alpine flora.

Dominant in the Langtang Valley are the chir pine, willow, alder, and evergreen oak. Blue pine and silver fir are frequent in the subalpine zone, which also supports tree rhododendrons—magnificent plants often reaching a growth of 12 m (40 ft). Ground orchids, lilies, yellow and blue poppies, and crimson anemones are prevalent in central Nepal. The profusion of wild flowers extends to very high altitudes; at 5,200 m (17,000 ft), several varieties of primula, pink and white cotoneaster, and white erica have been gathered, along with many kinds of alpine mosses and ferns.

The tiger, hyena, and jackal still exist in southern Nepal, although in decreasing numbers. Rhesus monkeys and a variety of other small jungle mammals and rodents are common. At middle altitudes are found the black bear, several species of cats, squirrel, hare, deer, and antelope. Higher in the mountains, wild sheep and goats, marmots, and a species of tailless mouse-hare are numerous. Wild yaks can still be found in the mountains of Nepal. The wild yaks, an endangered species that holds the distinction of being the mammal that lives at the highest altitudes, can make their homes at altitudes up to 6,096 m (20,000 ft), but have trouble in altitudes below 3,048 m (10,000 ft). Small black spiders were found at 6,900 m (22,500 ft) on rocky ledges traversed by the Mt. Everest expedition of 1953.

Birds of Nepal include the green finch, dove, woodpecker, nuthatch, warbler, flycatcher, bulbul, and other familiar species. At about 2,700 m (9,000 ft) are found the hill partridge, pheasant, yellow-backed sunbird, minivet, and many of the flowerpeckers; the redstart, pipit, wagtail, snow pigeon, snowcock, and golden eagle thrive in both the alpine and subalpine zones.

As of 2002, there were at least 181 species of mammals, 274 species of birds, and over 6,900 species of plants throughout the country.

ENVIRONMENT

Nepal's environment has suffered the effects of agricultural encroachment, deforestation and consequent soil erosion, and contamination of the water supply. Between the mid-1960s and the late 1970s, forestland declined from 30% to 22% of the total area, mainly because of the felling of timber for firewood, which supplies over 90% of Nepal's fuel requirements. All of Nepal's forests were nationalized in 1957, but reforestation efforts have been minimal. A forest conservation program, begun in 1980, includes the establishment of village tree nurseries, free distribution of seedlings, and provision of wood-burning stoves of increased efficiency. By 1985, however, deforestation averaged 324 sq mi per year, while reforestation was only 4,000 hectares (9,900 acres) per year. An additional 4.4% of forest and woodland were lost between 1983 and 1993. As of 2000, the annual rate of deforestation was at about 1.8%. The FAO has estimated that at the present rates of depletion, the forests will be virtually wiped out by 2015.

Air and water pollution are significant environmental problems in Nepal. In 2000, the total carbon dioxide emissions was at 3.4 million metric tons. The use of contaminated drinking water creates a health hazard. Untreated sewage is a major pollution factor: the nation's cities have produced an average of 0.4 million tons of solid waste per year.

In 2003, about 8.9% of the total land are of Nepal was protected. There are two natural UNESCO World Heritage Sites: Sagarmatha National Park and Royal Chitwan National Park. There are four Ramsar wetland sites. According to a 2006 report issued by the International Union for Conservation of Nature and Natural Resources (IUCN), threatened species included 29 types of mammals, 31 species of birds, 6 types of reptiles, 3 species of amphibians, 1 species of invertebrates, and 7 species of plants. Species classified as endangered in Nepal included the snow leopard, tiger, Asian elephant, pygmy hog, great Indian rhinoceros, Assam rabbit, swamp deer, wild yak, chir pheasant, and gavial.

POPULATION

The population of Nepal in 2005 was estimated by the United Nations (UN) at 25,371,000, which placed it at number 45 in population among the 193 nations of the world. In 2005, approximately 4% of the population was over 65 years of age, with another 39% of the population under 15 years of age. There were 98 males for every 100 females in the country. According to the UN, the annual population rate of change for 2005–10 was expected to be 2.2%, a rate the government viewed as too high in light of the country's environmental problems and poverty. The projected population for the year 2025 was 36,093,000.

The population density was 172 per sq km (446 per sq mi), but population distribution is uneven, with about 45% of all Nepalese concentrated in the hilly central region, 47% in the fertile Terai plain, and only 8% in the mountains.

The UN estimated that 14% of the population lived in urban areas in 2005, and that urban areas were estimated to be growing at an annual rate for 2000–05 at 5.1%. The capital city, Kāthmāndu, had a population of 741,000 in that year.

MIGRATION

Nearly 20,000 Tibetans arrived in Nepal between the Chinese annexation of Tibet in 1959 and 1989. Hundreds of thousands of Nepalese were believed to be working in India in the 1980s, and over 100,000 Indians were working in Nepal, particularly in the garment industry and on the building of highways.

An influx of Bhutanese refugees into Nepal began in late 1991 and peaked in 1992; the flow of new arrivals slowed after 1997. The total number of migrants in 2000 was 619,000 including refugees. In 2004, there were 104,915 refugees from Bhutan and 20,704 from Tibet, and an additional 654 asylum seekers. In that same year over 1,200 Nepalese applied for asylum in Europe, Hong Kong, the United Kingdom, and the United States. Others of concern to the United Nations High Commissioner for Refugees (UNHCR) in Nepal are 10,000 Bhutanese and 737 Tibetans.

In 2005, the net migration rate was zero per 1,000 population. The government views the migration levels as satisfactory. In 2004, an estimated 1.2 million Nepalese worked abroad in nearly 40 foreign countries returning about $1 billion in remittances.

ETHNIC GROUPS

Nepal consists of two primary ethnic elements: Mongoloids, who migrated to Nepal by way of Tibet, Sikkim, Assam, and northern Bengal; and Indo-Aryans, who came from the Indian plains and from the sub-Himalayan hill areas to the west of Nepal. These can be broken down into more than 75 ethnic groups. There are also small remnants of Dravidian tribes. Bhotes, of Tibetan origin, are the principal occupants of northern Nepal. In the central valley, Newars, considered to be one of the earliest groups of inhabitants, and Murmis predominate, the former being responsible for most of the agriculture and trade. Less numerous groups include Gurungs and Magars in west-central Nepal and Kirantis and Rai in the east. Sherpas, a Himalayan people, have become well known as guides for mountain-climbing expeditions. The aboriginal Tharus live in the southern Terai region. The Brahman and Chetri caste groups are believed to be descendants of Indian settlers. The Dalit, who are members of the lowest caste system formerly called "untouchables," still face social, political, economic, and even religious discrimination, particular in the rural areas of the west. The government has imposed laws prohibiting such discrimination.

At the 2001 census, the Chetri accounted for about 15.5% of the population and the Brahmans made up 12.5% of the population. Magars accounted for 7%, Tharus for 6.6%, Tamang 5.5%, Newar 5.4%, Muslims 4.2%, Kami 3.9%, and Yadav 3.9%.

LANGUAGES

Nepali is the official language, although some 50 different languages are spoken. Nepali is spoken by about 47.8% of the population and is the language for most intertribal communication; it is used in government publications and has been the language of most of the written literature since the Gurkha unification of Nepal. About 12.1% of the people speak Maithili as their first language, 7.4% Bhojpuri, 5.8% Tharu, 5.1% Tamang, 3.6% Newar, 3.3% Magar, and 2.4% Awadhi. Except in primary schools, where children are taught in their own language, Nepali or English is the medium of instruction. English is taught as a second language in secondary schools and colleges and is widely understood in business and government circles.

RELIGIONS

Hinduism and Buddhism exist side by side in Nepal and to some extent are intermingled. The importance of both in the national life is manifested everywhere; more than 2,700 temples and shrines have been counted in the Kāthmāndu Valley alone, while innumerable others are scattered along trails and roads extending to the most distant mountain passes. Bodhnath and Shambunath are famous Buddhist temples. The ancient temple of Chandrahigiri is dedicated to both religions. The Baghmati River, flowing through central Nepal, is considered sacred and is visited by pilgrims, as are certain mountains and lakes.

A 2004 report indicated that about 81% of the population were nominally Hindu, while 11% were Buddhist. Muslims constituted about 4.2% of the population. Minorities included Christians, Baha'is, Jains, and Kirants (followers of an indigenous animist religion). The constitution does not establish a state religion but does describe the nation as a "Hindu Kingdom." The constitution also forbids proselytizing. Certain Hindu holidays are recognized as national holidays, as is the birthday of the Buddha. Some local authorities have restricted public celebrations of Tibetan Buddhist festivals.

TRANSPORTATION

Nepal's ratios of road mileage to area and to population are among the lowest in the world, and the principal means of land transport is by porters with pack animals. The main highways are the 190-km (118-mi) road that penetrates the Kāthmāndu Valley, connecting it with the Indian border; the 87-km (54-mi) road between Kāthmāndu and Kodari on the Tibetan (Chinese) border, which was severely damaged by flooding in late 1982 and was later rebuilt with Chinese assistance; the 862-km (536-mi) east–west Mahendra Highway; and the 200-km (124-mi) Kāthmāndu-Pokhara highway, which is being extended to Surkhet. In all, Nepal had 13,223 km (48,217 mi) of roadway in 2002, of which 4,073 km (2,531 mi) were paved.

There are no waterways in Nepal. The only practical seaport for goods bound for Kāthmāndu is Calcutta in India.

Nepal had a total of 59 km (37 mi) of railways in 2004, all of it narrow gauge and all in Kosi, close to the Indian border. Opened in 1927, the line runs from Jayanagar, in India, to Janakpur, a distance of 52 km (32 mi), of which 10 km (6 mi), running from Raxaul, India, to the frontier town of Birganj, is government owned. An electrically driven ropeway, inaugurated in 1925 and improved with US aid in 1962, carries 25 tons an hour a distance of 43 km (27 mi), to a height of nearly 1,400 m (4,500 ft) from Hetaura to Kāthmāndu.

Much of Nepal is easily accessible only by air. In 2004 there were an estimated 46 airports, of which 10 (as of 2005), had permanently surfaced runways. The leading air terminal is Tribhuvan airport at Kāthmāndu. Domestic flights are operated by the Royal Nepal Airlines Corp., which also schedules flights to Great Britain, Germany, India and eight other Asian countries. In 2003, about 625,000 passengers were carried on scheduled domestic and international airline flights.

HISTORY

Fact, myth, and legend are intertwined in Nepal's historical literature, which, in the Vamshavali, traces the origins of the country in the distant past when Nepal was allegedly founded by Ne-Muni and derived its name from this source. A reliable chronology can be established only after the conquest of Nepal by Harisinha-deva, rajah of Simraun in about 1324. Under the Malla dynasty, Nepal was administered in four separate states: Banepa, Bhadgaon (now Bhaktapur), Kantipur (modern Kāthmāndu), and Lalitpur (now Pāţan).

Prithwi Narayan Shah, the ruler of Gorkha, a small principality west of Kāthmāndu, established the modern kingdom of Nepal in 1768 by incorporating the Kāthmāndu Valley into his domain and unifying with it many small independent principalities and states. Under his descendants, most of the present boundaries of Nepal were established and Hinduism was introduced from India as the official religion.

Nepal came in contact with the influence of larger powers outside South Asia in the late 18th century as a consequence of the British East India Company's conquest of India to its south and a trade dispute with Tibet that led to a Nepalese confrontation with China. Peace was imposed by China in 1792, after Chinese forces had invaded, then withdrawn from Nepal. In the same year, a commercial treaty was ratified between Britain and Nepal. Relations with the British in India remained peaceful until 1814 when a border dispute led to inconclusive hostilities between Nepal and the British East India Company. When the fighting ended two years later, Nepal's independence was preserved in an agreement in which Nepal yielded a large piece of territory to the Company on its southern border and agreed to the establishment of a permanent British resident at Kāthmāndu.

The 1816 agreement (reaffirmed by a formal treaty of friendship between Nepal and Great Britain in 1923) also laid the groundwork for more than a century and a half of amicable relations between Britain and Nepal. Included under the agreement was Nepalese approval for British recruitment of Nepalese Gurkha mercenaries for the British-officered Indian army. During the Indian Mutiny of 1857, Nepal's Rana prime minister sent some 12,000 additional Nepalese troops in support of British garrisons; he also offered troops to US president Abraham Lincoln in 1866 during the US Civil War. Over the years, the Gurkha regiments serving in the British Indian army (and after 1947 under both Indian and British flags) won renown for their bravery, skill, and endurance—in Afghanistan in 1879 and Tibet in 1904, in Europe, Asian, and Africa in the 20th century's two world wars, in the UN action in the Belgian Congo in the 1960s, in India's conflicts with China and Pakistan, and in 1982, in Britain's conflict with Argentina over the Falkland Islands.

In 1846, Shumshere Jung Bahadur (Rana) became Nepal's de facto ruler, banishing the king and ruling as regent for the king's minor heir. The prime ministership became a hereditary office in his Rana family, not unlike the Tokugawa Shogunate in Japan, ruling successively until 1951. Following the end of World War II, the termination of British rule on the South Asian subcontinent in 1947 caused deep stirrings of change in Nepal. Resentment grew against the autocratic despotism of the Ranas, who—as regents—had kept successive monarchs virtual prisoners. A political reform movement, begun in 1946 with the founding of the Nepali Congress Party on the model of the Indian Congress Party, won the support of King Tribhuvana Bir Bikram Shah, but in a power struggle in 1950, the king was forced to flee from the Ranas to India. With Indian support, insurgents began operations against the Rana government until, with the mediation of Indian Prime Minister Nehru, a political compromise was reached that returned the king to Kāthmāndu and ended a century of hereditary Rana family rule. By late 1951 a new government took office, headed by Matrika Prasad Koirala, with his brother, a co-founder of the Nepali Congress Party (NC).

Political life in Nepal in the years since the restoration of the monarchy in 1951 has been dominated by the struggle between the monarchy and the country's political elements to define the terms under which they will co-exist and bring the country into the modern world. Six different cabinets, each lacking popular support and riddled with dissension, held office in rapid succession between 1951 and 1957, and in 1957–58, King Mahendra Bir Bikram Shah, who had succeeded to the throne upon the death of his father in 1955, ruled directly for a period of months. In April 1959, he promulgated a democratic constitution, providing for a constitutional monarchy, two houses of parliament, and a cabinet and prime minister responsible to the lower house, in the Westminster model. Bisweswar Prasad (B. P.) Koirala of the NC assumed office on 24 July 1959 as first prime minister under this constitution.

Less than 18 months later, on 15 December 1960, the king suspended the constitution, dissolved parliament, dismissed the cabinet, and again established his own government, this time with an appointed council of ministers. He ruled directly until April 1962 when he promulgated a new constitution establishing an indirect, nonparty system of rule through a tiered system of panchayats (council) culminating in a National Panchayat. Five years later, after growing agitation and hit-and-run attacks by NC elements based in India, the king—again under Indian pressure—promulgated a series of amendments introducing gradual liberalization.

In January 1972, Mahendra died suddenly and was succeeded by his 27-year-old son, Birendra Bir Bikram Shah Dev. The young monarch, who had attended Harvard University in the United States, was committed to maintaining the authority of the monarchy while keeping Nepal on the course of gradual political and social reform set by his father. Student demonstrations in early 1979 led him to call for a national referendum on whether to continue the panchayat system or create a more conventional multiparty system. With the king promising further liberalization, the existing panchayat system was endorsed by 55% of the voters in May 1980, and later that year, the king's subsequent constitutional amendments established direct elections and permitted the Panchayat, not the king, to choose the prime minister. The king's failure to lift the ban on political parties led party members—ineffectively—to boycott the elections of 1981 in which Surya Bahadur Thapa, a former civil servant who had become prime minister in 1979, was reaffirmed in June 1981 and continued in office until 1983 when he was replaced by Lokendra Bahadur Chand following the government's loss of its majority on an opposition "no confidence" motion.

In nonparty elections to the National Panchayat in May 1986, again in the face of a major party boycott, a majority of the incumbents were defeated, and Marich Man Singh Shrestha became prime minister. Most new members were opponents of the panchayat system, foreshadowing a new struggle between the king and his legislators. By early 1990, the NC and the United Leftist Front (ULF), a Communist alliance of seven parties, again went to the streets, organizing agitations that forced the king to make further constitutional changes in April; included were an end to the ban on political parties and their activities. The king dissolved the National Panchayat and appointed NC president Krishna Prasad Bhattarai interim prime minister, who was assisted by a cabinet made up of members of the NC, the ULF, independents, and royal appointees. A Constitutional Reforms Commission produced a new constitution in November 1990 that ended the panchayat era and restored multiparty democracy in a constitutional monarchy. In May 1991, the first openly partisan elections in 32 years were held, resulting in an NC majority in the new House of Representatives which chose Girija Prasad Koirala as prime minister. As of December 2002, Koirala had held the office of prime minister four times in his career.

On 1 June 2001, the former Crown Prince Dipendra Bir Bikram killed most of the royal family with an assault rifle as they sat around a dinner table. Although many theories circulated as to the motive for the killings, it is generally accepted that he turned against his family because his mother did not approve of a young woman as his choice of bride. Dipendra murdered his father, King Birendra, his mother, Queen Aishwarya, his sister, Princess Sruti, his brother, Prince Nirajan, and five others. He then shot himself in the head. Dipendra was anointed king while in a coma; two days later he died, and his uncle, Gyanendra Bir Bikram Shah Dev, was named king.

In addition to the slayings, Nepal has been embroiled in civil war. In 1996, a "people's war" was launched by several Maoist organizations in the central-western hill districts of Nepal. The Maoists' aims are the removal of the constitutional monarchy and the eradication of rural poverty. As of December 2005, more than 12,000 people had been killed in the fighting. The insurgents call themselves the Communist Party of Nepal (Maoist), modeled after Peru's Maoist Shining Path guerrillas. As of December 2005, they controlled 45% of Nepal, and brought the economy and political system to a virtual standstill. They are led by Chhabi Lal Dahal, or "Prachanda," who is seen by his followers as charismatic and by his enemies as fanatical. In July 2001, the Maoists came into direct combat with the Nepalese army for the first time, and stepped up their campaign of violence. Koirala, who was prime minister at the time, resigned after losing support from his ruling coalition, and alluded to the violence as a reason why the country needed to work for national consensus. Sher Bahadur Deuba became prime minister. In November 2001, after more than 100 people were killed in four days of violence, the king called a State of Emergency. The emergency measures restricted freedom of the press, as well as freedom of assembly, expression and movement. Suspects could be detained for three weeks without charges.

In February 2002, international donor agencies and individual nations pledged us$2.5 billion to Nepal, and the government increased military activity against the insurgents. In April, more than 300 people were killed in two of the most serious attacks of the rebellion, and the Maoists ordered a five-day national strike. Parliament was dissolved on 22 May, and national elections were scheduled for 13 November. In October, Prime Minister Deuba asked the king to put off the national elections for a year due to the mounting Maoist violence. King Gyanendra dismissed him and indefinitely put off the elections. Lokendra Bahadur Chand was appointed interim prime minister until elections were held and Surya Bahadur Thapa was elected prime minister in 2003. However former Prime Minister Deuba was later reinstated as prime minister in 2004. In February 2005, the King dismissed Prime Minister Deuba (again), dissolved the Cabinet and declared a State of Emergency, which was lifted in April 2005.

In 2004 the cease-fire that had existed between the Maoist rebels and the government collapsed. The killings increased on both sides with the Maoist rebels assassinating government officials, usually at the local level, bombing and attacking Indian-owned establishments. The government officially invited the Maoists to negotiate again in 2004, but the rebels refused.

In the area of foreign policy, Nepal has remained generally nonaligned, maintaining friendly relations with China and with India, despite efforts to minimize traditional Indian influence and the occasional clash of policies on matters relating to trade. In 1961, Nepal signed an agreement with China (which had earlier absorbed Tibet) defining the boundary between the two countries along the traditional watershed. Nepal was uninvolved in the 1962 hostilities between India and China on portions of the border to the east and west of Nepal. One result of this conflict however, was India's occupation of Kalapani, a border region of northwestern Nepal which, as of 2005, was still a matter of dispute with India. The refugee issue of some 104,235 Bhutanese in Nepal remained unresolved as of December 2005 as well as the many Tibetan exiles who have crossed the border from China. Ninety percent of these displaced persons are housed in seven United Nations High Commissioner for Refugees (UNHCR) camps. Nepal also faces a severe illiteracy rate with only 30% of women being literate compared to 65% of males in 2005.

Nepal has a very low per capita GDP of us$240 and a high population growth. The Nepalese economy is characterized by being highly dependent on international aid and having few export options (clothing, carpets and leather goods), although the tourist industry had resurged prior to the 2005 State of Emergency. Nepal also has pursued friendly relations with the great powers and has been the recipient of economic aid from India, the United States, the former USSR, and the World Bank.

GOVERNMENT

The 1990 constitution, Nepal's third (with variations) since 1951, established a constitutional monarchy in which the legislature consists of the king and two houses of parliament, the lower house, called the House of Representatives and the upper house, the National Council. The king is Gyanendra Bir Bikram Shah Dev, the descendent of an unbroken Rajput line going back more than 200 years. The House of Representatives has 205 members elected to terms of five years; at least 5% of the contestants from every party must be women. The National Council has 60 members, 35 of whom are elected by the House of Representatives. The National Council members included three elected women as of 2003. Suffrage is universal at 18 years of age.

The National Council is a permanent body, retiring one-third of its members every two years in elections that take place in May of even-numbered years. The king appoints 10 of the 60 members in the National Council. The remaining 15 members are selected by an electoral college.

In May 2002, parliament was dissolved, and elections were scheduled for 13 November of that year. However, King Gyanendra removed his prime minister who had called for a postponement of national elections for a year due to mounting Maoist violence. King Gyanendra subsequently indefinitely postponed the elections, which, as of December 2005, had not been held.

Nepal's supreme court chief justice is appointed by the king on recommendation of the Constitutional Council. Corruption is seen to be endemic in Nepal and government institutions had all but broken down in rural areas as of 2005. The government suppresses speech that might undermine the monarchy, interethnic or intercaste relations or national security. Internet access to Maoist websites is censored, but otherwise allowed. Most NGOs have abandoned efforts in western Nepal due to Maoist domination of the area. Both the government and the Maoist rebels have been accused of increasing human rights violations after the insurgency in 1996. Nepal has the highest number of unexplained political disappearances worldwide. The Moaist rebels consist of approximately 5,000 guerrillas supported by 15,000 fighters who control 45% of Nepal. Maoists have enacted their own judicial system within their jurisdiction termed "people's government". The Maoists are accused of recruiting, as well as abducting, children to be used as soldiers. International organizations estimate that several hundred thousand Nepalese have been displaced due to the Maoist insurgency. The Maoist insurgency has also drastically reduced Nepalese tourism which was once a major source of revenue for the government.

For development purposes, the country is also divided into five regions by geography (Eastern, Central, Western, Mid-Western, and Far-Western), each of which serves also as a parliamentary constituency, electing three members of the lower house. In 1992, the government undertook a reform of the civil service, lowering the age of retirement from 60 to 58, committing itself to reducing its overall size by 25% by 1993, and engaging in wholesale dismissals of those with 20 or more years of service. Nepal is a majority Hindu country and, although against the law, discrimination due to caste is widespread. The dalits, or untouchables, caste is routinely discriminated against through violence and socio-economic exclusion. Organized gangs traffic between 5,000–12,000 Nepalese women a year to India to work in brothels. The majority who return are HIV positive and are also strongly discriminated against.

POLITICAL PARTIES

The 1962 constitution originally prohibited the formation of political parties and associations, even though political groups continued to exist and operate underground, at times on a quasi-legal basis. Parties were legalized in 1990 and now operate freely in Nepal's multiparty constitutional monarchy. Nepal does not allow party formation along ethnic, caste, religious, tribal or regional lines. The main party through Nepal's modern history—providing nearly all of the country's prime ministers even when the ban on parties prohibited party activity—is the Nepali Congress Party (NC). Inspired by the socialist wing of the Indian National Congress and founded by the Koirala brothers, M. P. and B. P., in 1946, the party led Nepal's first democratic government in 1959. Most of its leaders were imprisoned during the 1960s, but with Indian help, the party operated from India, mounting hit-and-run attacks and maintaining an underground presence in Nepal.

The NC leadership led the opposition to King Mahendra's tiered panchayat system of indirect government. Although NC leaders called for a boycott of the May 1986 elections to the National Panchayat, 1,547 candidates ran for office, and only 40 of the previously elected members retained their seats. After these elections, a Democratic Panchayat Forum (DPF) was formed by NC members to mobilize voters on a nonparty basis to counter the influence in local elections of the Communist Party of Nepal (CPN), whose members had won 16 seats in the National Panchayat.

The communist movement in Nepal has been severely fragmented for years by personal and ideological schisms, some of them occasioned by splits and the loss of orthodoxy in the communist movement worldwide in the 1960s and 1980s. Operating for electoral and agitational purposes in the 1980s as the United Leftist Front (ULF), the Communist Party (CPN) and its several communist allies have since split, fragmenting the movement into a number of splinter parties but leaving the CPN, now reassembled as the United Marxist-Leninists (UML) as the leading opposition party in the parliament. The latest elections to the House of Representatives were held on 3 and 17 May 1999. The results were: Nepali Congress (NC), 113 seats; Communist Party of Nepal/United Marxist-Leninist (CPN/UML), 69 seats; National Democratic Party (NDP), also called the Rastriya Prajatantra Party, 11 seats; Nepal Sadbhavana Party (NSP), 5 seats; Rastriya Jana Morcha, 5 seats; Samyukta Janmorcha Nepal, 1 seat; Nepal Workers and Peasants Party (NWPP), 1 seat. Elections scheduled to be held on 13 November 2002 were indefinitely postponed by the king.

LOCAL GOVERNMENT

For centuries, the heads of petty principalities within Nepal exercised local judicial, police, and other powers. Under the panchayat reforms introduced in 1962, the country was divided into 14 zones, which in turn were divided into 75 districts. The zones were directly administered by commissioners appointed by the central government, and the zonal panchayats were executive bodies elected from the 11-member panchayats at the district level, the members of which were in turn selected from village and town panchayats. Each of the 3,600 villages with populations of more than 2,000 and each of the 33 towns with populations over 10,000 also had an 11-member panchayat, as well as its own local assembly.

In April 1990, the partyless panchayat system was abolished as a result of a people's movement organized by the Nepali Congress Party and several leftist parties. However, the country remains divided into 14 zones (headed by appointed commissioners) and 75 districts (under the charge of district officers responsible for law and order, collecting revenues, and setting development priorities). The districts are further divided into smaller units—into municipalities and village development committees (VDC). At present, there are 3,913 VDCs and 58 municipalities in the country. A VDC consists of 9 wards and the municipalities consist from 9 to 35 wards. Municipalities and VDCs are directly elected.

In 1997, a royal decentralization ordinance was enacted that allowed for increased political participation by women. The ordinance called for the reservation of 20% of local government ward seats for women. This election resulted in approximately 32,000 local government seats in Nepal held by women. However, due to lack of knowledge, skills and education needed to carry out their responsibilities, arguments ensued amongst representatives against the mandatory percentage afforded to women.

JUDICIAL SYSTEM

Each district has a court of first instance, civil and criminal, as well as a court of appeals and 14 zonal courts. There are five regional courts—at Kāthmāndu, Dhankutā, Pokharā, Surkhet, and Dipayal—to which further appeals may be taken. At the apex is the supreme court in Kāthmāndu, which is empowered to issue writs of habeas corpus and decide on the constitutionality of laws. The court is composed of a chief justice, assisted usually by six other judges, with seven additional judges in reserve; all are appointed by the king. The Supreme Court is the court of last resort, but the king may grant pardons and suspend, commute or remit sentences of any court. There are separate military courts which generally deal only with military personnel. In 1992, the supreme court ruled that civilians may not be tried in the military courts. In April 2001, the supreme court appointed its first female judge.

The 1990 constitution declared the independence of the judiciary. The supreme court has exercised considerable independence in practice, declaring provisions of the Citizenship Act of 1991 and parts of the Labor Act of 1992 unconstitutional. In 1995 the constitutional court also ruled that the dissolution of the parliament at the request of a former primer minister was unconstitutional.

The 1990 constitution affords a number of procedural safeguards for criminal defendants including the right to counsel and protection from double jeopardy and from retroactive application of laws.

Although the judiciary remains, the monarch holds ultimate power, which can be seen in the decree forbidding news media from criticizing the King. While the State of Emergency was formally lifted on 29 April 2005, human rights organizations maintain that many freedoms have yet to be restored. This is most concerning in regards to the Terrorist and Disruptive Activities Ordinance (TADO), which allows up to one-year incommunicado detention. There are many reports of torture, execution and disappearances attributed to both the official government as well as the Maoists rebels.

There is no jury system. Special tribunals hear cases involving terrorism or treason under a treason act. Nepal is a member of the United Nations and the International Criminal Court.

ARMED FORCES

Nepal's armed forces numbered 69,000 active personnel in 2005, all of it accounted for by the Army. The service's primary weapon systems included 40 reconnaissance vehicles, 40 armored personnel carriers and over 95 artillery pieces The Army also had a small air wing of 320 personnel with no combat aircraft. Its air fleet was made up of 2 fixed wing transports, 7 support, and 5 utility helicopters. Nepal also had a paramilitary force of 62,000, which consisted of an armed police force of 15,000 under the Ministry of Home Affairs, and a regular police force of 47,000. The United Kingdom maintained a small military presence in Nepal involved in the recruitment and training of gurkha troops. In 2005, Nepal's defense budget totaled $151 million. Nepalese troops were stationed in 11 countries or regions as UN peacekeepers.

Under separate treaty arrangements going back to 1816, gurkhas of the same mountain stock (especially Magars, Gurungs, Rais, and Limpus) are recruited in Nepal by Great Britain and, since 1947, by the Republic of India. Under British and Indian flags, and with arms, training, and officers provided by their foreign recruiters, gurkhas are among the world's most renowned fighting men with extensive service in all parts of the globe in both world wars and several UN actions of this century.

INTERNATIONAL COOPERATION

Nepal was admitted to the United Nations on 14 December 1955 and is a member of ESCAP and several nonregional specialized agencies, including the FAO, the World Bank, ILO, IMF, UNESCO, UNIDO, and the WHO. It also belongs to the Asian Development Bank, the Colombo Plan, and G-77. In 1985, Nepal joined with six other Asian nations to form the South Asian Association for Regional Cooperation (SAARC); the secretariat is in Kāthmāndu.

Nepal is a member of the Nonaligned Movement. The country has offered support to UN missions and operations in Kosovo (est. 1999), Ethiopia and Eritrea (est. 2000), Liberia (est. 2003), Sierra Leone (est. 1999), East Timor (est. 2002), Burundi (est. 2004, Côte d'Ivoire (est. 2004), and the DROC (est. 1999).

In environmental cooperation, Nepal is part if the South Asia Cooperative Environment Program (SACEP), the Basel Convention, the Convention on Biological Diversity, Ramsar, CITES, International Tropical Timber Agreements, the Montréal Protocol, the Nuclear Test Ban Treaty, and the UN Conventions on the Law of the Sea, Climate Change and Desertification.

ECONOMY

Despite social and economic reforms begun in the 1950s, Nepal's per capita income was only $1,100 (PPP) in 1998, and general living standards are low. The economy is based on subsistence agriculture, which engages about 80% of the labor force but is inefficiently organized and limited by a shortage of arable land in relation to population. Eight development plans, extending from 1955 to 1992, have slowly built up the nation's infrastructure. Nevertheless, the industrial sector is still small and dominated by traditional handicrafts, spinning and weaving, and similar occupations. Growth in medium-scale and cottage industry-based production of carpets and garments for export, expanding tourism, and some government-promoted development of heavy industry sustained an average GDP growth rate of over 5% from 1980–88. In 1989/90, Nepal weathered a major trade and transit dispute with India, maintaining a GDP growth rate of 2%, despite the potentially debilitating tariffs suddenly placed on trade with its largest import supplier and external market.

Nepal's economic potential is by no means insignificant. Kāthmāndu Valley and the Terai zone are fertile areas; there is great forest wealth, including valuable medicinal plants such as pyrethrum, belladonna, and ipecac; deposits of several minerals are known to exist; and swift Himalayan rivers offer great possibilities for hydroelectric development.

The principal challenge for the Nepalese is to provide for a rising and unequally distributed population and to achieve material progress without irrevocably depleting the environmental resource base. Structural adjustment measures initiated in 1989 have reduced the regulation of industry and imports, and are supported by similar liberalization in India, to which Nepal's economy is closely tied. However, aggregate economic growth remained sluggish during the early 1990s. Gross domestic product growth declined from 4.6% in 1990/91 to only 2.1% in 1991/92, due in large part to declining agricultural output following poor weather. Gross domestic product growth averaged an annual rate of 5% between 1988 and 1998. International actors fund more than 60% of Nepal's development budget and account for more than 28% of total budgetary expenditures. In 1995 Nepal joined the South Asian Association for Regional Cooperation (SAARC) in the South Asian Preferential Trade Area.

The GDP growth rate was negative in 2002 (-0.3%), but the economy recovered in 2003 and 2004, expanding by 2.8% and 3.4% respectively; in 2005, the GDP growth rate was expected to be 3.5%. The inflation rate has been fluctuating, but at 2.9% in 2004, it was considered to be under control and did not pose a problem to the overall economy. Despite encouraging economic growth rates, Nepal remains one of the poorest countries in the world, land-locked, with a poor infrastructure, and meager connections to outside markets.

INCOME

The US Central Intelligence Agency (CIA) reports that in 2005 Nepal's gross domestic product (GDP) was estimated at $42.2 billion. The CIA defines GDP as the value of all final goods and services produced within a nation in a given year and computed on the basis of purchasing power parity (PPP) rather than value as measured on the basis of the rate of exchange based on current dollars. The per capita GDP was estimated at $1,500. The annual growth rate of GDP was estimated at 2.5%. The average inflation rate in 2005 was 2.9%. It was estimated that agriculture accounted for 40% of GDP, industry 20%, and services 40%.

According to the World Bank, in 2003 remittances from citizens working abroad totaled $785 million or about $32 per capita and accounted for approximately 13.4% of GDP. Foreign aid receipts amounted to $467 million or about $19 per capita and accounted for approximately 8.0% of the gross national income (GNI).

The World Bank reports that in 2003 household consumption in Nepal totaled $4.57 billion or about $185 per capita based on a GDP of $5.9 billion, measured in current dollars rather than PPP. Household consumption includes expenditures of individuals, households, and nongovernmental organizations on goods and services, excluding purchases of dwellings.

In 2001 it was estimated that approximately 44% of household consumption was spent on food, 7% on fuel, 5% on health care, and 14% on education. It was estimated that in 1996 about 42% of the population had incomes below the poverty line.

LABOR

In the latest years for which data was available, as of 1998, Nepal's labor force was estimated to number 11 million. In 2002, the vast majority, approximately 81% of the workforce, was engaged in agriculture. Most agriculturists are peasant farmers, and there are many wage laborers, but only in the peak seasons. The service sector provides work for 16% of the labor force, and industry accounts for the remaining 3%. There is a severe lack of skilled labor. Among some tribes, women do most of the farm work, while in others, especially among strict Hindus, they do no farming at all. Many occupations are effectively restricted to certain castes, although the practice has been declared illegal. In 2001, the unemployment rate was 47%.

Unions are allowed to organize and strike. The three largest trade unions are associated with political parties, but the government does not restrict union activity. However, the right of a union to strike is limited to nonessential services. About 20% of the workforce is covered by collective bargaining agreements.

Minimum wage rates and working conditions in the small industrial sector are set by the Nepal Factories and Factory Workers' Act of 1959, as amended. In 2002, the minimum wage was $20 per month for unskilled, $21 for semiskilled, and $25 for skilled workers in the organized industrial sector. Wages can be as low as 50% of the minimum in the informal economy and the agricultural sector. The law establishes a minimum employment age of 16 years in industry and 14 years in agriculture.

AGRICULTURE

In 2003, agriculture provided about 41% of GDP. Only about 7% of the land can actually be cultivated. Regional imbalance and lack of integration also hamper Nepal's agriculture. Although the country produces an overall exportable surplus of food grains, some areas of the country, particularly Kāthmāndu Valley and the hill areas, have a food deficit. Lack of transportation and storage facilities prevents the movement of food grains from the Terai to the hills, with the result that Nepal both exports and imports the same food items.

Agriculture has been hampered by the lack of irrigated land, by the small size of farms (an average of four hectares/10 acres), and by inefficient farming methods. Some of the arable land is still held free of taxation by a few large landowners and farmed by tenants, whose productivity is low. The government has officially abolished tax-free estates (birta ), eliminated the feudal form of land tenure (jagira ), set a limit on landholdings, and redistributed the extra land to farm tenants. Its economic plans also include the use of fertilizers, insecticides, improved seeds, and better implements; the extension of irrigation; and the construction of transportation and storage facilities.

Rice, Nepal's most important cereal, is grown on more than half the cultivated land, mainly in the Terai but also on every available piece of ground in the Kāthmāndu Valley during the monsoon season. In 2004, rice production totaled 4,300,000 tons. Production of maize, grown on the carefully terraced hillsides, was 1,590,000 tons in 2004; land under cultivation with maize was 25% of the area allotted to food grains. The output of wheat in 2004 was 1,387,000 tons; millet, 283,000 tons; and barley, 30,000 tons. Cash crops (with 2004 output) included sugarcane, 2,305,000 tons; potatoes, 1,643,000 tons; mustard seed, 133,000 tons; linseed, 6,100 tons; jute, 6,900 tons; and tobacco, 3,300 tons. Sugarcane, jute, and tobacco are the major raw materials for Nepal's own industries. Potatoes are grown in Ilam and fruit mainly in Dharan, Dhankuta, and Pokhara. Tea is also grown in Ilam and elsewhere. In 2004, exports of agricultural products totaled $94.8 million, while agricultural imports amounted to $187 million.

ANIMAL HUSBANDRY

Livestock, adapted to many uses, forms an essential part of the economy. Livestock accounts for about 30% of gross agricultural output. In farm work, bullocks and asses are largely used. Herds of yaks, cows, and their hybrids, zobos, are grazed in the central valley and to some extent along the borders of the foothill jungles. A few hogs usually are kept on the larger farms. Sheep and goats are used for food and also as pack animals, particularly in the distribution of salt over the trade routes; the sheep also supply a valuable type of wool.

In 2005, Nepal had an estimated 6,994,000 head of cattle, 4,081,000 water buffalo, 817,000 sheep, 7,153,000 goats, and 948,000 hogs. Modern poultry farms are operated principally by the Newaris, who carry on most of the agriculture in the Kāthmāndu Valley. There were about 22.8 million chickens in 2005, when 15,700 tons of poultry meat were produced. Traditionally, butter and cheese are among the leading exports of Nepal. Livestock products in 2005 included an estimated 380,000 tons of cow's milk, 20,000 tons of butter and ghee, and 590 tons of wool (greasy basis).

FISHING

The commercial fish catch amounted to 36,568 tons in 2003 (up from 5,281 tons in 1991), with aquaculture accounting for 48%. In the Terai are many small fish ponds and several government fish farms. Common fish species are carp, gar, and murrel.

FORESTRY

In 2000, forests covered an estimated 27.3% of Nepal's total land area. Timber cutting has been contracted out to private firms. About 91% of the 13.9 million cu m (491 million cu ft) of roundwood cut in 2004 was for fuel.

In 1961, the government established a department of medicinal plants to encourage Nepal's commercially important herb exports. There are regional herbal farms at Kāthmāndu and Nepalganj. There is also a royal research laboratory for drug analysis.

MINING

Although mining in Nepal was an ancient occupation, the country's mineral resources have been little exploited. Mining and quarrying was dominated by the production of cement, red clay, coal, limestone, magnesite, and marble. In 2004, cement production totaled 300,000 metric tons, while red clay output came to 29,234 metric tons. Coal output that same year (bituminous and lignite) totaled 10,517 metric tons, while limestone production totaled 388,109 metric tons. In 2004, the country also produced quartz, quartzite, salt, talc, and tourmaline. A lead and zinc deposit near Lari had reserves of two million tons, and there were known deposits of iron, copper, graphite, cobalt, mica, and slate. Development plans included the encouragement of small-scale mining, and provided for continuing mineral surveys.

ENERGY AND POWER

Nepal, as of 1 January 2004 had no proven reserves of crude oil, natural gas, or any refining capacity, and as of 2003, negligible reserves of coal.

In 2002, Nepal's imports of refined petroleum products averaged 15,620 barrels per day, while demand in that year averaged 15,510 barrels per year. Although there were no recorded imports of natural gas in 2002, Nepal did import 238,000 short tons of coal, and did produce 13,000 tons of bituminous coal.

The bulk of Nepal's electricity is hydroelectric. In 2002, electric generating capacity totaled 0.458 million kW, with hydroelectric accounting for almost 84% of that total. The remaining capacity was dedicated to conventional thermal sources. Electric power output in 2002 totaled 2.333 billion kWh, of which hydroelectric generation produced almost 90% of that amount. Demand for electricity in 2002 totaled 2.268 billion kWh. As of 2000, only 15% of Nepal's population had access to electricity.

INDUSTRY

Until the 1980s, modern industry was almost nonexistent; only 0.66% of Nepal's GDP was derived from industry in 1964/65. Since then, industrial development has been given emphasis in economic planning. Manufacturing as a percent of total GDP rose from 4.2% in 1980 to 6.1% in 1990 to 9.2% in 1995 to an estimated 22% in 2000. However, manufacturing is a sector that has been hit particularly hard by the Maoist insurgency and the intensification of violence since 2001. The CIA estimates that the industrial production growth rate for 1999/2000 was 8.7%. However, this had dropped to less than 1% for 2001/02 according to IMF estimates.

Starting in the 1930s, a number of public enterprises (PEs) were established by the government with an aim of building an industrial and manufacturing base. About 62 PEs in all were established, close to half in the industrial sector, with others in the trading, service, public utility and financial sectors. The oldest surviving PE is the Biratnagar Jute Mills (BJM), set up in 1936. The jute industry has been in decline since 1966. In 2002 BJM was being operated by a private conglomerate on terms of a five year lease from the government. PEs in the industrial sector include cement factories, brick factories, sugar mills, textile mills, jute products factories, tool factories, foundries, and industrial chemical and fertilizer factories. From the early 1990s, there have been planned campaigns to reform and privatize the PEs. By the beginning of the Ninth Five-Year Plan (1997–2002), 16 PEs, over half industrial, had been handed over to private owners, and four had been shut down. A list of 30 PEs, 13 in the industrial sector, were scheduled for privatization during the Ninth FYP, but, in fact, only one, the Nepal Tea Development Corporation, has been privatized. The slowdown of the reform is attributable to both the outbreak of the Maoist insurgency in 1996 and a growing resistance to the privatization program from many sides, but particularly from workers' unions who perceive jobs as threatened. The PEs were not originally set up as commercial enterprises, and most do not even maintain updated accounts that would allow an auditor to assess their market viability. Analysts generally agree, however, that they are inefficiently overstaffed with low skill labor, and that most of the industrial PEs have a negative worth. The IMF estimates that net profits from the PE sector as a whole plunged from around nr3 billion (about $44 million) in 1998/99 to nr240 million (about $3.23 million) in 2000/01, despite continued government transfers and investment. That the figure remained positive is due virtually entirely to the profitability of three public utility PEs. Some of the known liabilities in the industrial sector include wage arrears that reached 16 months for the Agricultural Tool Factory, and four months for the Lumbini Sugar Factory. According to a study of eight industrial PEs reported by the IMF, employees of these companies are owed for gratuity, sick and home leaves, medical allowance and insurance premiums to the amount of about nr15.2 billion (about $204 million or 3–4% of Nepal's GDP). There are also large arrears to banks and suppliers, but monitoring mechanisms are insufficient to make reliable estimates. In February 2002, the government set up a special financing facility at 3% interest to encourage commercial banks to provide concessional loans to ailing industries, particularly those in the garment and hotel industries, which through exports and tourism are major earners of foreign exchange.

According to the CIA, major industries in Nepal include tourism, carpets, textiles, small rice jute, sugar, and oilseed mills; cigarettes, cement and brick factories. Aside from small-scale food processing (rice, wheat and oil mills), light industry, largely concentrated in southeastern Nepal, includes the production of jute goods, refined sugar, cigarettes, matches, spun cotton and synthetic fabrics, wool, footwear, tanned leather, and tea. The carpet, garment and spinning industries are the three largest industrial employers, followed by structural clay products, sugar and jute processing. Sugar production was 49,227 tons in 1995, jute goods, 20,1870 tons; and soap, 23,477 tons. That year, 14.7 million m of synthetic textiles and 5.06 million m of cotton textiles were produced. Industrial production from agricultural inputs included 20,800 tons of vegetable ghee, 16.76 million of beer and liquor, 9 billion cigarettes, and 2,351 tons of tea.

Heavy industry includes a steel-rolling mill, established in 1965, which uses imported materials to produce stainless steel. During the 1980s, the government gave priority to industries such as lumber, plywood, paper, cement, and bricks and tiles, which make use of domestic raw materials and reduce the need for imports. Production by heavy industries in 1995 included 326,839 tons of cement and 95,118 tons of steel rods.

Industrial production growth rates have been higher than the overall economy growth rates, indicating that industry is a growth engine. However, this sector had a share of only 20% in the GDP, and employed only 3% of the working population; agriculture was by far the largest employer, and accounted for 40% of the economy; services came in second, with a 16% representation in the labor force, and a 40% share in the GDP.

SCIENCE AND TECHNOLOGY

The only advanced technology is that brought in under the various foreign aid programs. Foreign technicians provide training in cottage industries, and local workers are trained at the Cottage Industry Center in Kāthmāndu. In 1982, the Royal Nepal Academy of Science and Technology was established at Kāthmāndu to aid in socioeconomic development. The National Council for Science and Technology aims to formulate science and technology policy, promote scientific and technological research, coordinate research among ministries and Mehendra Sanskrit University, and disseminate information to the public. Tribhuvan University has faculties of science and technology, medicine, agriculture and animal science, engineering, and forestry. In 1987–97, science and engineering students accounted for 13% of college and university enrollments. In 2002 Nepal's expenditures on research and development (R&D) totaled $220.821 million, or 0.67% of GDP. In that same year, Nepal had 62 researchers and 145 technicians engaged in R&D per million people.

DOMESTIC TRADE

For the six and one-half years of the Maoist insurgency in Nepal domestic trade has been severely hampered in rural areas. For many Nepalese, local trade is a part-time activity, limited to such products as cigarettes, salt, kerosene, and cloth. Marketing centers are along the main trails and are supplemented by small local markets. Distribution channels generally move from manufacturer, to distributor, to retailer. Poor communications facilities make extensive domestic trade impractical. However, one major impediment, the local tax on trade called octroi, was eliminated in 1997. Also, in the early 1990s, domestic airline routes were privatized, quadrupling domestic air traffic.

Most shops are open from 10 am to 8 pm. Businesses and government offices generally operate from 9 am to 5 pm. Most stores and businesses are closed on Saturdays.

FOREIGN TRADE

Traditionally, Nepal's foreign trade was limited to Tibet and India. After 1956, Nepalese trading agencies in Tibet were confined to Xigaze, Gyirong, and Nyalam, with Lhasa, Xigaze, Gyangze, and Yadong specified as markets for trade. In 1980, however, Nepal and China agreed to open 21 new trade routes across the Tibetan frontier. Treaty arrangements with China strictly regulate the passage of both traders and pilgrims in either direction across the border. Up until 1989, treaty agreements between India and Nepal allowed for unrestricted commerce across 21 customs posts along the border, and duty-free transit of Nepalese goods intended for third-party countries through India. In 1989, a breakdown in the treaty renewal negotiations resulted in retaliatory actions on both sides. India's share of Nepali exports plummeted from 38% in 1986/87 to 9% in 1989/90. India's share of the country's imports declined by about 25–50%. Despite the severe shock sustained by the Nepali economy, the signing of a new interim agreement in 1990 prevented a prolonged crisis, helping to fuel a robust recovery in export growth as exports increased by 28% in 1990/91 over 1989/90, and again by 35% in 1991/92.

Under the renewal of the bilateral trade treaty with India in 1997, Nepali goods entered India essentially duty free and quota free. As a result, exports to India grew for four years, from 1997 to 2001, at an average rate of 42% a year. The most recent India-Nepal Treaty of Trade, signed in March 2002, continues to allow Nepali manufactures to enter the Indian market on a nonreciprocal, preferential, or duty-free basis, with rules of origin less restrictive than the international norm (Nepal's manufactures can have up to 70% foreign content instead of the international norm of less than 50%). However, it places quotas on four sensitive imports: vegetable fats, acrylic yarn, copper products, and ferro oxide, all at volumes lower than Nepali exports to India.

The imposition of some nontariff barriers (NTBs) by India is just one factor in the estimated decline in the growth rate of Nepal's exports. Other factors are the damage to production caused by the intensification of the country's Maoist insurgency in 2001, the global economic slowdown, and a rapid decline in demand from Nepal's main third-country destinations, the United States and Germany, in the post-9/11 atmosphere. The end of the 1990s

Country	Exports	Imports	Balance
World	708.8	1,557.9	-849.1
India	317.8	575.7	-257.9
United States	192.2	24.1	168.1
Germany	105.5	21.1	84.4
United Kingdom	16.8	20.6	-3.8
Belgium	11.4	…	11.4
France-Monaco	10.3	27.0	-16.7
Japan	9.9	40.7	-30.8
China, Hong Kong SAR	7.1	95.7	-88.6
Switzerland-Liechtenstein	5.9	143.4	-137.5
Italy-San Marino-Holy See	4.2	12.8	-8.6
(…) data not available or not significant.

Current Account			110.3
Balance on goods		-987.8
Imports	-1,681.9
Exports	694.1
Balance on services		106.6
Balance on income		-20.2
Current transfers		1,011.7
Capital Account			24.8
Financial Account			-413.3
Direct investment abroad		…
Direct investment in Nepal		14.8
Portfolio investment assets		…
Portfolio investment liabilities		…
Financial derivatives		…
Other investment assets		-507.1
Other investment liabilities		79.0
Net Errors and Omissions			370.8
Reserves and Related Items			-92.7
(…) data not available or not significant.

saw robust growth in Nepal's exports, which increased nearly 12% in 1997/98, nearly 18% in 1998/99 and 37.4% in 1999/2000. The export growth rate fell, however, to 4.6% in 2000/01, according to the IMF. In 2001/02, exports are estimated to have actually declined by 15%.

The CIA reported that for 2000/01, recorded exports from Nepal were an estimated $757 million (FOB) and that imports for this period were $1,600 million, indicating an apparently unsustainable merchandise trade deficit of $843 million, or 111.5% of exports. However, the figure for exports does not include unrecorded border trade with India, including substantial gold smuggling.

The major export destinations in 2000/01 were India (48%), the United States (26%), and Germany (11%). Over the past decade, exports to India, while continuing to account for about half of Nepal's exports, have soared in value and become increasingly diversified as Nepal's manufactures have carved out niches in the Indian market. Exports to the United States consist mainly of apparel, including pashmina (the Indian name for cashmere) products, whereas exports to Germany are dominated by woolen carpets. In the wake of 9/11, exports to the United States declined 15% in 2001, after an increase if 30% in 2000. For 2001/02, the IMF estimates that exports to countries other than India declined more than 40% due to the combination of external slowdown and internal supply disruptions.

In 2004, exports reached $626 million (FOB—Free on Board), while imports grew to $1.7 billion (FOB). The bulk of exports went to India (47.4%), the United States (22.7%), Germany (8.4%), and the United Kingdom (3.1%). Imports included petroleum products, vehicles and spares, other machinery and parts, textiles, and thread, and mainly came from India (46.3%), China (10.8%), the UAE (9.3%), and Saudi Arabia (4.1%).

BALANCE OF PAYMENTS

Despite large recorded trade deficits, Nepal often maintains a surplus in its current account thanks to surpluses in services (including tourism), official aid transfers, and increasingly large remittances from Nepalese living abroad, and in spite of unrecorded trade and smuggling across the Indian border. The IMF reported small surpluses on Nepal's current account of $24 million and $28 million respectively, for the fiscal years 1998/99 and 1999/2000, even exclusive of official aid transfers. Adding in official transfers brought the total current account surpluses for these years to $98 million and $114 million, respectively, representing 2–3% of GDP. Nepal's overall balance of payments was positive for the fiscal years 1998/99 and 1999/2000, at $136 million and $192 million, respectively, as outflows of capital and other payments were estimated to be more than offset by inflows of capital grants and official disbursements. However, in 2001/02, by IMF's preliminary estimate, Nepal's overall balance of payments was a negative $77 million (1.4% of GDP) due primarily to a falling off in foreign aid. Official reserves held by the central bank in 2000/01 were initially estimated to be sufficient to cover 6.7 months of imports, just above the 6 months' coverage deemed financially prudent. However, of these reserves, about $290 million were being held in Indian rupees, with about $732 million in convertible currencies, enough to cover only 4.8 months of imports. Total external debt in FY 2000/01 was $2.55 billion, about 46% of annual GDP. Nepal's debt service ratio (the ratio of annual payments on the debt to annual exports) was a low 6% in this period, reflecting the highly concessional nature of its external finance. Nepal's debt has never been rescheduled. Its last arrangement with the IMF was in October 1992 under the Extended Structural Adjustment Facility (ESAF), for a line of credit of SDR 33.5 million—47% of Nepal's quota—of which only half, SDR 16.79, was ever drawn down by Nepal. The obligation was scheduled to be fully repaid by 2006, with payments of SDR 2.4 million in 2003; SDR 0.8 million in 2004; SDR 0.2 million in 2005; and SDR 0.2 million in 2006.

The International Monetary Fund (IMF) reported that in 2001 Nepal had exports of goods totaling $721 million and imports totaling $1.49 billion. The services credit totaled $413 million and debit $215 million. The US Central Intelligence Agency (CIA) reported that in 2001 the purchasing power parity of Nepal's exports was $757 million while imports totaled $1.6 billion resulting in a trade deficit of $843 million.

Exports of goods and services reached $1.1 billion in 2004, up from $925 million in 2003. Imports grew from $1.8 billion in 2003, to $2.1 billion in 2004. The resource balance was consequently negative in both years, reaching -$882 million in 2003 and -$999 million in 2004. The current account balance was also negative, decreasing from -$88 million in 2003, to -$144 million in 2004. Foreign exchange reserves (including gold) grew to $1.5 billion in 2004, covering more than eight months of imports.

BANKING AND SECURITIES

The central bank of Nepal is the Nepal Rastra Bank (NRB), established under the NRB Act of 1955, which, effective 31 January 2002, was replaced by a new NRB Act designed to give the central bank more autonomy in setting monetary policy and more supervisory authority. The new legislation outlines the procedures for appointing and dismissing the NRB Governor, Deputy Governor and board, as well as procedures for intervening with insolvent financial institutions. Further reforms are expected with the implementation of the Banking and Financial Institutions Act of 2003 which aims, inter alia, to reduce the government's role as owner and strengthen its role as regulator. Nepal's financial sector has historically been weak and nontransparent, characterized by politically-motivated interference, insider trading, weak management, disruptive unions, an inadequate financial information system, and a deeply entrenched culture of nonpayment of loans.

A World Bank report found that as of November 2002 Nepal had 15 commercial banks. The two largest, the Rastriya Banijya Bank (RBB), Nepal's largest bank with an estimated 27% of total banking assets, and the Nepal Bank Ltd. (NBL), Nepal's oldest commercial bank, founded in 1937, account for over 50% of banking assets. The RBB is wholly owned by the government (but slated for privatization), whereas the NBL, though founded with 51% government ownership, has sold shares to the public sufficient to reduce the government's share to 41%. There are also nine smaller joint venture banks (JVB's) with mixed public-private ownership, and four local commercial bank. The banking sector also includes two large development banks, the Agriculture Development Bank of Nepal (ADB/P) and the Nepal Industrial Development Corporation (NIDC), the second- and third-largest banks. The ADB/N maintains a micro-financing window, as does the NRB, the RBB, the NBL, and the regional development banks. According to the World Bank, as of November 2002, Nepal also had 48 finance corporations, 13 insurance companies, numerous finance institutions, 7 Grameen Replicator Banks, 35 financial cooperatives, and 25 financial NGOs.

Both of the largest commercial banks, the RBB and the NBL, are in precarious financial condition. According to a 2000 study by the World Bank, the most recent available, in 1998 the RBB and NBL together had a losses of $146 million, equivalent to 8.6 % of Nepal's GDP or 46% of the government's budget. The condition of both banks has doubtless deteriorated since then. In 2001 government authorities, in conjunction with the IMF and the World Bank, concluded that external managers, selected by the World Bank and the United Kingdom, were needed to reform the RBB and the NBL. Opposition to these proposals came from all sides: the boards of directors, the employees' unions and the borrowers. In January 2002, the NRB invoked the provisions of the new NRB Act and suspended the board of the NBL, effective 15 March 2002. For the RBB, the government entered into a contract on 31 January, 2002 with the American firm Deloitte Touch Tomatsu (DTT) for that company to take over management of the RBB. DTT, however, soon pulled out of the agreement, citing ambiguities in the contract and security concerns as the Maoist insurgency in Nepal became increasingly violent. In July 2002, a professional management team was installed at NBL, and in late 2002, a new CEO was appointed. The RBB is slated to be privatized in 2003.

Demand for new credit in Nepal was weak in 2001 and 2002, but the demand for credit to refinance from troubled debtors was substantial. Credit expanded in 2001 by about 10%, creating liquidity shortages at some commercial banks. In response, the NRB lowered Cash Reserve Requirements (CRR's) in January 2002 by 1.2% to around 9% (with a 3% of deposits required to be cash-in-vault). Also, refinancing rates were lowered 100–200 basis points to 2–5% in January 2002. In February 2002, the NRB set up a special refinancing facility at 3% interest to encourage commercial banks to make concessional loans to ailing businesses, particularly those in the garment and hotel enterprises hit by sharp declines in export demand and tourism.

At the end of FY 2000/01, in July 2001, net foreign assets held by monetary authorities in Nepal totaled $1 billion, and broad money supply totaled about $2.87 billion The broad money supply grew by 21% in 1999, 21.7% in 2000, and 15% in 2001, considerably ahead of inflation rates for those years, mostly due to expansion of paper currency resulting from the progressive monetization of the Nepalese economy. However, for FY 2001/02, the IMF estimates that broad money growth slowed to 6% because of the weakened economy and stagnant bank deposits due to the voluntary disclosure of income scheme (VDIS) and other asset verification efforts by the tax authorities. Inflation as reflected in consumer prices has been substantially moderated since October 1997 when Nepal shifted its exchange regime to one pegged only to the Indian rupee,

Revenue and Grants	61,250	100.0%
Tax revenue	42,617	69.6%
Social contributions	…	…
Grants	8,372	13.7%
Other revenue	10,261	16.8%
Expenditures	74,715	100.0%
General public services	18,829	25.2%
Defense	7,450	10.0%
Public order and safety	7,065	9.5%
Economic affairs	16,454	22.0%
Environmental protection	…	…
Housing and community amenities	3,419	4.6%
Health	4,065	5.4%
Recreational, culture, and religion	…	…
Education	13,282	17.8%
Social protection	4,079	5.5%
(…) data not available or not significant.

instead of to a composite of currencies. Earlier, in February 1993, Nepal had ended its dual currency system where by both the Indian and Nepalese rupee were allowed to circulate freely. In 2001, weak domestic demand and stable Indian prices combined to produce a subdued inflation rate of 3%. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $962.8 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $2.9 billion. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 6.5%.

The NIDC, along with the NRB, controlled the Security Exchange Center (SEC), set up in 1981, which was subsequently converted into the Nepal Stock Exchange (NEPSE) in 1984. In January 2003, there were 55 companies listed on the NEPSE, virtually all actively traded.

INSURANCE

The World Bank reported in November 2002 that Nepal had 13 insurance companies. All are government owned or have some government participation. Nepal joined the Multilateral Investment Guarantee Agency (MIGA) in 1993. The US Overseas Private Investment Corporation (OPIC) and other investment insurance programs are free to operate in Nepal without restriction. OPIC is authorized to offer its extended-risk guarantee facility to US investments in Nepal.

PUBLIC FINANCE

Nepal's fiscal year ends on July 15. The continued and increasingly violent Maoist insurgency, entering its tenth year in 2006, has had crippling impacts on Nepal's public finances, interfering with tax collections and disrupting production while at the same time requiring increased public spending on security and to repair damaged infrastructure. Most fundamentally, the insurgency hampers the government's efforts to address the poverty and other social problems fueling the rebellion. The perception of widespread corruption aggravates the present difficulties as does the global economic slowdown. Historically, most deficits on capital account have been financed by foreign grants, while domestic revenues have been sufficient to cover expenditures. Macroeconomic policy in FY 2001/02 was focused on increasing revenue collection, maintaining strict expenditure priorities, and containing domestic borrowing. A voluntary disclosure of income scheme (VDIS) plus other special revenue measures probably contributed to raising domestic revenues collected to 11.4% of GDP in FY 2000/01 and FY 2001/02, up from an average of less than 10.5% for the three previous fiscal years, but the relative rise in expenditures—1.5% of GDP—has outpaced the 0.9% rise in the revenue effort. Domestic public rose from about 14% of GDP in FY 1998/99 to about 18% of GDP in FY 2001/02, raising concerns that with increased domestic financing, in an environment in which bank deposit rates are stagnant, banks will have to draw on Nepal's scarce hard currency reserves. For FY 2000/01 the CIA estimated Nepal's external debt at $2.55 billion. By IMF estimates, total public debt in FY 2000/01 came to 49.9% of GDP, somewhat below the average for the previous five years of 52.2% of GDP.

The International Monetary Fund (IMF) reported that in 2003, the most recent year for which it had data, central government revenues were nr61,250 million and expenditures were nr74,715 million. The value of revenues was us$804 million and expenditures us$980 million, based on a market exchange rate for 2003 of us$1 = nr76.141 as reported by the IMF. Government outlays by function were as follows: general public services, 25.2%; defense, 10.0%; public order and safety, 9.5%; economic affairs, 22.0%; housing and community amenities, 4.6%; health, 5.4%; education, 17.8%; and social protection, 5.5%.

TAXATION

The principle sources of domestic revenue are customs tariffs, value-added taxes (VAT), excise duties, and income taxes on personal and corporate incomes. There are also local development taxes, as well as license and registration fees for houses, land and vehicles.

The standard corporate income tax rate is 25%, with a minimum rate of 20%. However, financial institutions are liable for 30%. Capital gains are taxed at a 10% rate. Ordinary income cannot be offset by capital losses, and ordinary losses cannot be offset by capital gains.

The VAT was introduced in November 1997 as a reform designed to replace sales taxes and most excises. The "octori," a traditional local tax on trade, was also eliminated at this time. Five years after its introduction, however, the VAT had yet to be completely implemented, as indicated by a finding that whereas net taxes from VAT have increased 65% over the first five years, refunds have increased by a factor of 23. The VAT rate is 10% and is collected at every stage of selling goods and services. Goods exempted for the VAT include primary food stuffs, agricultural products, and industrial machinery. There is no VAT on goods for export, or on raw materials imported by an export promotion industry, nor the products of such an industry.

Excise taxes are applied mainly to goods deemed hazardous to health, such as alcoholic beverages, cigarettes and soft drinks. In January 2002, a new Excise Act went into effect that raised rates slightly as part of the government's effort to pay for increased security expenditures since 2001.

On April 1, 2002 the government put into effect a new Income Tax Act, replacing the previous act of 1958, and developed in close cooperation with the IMF. The new act covers all sources of income—from employment, business and investment—and encourages self-assessment and pooled depreciation. In July 2002, personal income tax brackets were adjusted upward somewhat. With these adjustments, there are two tax tiers, 15% and 25%. For individuals, income below nr65,000 (about $850) is exempt, and for couples, nr85,000 (about $2100). The highest marginal rate, 25%, applies to income above nr140,000 (about $1850) for individuals, and nr160,000 (about $2000) for couples.

In addition to regular taxes, the government has imposed a number of "security surcharges" to deal with the increased security expenditure needed to deal with the intensifying Maoist insurgency. Special fees of 3% have been added to the taxable income of individuals, couples, companies, partnerships and nonresident taxpayers. Surcharges of 1–3% have been applied to imports, plus a nr1 (about $.013) per liter tax has been added to petroleum products. The government also mounted a voluntary disclosure of income scheme (VDIS), which had questionable results. Over 3,000 new taxpayers were registered, but a simultaneous decline in bank deposits suggests more taxable income was being hidden than disclosed.

CUSTOMS AND DUTIES

Customs and duties are a principle source of domestic revenue. Import tariffs are generally assessed on an ad valorem basis, with duties ranging from 0–140%. Most primary products, including live animals and fish, enter duty-free. Machinery and goods related to basic needs are charged 5%. Duties on agricultural imports were fixed in 2003 at 10%. Cigarettes and alcoholic beverages are charged at 110%, although alcoholic beverages with more that 60% alcohol are prohibited altogether. Other prohibited imports include narcotic drugs and beef and beef products. Products that may be imported only under special licenses include arms, ammunition, and explosives; and communication equipment, including computers, TVs, VCRs, and walkie-talkies. Valuable metals and jewelry are prohibited except under bag and baggage regulations. According to the World Bank, Nepal's weighted average tariff rate in 2000, the most recent data available, was 17.7%. This average probably increased in 2001 and 2002 because of "security surcharges" levied on most imports. No special fee was assessed on goods with tariff rates less than 2.5%. For goods with charged duties up to 5%, the surcharge was 1%, and for all those with duties above 5%, the surcharge was 3%.

The export service charge is 0.5% and there are export duties on vegetable ghee and plastic goods of 2 to 10%. Prohibited exports include: archeological and religious artifacts; controlled wildlife; narcotics; arms, ammunition and explosives; industrial raw materials; imported raw materials, parts and capital goods; and timber and logs. Goods imported from India are granted a rebate of the application of ad valorem of 10% in tariff rates up to 40% and of 7% on rates above 40%.

Smuggling is substantial across the Indian border, especially on lumber goods, labor, construction equipment, currency and weapons. Gold smuggling is thought to be particularly large. Official records show substantial imports of gold, but few gold exports, even though it is well known that most of the gold imports are intended for the Indian market. Efforts to combat smuggling appeared to have at least changed the dominant mode from men driving trucks and buses to individuals, many women and children, driving bicycles.

FOREIGN INVESTMENT

Foreign direct investment in Nepal, always low in this land-locked kingdom, has seen annual decreases across the five years of the Ninth economic plan (1997/98 to 2001/02), from an annual total of $11 million in 1997/98 to annual totals of $6 million in both 2000/01 and 2001/02, according to IMF estimates. The fiscal year 1999/2000 actually had the lowest annual total, at $3 million. In 2001, according to the government of Nepal, there were 670 foreign investment projects in the country, worth together about $1 billion. Of these, 35% were Indian and 11% (69 projects) were from the United States with other prominent participants being Japan, China, Germany, and Korea. India's dominance is due not just to its proximity, but also to incentives for Indian investors to take advantage of the preferential trade regime India extends to Nepal's manufactures through their bi-lateral trade agreements. The bilateral trade treaty signed 4 December 1996 lifted all customs duties on Nepalese industrial products, while imposing more lenient rules of origin than the international norm. The renewed treaty in March 2002, while imposing quotas on four primary and raw material exports, preserved the preferences on industrial products intact. Besides India, Nepal has negotiated bilateral investment agreements with Bhutan, Germany, and Norway.

In conjunction with the advent of multiparty democracy in 1991, Nepal has undertaken economic reforms that, at least on paper, have been aimed at making Nepal increasingly attractive to foreign investors, beginning with the Foreign Investment and One Window Policy Act of 1992 and the establishment of an Investment Promotion Board. Steps have been taken to privatize dozens of government-owned public enterprises (PEs), and to open up for private investment previous government monopolies in telecommunications, hydroelectric power, and air transportation.

Licensing requirements have been streamlined, and 100% foreign ownership is now permitted. In 1999, minimum investment requirements were also lifted. The legal basis for the full-scale private development of Nepal's massive hydroelectric resources and private export to India have been laid. The first fully private power projects are now in operation, though less than 1% of the potential has been exploited. Repatriation on income by foreign permanent nonresidents is taxed at 10%. Foreign investors are entitled to repatriate outside of Nepal the amount received from the sale of all or part of shares in their Nepali investment, and all amounts received as profits or dividends.

The US State Department, however, has reported that the implementation of the liberalizing reforms has been distorted not only by bureaucratic delays and inefficiencies, but by contradictory policies that mitigate and even negate the reforms. Many sectors remain closed to foreign investment, including financial services and management consulting, as well as traditional cottage industries, defense-related industries, alcohol and tobacco. On intellectual property rights both legislation and practice are considered inadequate. All foreign investment and technology transfer must have specific permission from the Department of Industries. Problems doing business in Nepal, even aside from the intensifying insurgency, make a formidable list: lack of direct access to airports, poor ground transportation, lack of skilled labor and technological expertise, unclear rules on labor relations, inadequate power, inadequate water supply, few local raw materials, nontransparent and arbitrary tax administration, and inadequate and obscure commercial legislation. One result, according to the US State Department, is the necessity for constant interaction with government officials, far from the "One Window" policy set out in the 1992 legislation.

In 2002, the government has spoken about plans for new bankruptcy and debt recovery legislation, new intellectual property legislation, and intentions to open the country to international accounting and auditing firms, but these have not taken concrete form. For 2002/03 perhaps the promising step is the introduction of a 10 year multi-entry visa for nonresident Nepalis (NRNs) willing to invest in Nepal.

In 2004, there were 927 foreign investment projects in Nepal, whose value rose to approximately $1.7 billion. The total share of FDI included in these projects was $442 million. Most of the investments went to the manufacturing and tourism industry. Major investors included India, the United States, China, the British Virgin Islands, Norway, Japan, and South Korea. Although the government has made some progress in creating a better business environment for foreign investors, Nepal remains an inaccessible country (with the nearest accessible port in Calcutta, India), with a very poor infrastructure, a poorly educated population, scarce natural resources, an inefficient energy sector, and an obtuse law system.

ECONOMIC DEVELOPMENT

In July 2002, Nepal completed its ninth economic planning period, and embarked on its tenth (2002/03 to 2007/08). It has not been a triumphant progression. Buffeted by a sagging world economy, the aftermath of the 11 September 2001 terrorist attacks on the United States, and an increasingly violent Maoist rebellion, Nepal reported its lowest growth rate—0.8% of GDP—in over a decade, and a 23.4% plunge in development spending, a serious stumble in the moderate, but steady progress it had been making in the 1990s.

Planned economic development began in 1953 with construction of roads and airfields and of irrigation projects to bring more acreage under cultivation. In 1956, these projects were integrated into the first five-year plan (1956–61) to assist existing industries, revive and expand cottage industries, encourage private investment, and foster technological training. With the second plan (1962–65), the government introduced land reform with programs to set ceilings on land holdings, to protect tenancy to redistribute land to the landless, and to initiate a compulsory saving plan. Though declared a success at the time, land holdings have remained seriously skewed in distribution mainly because large land holders were able parcel out land to relatives, and because the poor have been forced to sell their redistributed land to pay debts. The third economic plan (1965–70), was the first to be administered under the panchayat system, the system overthrown in the economic reforms of the early 1990s. The fourth (1970–75) and fifth (1975–80) five-year plans continued to emphasize infrastructural development, primarily in transportation, communications, electricity, irrigation, and personnel. The sixth development plan (1980–85) allocated nearly one-third of its total expenditure to agriculture and irrigation. However, money targeted for development projects was used for other purposes.

The objectives of the seventh plan (1986–90) were to increase production, create opportunities for employment, and fulfill basic needs. Of the total expenditure, 65% was to be used for investment, allocated as follows: agriculture, irrigation, and forestry, 30.6%; industry, mining, and electricity, 26%; transportation and communications, 17.7%; social services, 25.2%; and other sectors, 0.5%. Foreign aid was expected to fund about 70% of these projects.

With the establishment of multiparty government in 1991, a comprehensive set of reforms affecting all sectors of the economy was initiated under the eighth five-year plan (1992–97). Nepal's public enterprises (PEs) were slated for privatization, government monopolies in hydroelectric power, telecommunications, and transportation were opened to private investment, customs were streamlined, and the country declared open for foreign investment. The ninth plan (1997–2002) emphasized investments in agriculture and hydroelectric power, liberalization and privatization of the economy, and a thorough reform of the tax system and banking practices. Under the tenth plan, to run until 2007/08, priorities have shifted to security and poverty reduction, but with a renewed emphasis on privatization and the effort to encourage private investment.

Nepal has considerable development potential. Its vast hydroelectric power resources are estimated at 83,000 MW, of which less that 1% has been brought on line. The legal framework for the full-scale private development of the hydro-electric sector, with private exports to India, is in place. Other promising growth sectors are air transportation and telecommunications, both open to private investment, and tourism. There is growth potential in both malefactors and agricultural products for export. Although there have been many slips in the implementation of the government's economic liberalization program, it has maintained a stable, noninflationary currency regime, and, until the eruption of problems in 2001, a record of unspectacular but steady 5% annual growth rates in GDP. The government also claims improvement in the reduction of poverty, from 42% of the population in 1997 to 38% in 2003.

Nevertheless, the challenges to Nepal's economic development are formidable. These include limited natural resources, difficult topography, poor infrastructure, landlocked location, weak human capital (with both low levels of education and health), poor public management, and a long history of political interference in the economy. Nepal's economy is characterized by a high vulnerability to shocks, natural and man-made. Its growth has been arrested since 2001, and with a per capita income below $300 in nominal terms, it remains one of the world's poorest countries. It remains to be seen whether its economic reform programs will be swept away, or prove to be built solidly enough to weather the passing storms.

The economy has been expanding modestly in 2003, and 2004, and is expected to continue the trend for at least a couple of more years. The main growth engines of the economy are remittances from Nepali workers overseas. The on-going Maoist conflict, as well as expected insufficient precipitations (which will negatively affect the agriculture sector), will likely place the expansion rate of the economy below its potential.

SOCIAL DEVELOPMENT

The government maintains a countrywide village development service, which endeavors to meet the villagers' needs for food, clothing, shelter, health services, and education. Village development workers demonstrate improved methods of sanitation and health and teach the villagers to read and write. The Employee Provident Fund administers a program of old age, disability, and death benefits for government and corporate employees, funded by contributions from both employers and employees. Pensions are provided as a lump sum equal to contributions plus interest. Retirement is at age 55. There is a social assistance program that provides benefits to Nepalese citizens aged 75 or older. Employees of establishments with 10 or more workers are covered by work injury insurance, which is funded by the employer through a private carrier. Severance pay is also mandated in some circumstances.

Women are subject to gender discrimination, especially in traditional rural areas. The present constitution has strengthened provisions protecting women, including equal pay for equal work, but few women work in the money economy. Women's inheritance and marriage rights have been strengthened, but women suffer discrimination in both areas. Domestic abuse and violence against women are serious societal problems that citizens and governmental authorities do not recognize. The tradition of dowry remained strong and the killing of brides for default are still reported in 2004. There are also reports of women being abused because they are suspected of witchcraft. The abduction of young girls to be taken to India to work as prostitutes is a serious problem.

The human rights record remained poor. Members of lower castes suffer from widespread discrimination and many are in positions of bonded labor. Senior positions in politics and the civil service are dominated by urban-oriented castes, such as the Brahmin and Chhetri.

HEALTH

As of 2004, there were fewer than 5 physicians, 26 nurses, and 7 midwives per 100,000 people. In the same year, there were 9 private hospitals and at least 10,000 private pharmacies in the country. Most of the medical personnel work in the Kāthmāndu Valley and health services elsewhere are in short supply. The public sector provides most of the country's health care. Traditional medicine and faith healing are still used frequently, especially in the hill districts. Only one in 10 rural dwellers lived within one hour of a hospital. Total health care expenditure was estimated at 5.4% of GDP.

Although protected by mountain barriers, Nepal is in frequent danger from epidemics, notably cholera. Japanese encephalitis is endemic in the Terai plain and inner Terai zone. Overall, 70% of illness is from communicable disease. Common afflictions are black fever (kala-azar ), amoebic dysentery, eye diseases, typhoid, and venereal diseases. Malnutrition, contaminated water, and inadequate sanitation cause widespread health problems. Improved health programs in rural areas have helped control malaria, leprosy, and tuberculosis. However, tuberculosis remains a significant health problem. Approximately 81% of the population had access to safe drinking water and 27% had adequate sanitation.

Immunization rates for children up to one year old were as follows: tuberculosis, 96%; diphtheria, pertussis, and tetanus, 78%; polio, 78%; and measles, 85%. Major causes of illness in children are perinatal conditions, diarrhea, measles, and severe respiratory conditions.

Nepal has a large number of drug addicts. Stringent amendments to the Narcotic Drug Control Act were adopted in 1986 in response to pressure from the United States and the United Kingdom.

As of 2002, the crude birth rate and overall mortality rate were estimated at, respectively, 32.9 and 10 per 1,000 people. Birth control was used by 29% of married women. The infant mortality rate was 66.98 per 1,000 live births in 2005. In the same year, the average life expectancy was 62.73 years. Malnutrition is a common problem. Over half of all children under five were underweight. It was estimated that 54% of children under five were malnourished.

As of 2004, there were approximately 61,000 people living with HIV/AIDS in the country. There were an estimated 3,100 deaths from AIDS in 2003. The HIV/AIDS prevalence was 0.50 per 100 adults in 2003.

HOUSING

Most of the population lives in rural villages where houses are made of stone or mud bricks, with thatched roofs and raised eaves. Bamboo and reed huts are also prevalent. Most houses have two stories, but some contain only two rooms, a sleeping room and a room for cooking. In slum areas, wood, straw, paper, and plastic sheeting are used for temporary shelters. The well-constructed houses of the Sherpas are generally built of stone and timber, roofed with wooden slats.

In 2001, there were about 3,598,212 dwellings serving about 4,174,372 households. The average household size is 5.4 members. About 49.7% of all households live in temporary housing, those made with bamboo, reeds, mud, or other nondurable materials. About 23.5% live in permanent structures made of concrete, brick, stone, tile, and other durable materials. About 88.3% of all dwellings are owner occupied. About 93% of rural dwellings are owner occupied; compared to 60% of urban dwellings. A little over 53% of all households have access to piped water and only 46% have toilet facilities. Wood is the most commonly used fuel for cooking. Only about 39.8% of households have electric lighting.

EDUCATION

Traditional schools (pathshalas ) provide a classical education emphasizing languages. Gompas along the northern border train boys and men to become Buddhist religious leaders. English schools are modeled after those in India. Under a 1954 plan, a national school system with a single curriculum has been replacing the traditional schools, although English schools have increased.

Free primary education was introduced in 1975. Schooling is compulsory for five years, which is the duration of primary school studies. Students then move on to either technical school (8 to 10 years) or general secondary school (about 7 years). In 2001, about 12% of children between the ages of three and five were enrolled in some type of preschool program. Primary school enrollment in 2001 was estimated at about 70% of age-eligible students; 75% for boys and 66% for girls. Secondary school enrollment in the same year was about 43% of eligible students; 49.8% for boys and 37.4% for girls. It is estimated that about 80% of all students complete their primary education. The student-to-teacher ratio for primary school was at about 36:1 in 2003; the ratio for secondary school was about 35:1. In 2003, private schools accounted for about 14.7% of primary school enrollment and 27.8% of secondary enrollment.

Tribhuvan University is composed of five institutes (medicine, engineering, science, agriculture and forestry), four research centers, and four faculties (humanities and social science, management, law, and education) at 61 constituent and 140 affiliated campuses. Other institutions of higher learning include the Mahendra Sanskrit University, Kāthmāndu University, Purbanchal University, and B. P. Korala Institute of Health Science. In 2003, about 5% of the tertiary age population were enrolled in some type of higher education program. The adult literacy rate for 2004 was estimated at about 48.6%, with 62.7% for men and 34.9% for women.

As of 2003, public expenditure on education was estimated at 3.4% of GDP, or 14.9% of total government expenditures.

LIBRARIES AND MUSEUMS

The National Library in Kāthmāndu has 75,000 volumes in Nepali, English, Sanskrit, Hindi, and other Indian languages. The Bir Library, founded in the 14th century, contains 15,000 manuscripts. Other important collections are maintained by the library of Tribhuvan University (18,000 volumes) and the Singh Darbar, Nepal-Bharat (41,000), and the British Council libraries, all in Kāthmāndu. The Kaiser Library, also in Kāthmāndu, contains the private collection of Kaiser Shumsher Jung Bahadur Rana; with about 50,000 volumes, it also serves as a reference library open for public use. The Library and Documentation Center of the Royal Nepal Academy of Science and technology maintains a collection of about 13,000 books. There are about 600 public libraries within the country, many of which have fairly small collections and some of which are located in community centers.

The National Museum (1928) and the Natural History Museum (1975) are both in Kāthmāndu, along with a postage museum and the King Tribhuvan Memorial Museum. There is a Museum of Excavated Archeological Antiquities in Lalitpur and a National Art Gallery housed in the Palace of Fifty-Five Windows in Bhaktapur.

MEDIA

Postal, telephone, and telegraph services are operated by the government. Telephone service connects Kāthmāndu with Birganj on the Indian frontier, and another line links the capital with foothill towns in the eastern Terai. The telecommunications network includes a 5,000-telephone automatic exchange of over 90 radio relay stations, and an earth satellite station established with help from the United Kingdom in 1982. In 2003, there were an estimated 16 mainline telephones for every 1,000 people; about 319,500 people were on a waiting list for telephone service installation. Also in 2003, there were approximately two mobile phones in use for every 1,000 people.

Radio Nepal, a commercial, semigovernmental network, broadcasts in Nepali and English on both short and medium wavelengths. Television was introduced into the Kāthmāndu Valley in 1986 and the Nepalese Television Corporation, operated by the government, broadcasts about 23 hours a week. While there are private stations, media restrictions imposed in 2005 by King Gyanendra forced many of these stations to cease broadcasting political news. In 2003, there were an estimated 39 radios and 8 television sets for every 1,000 people. The same year, there were 3.7 personal computers for every 1,000 people and three of every 1,000 people had access to the Internet. There were eight secure Internet servers in the country in 2004.

Dailies, weeklies, and monthlies in Nepali, Newari, Hindi, and English are published mainly in Kāthmāndu. The largest daily newspapers (with 2002 circulation) are the Gorkhapatra (75,000), the Nepali Hindi Daily (62,000), Samaya (18,000), and the English-language Rising Nepal (20,000). The 2005 media restrictions set strict guidelines for print media, so that some papers no longer publish editorials and practice self-censorship.

Though the constitution specifies that the government may not censor expression, including that of the press, the press is licensed by the government, and licenses have been suspended and individuals arrested for criticism of the monarchy or support of a political party.

ORGANIZATIONS

The leading commercial organization is the Federation of Nepalese Chambers of Commerce and Industry. The variety of professional organizations includes the Garment Association of Nepal, the Nepal Journalist Association, and the Nepal Drivers' Association.

National youth organizations include the Foolchowi Youth Star Club, the All Nepal National Free Students Union, Democratic National Youth Federation, Junior Chamber, the Nepal Children's Organization, the Council of Free Students Union of Nepal, the Nepal Scouts Associations, YMCA/YWCA, and Youth for Human Rights, Education and Development. There are several active sports associations as well. National women's organizations include the Nepal Women's Organization, the Nepal Association of University Women, and the Women's Development Society.

Organizations involved in educational pursuits include the Environment, Culture, Agriculture, and Research Development Society in Nepal and the Royal Nepal Academy of Science and Technology. Nepal Medical Association promotes research and education on health issues and works to establish common policies and standards in healthcare. There are several other associations dedicated to research and education for specific fields of medicine and particular diseases and conditions. The World Conservation Union, promoting education and action concerning environmental issues, has an office in Kāthmāndu.

International Organizations with national chapters include Amnesty International, CARE Nepal, Defence for Children International, Caritas, Habitat for Humanity, and the Red Cross.

TOURISM, TRAVEL, AND RECREATION

In 1951, the government of Nepal reversed its long-standing policy and began to encourage visitors; before then, mountaineering expeditions had been permitted into the country only under severe official scrutiny and restraining regulations. For mountain trekkers, travel agencies in Kāthmāndu provide transportation to mountain sites, as well as Sherpa guides and porters. Tents, sleeping bags, and other mountain-climbing gear are available in Kāthmāndu. White-water rafting and kayaking are also popular.

Tourism was first officially included among the country's major potential assets in 1956.There were 338,132 tourists who visited Nepal in 2003, of whom 25% came from India. The 20,063 hotel rooms had 38,270 beds. Tourist expenditure receipts totaled $232 million that year. A valid passport and visa are required to enter Nepal. Upon arrival visitors may obtain a tourist visa at specified ports of entry.

In 2004, the US Department of State estimated the daily cost of travel in Kāthmāndu and Pokhara at $188. Other areas were significantly less expensive at $92 per day.

FAMOUS NEPALESE

Buddhism, one of the world's great religions, is based on the teachings of Siddhartha Gautama, who became known as the Buddha ("Enlightened One"). He was born (traditionally about 624 bc but according to most modern scholars about 563 bc) in Lumbini, near Kapilavastu in the Terai, then part of India, and died at Kushinagara (traditionally about 544 bc but according to the modern view about 483 bc).

Amar Singh Thapa, Nepalese military leader of the 19th century and rival of Gen. David Ochterlony in the war between British India and Nepal, is a national hero. The two best-known Rana prime ministers were Sir Jung Bahadur Rana (1817–77) and Sir Chandra Shamsher Jang Rana (1863–1929). The most highly regarded writers are Bhanubhakta, a great poet of the 19th century, and the dramatist Bala Krishna Sama (Shamsher, 1902–81).

King Mahendra Bir Bikram-Shah (1920–72), who introduced the partyless political system, based on the Nepalese tradition of the village panchayat (council), was succeeded on the throne by his son, King Birendra Bir Bikram Shah Dev (1945–2001), who democratized the panchayat system. Birenda and most of his family were killed in 2001 by his eldest son and heir, Dipendra (1971–2001), who killed himself in the rampage. Gyanendra Bir Bikram Shah Dev (b.1947) ascended to the throne in June 2001. Well-known political leaders include the brothers Matrika Prasad Koirala (b.1912), head of the Nepali Congress Party and the first post-Rana prime minister of Nepal (1951–52 and 1953–55), and Bisweswar Prasad Koirala (1915–82), head of the Nepali Congress Party and the first elected prime minister of Nepal (1959–60).

World renown was gained for Nepal by a Sherpa porter and mountaineer, Tenzing Norgay (Namgyal Wangdi, 1914–86), who, with Sir Edmund Hillary, a New Zealander, ascended to the summit of Mt. Everest in 1953.

DEPENDENCIES

Nepal has no territories or colonies.

BIBLIOGRAPHY

Financial Accountability in Nepal: A Country Assessment. Washington, D.C.: World Bank, 2003.

Hutt, Michael (ed.) Himalayan People's War: Nepal's Maoist Rebellion. Bloomington: Indiana University Press, 2004.

Kincaid, Jamaica. Among Flowers: A Walk in the Himalaya. Washington, D.C.: National Geographic, 2005.

Lawoti, Mahendra. Towards a Democratic Nepal: Inclusive Political Institutions for a Multicultural Society. Thousand Oaks, Calif.: Sage Publications, 2005.

Sever, Adrian. Aspects of Modern Nepalese History. New Delhi, India: Vikas Publishing House, 1996.

Shrestha, Nanda R. Nepal and Bangladesh: A Global Studies Handbook. Santa Barbara, CA: ABC-CLIO, 2002.

Shrestha, Nanda R. and Keshav Bhattarai. Historical Dictionary of Nepal. Lanham, Md.: Scarecrow, 2003.

Shrivastava, L.P.S. Nepal at the Crossroads. New Delhi, India: Allied Publishers, 1996.

Thapa, Asoke K. Bramu: A People in Transitions. Kāthmāndu, Nepal: Walden Book House, 1996.

Watkins, Joanne C. Spirited Women: Gender, Religion, and Cultural Identity in the Nepal Himalaya. New York: Columbia University Press, 1996.

Whelpton, John. A History of Nepal. New York: Cambridge University Press, 2005.