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Reform in the Investment Environment

Private sector will be encouraged to invest in the areas of their comparative advantage for speeding up economic development, by exploiting the opportunities created by the international and South Asian Regional Cooperation taking benefits from the policy, administrative and legal reforms.

Flexible labor and exit policy will be adopted from next fiscal year for industries that have received new license or permit for investment, that are export oriented in nature or are established in the export promotion zone and information technology park.

Rehabilitation program for sick industries will be continued and a provision has been made for soft loan for such industries, which have possibility of rehabilitation. For this purpose Nepal Rastra Bank has set aside a sum of Rs. 1500 million 45.

In order to promote domestic industries and consumption of domestic quality products, the provision of mandatory purchase of quality domestic products by the government offices and public enterprises will be strictly adhered to even though their prices are higher to a maximum of 10 percent. The Ministry of Industry, Commerce and Supplies will monitor it. Budget of such government offices that do not follow this provision will be withheld.

Promotion of Foreign Investment
Provision of ten year multiple entry visa to the persons of Nepali origin who are living and working abroad and willing to invest in Nepal has already become effective. In order to encourage such investment, necessary measures will be put in place to simplify the licensing procedures and repatriation of profit from such investment in the currency of investment.

Priority will be given to create congenial environment to promote foreign investment in the country. An One Stop Service Center will be set up in the Department of Industry in the first trimester of the next fiscal year to extend services to the investors in a transparent manner from one place within the stipulated time. Similarly, new areas for foreign investment will be identified and opened.

Export Promotion
With a view to promote export trade the provisions of loan facility extended through commercial banks to exporters both in the Nepalese currency and convertible currency and the Pass Book System with Revolving Fund initiated in the current fiscal year will be continued in the next fiscal year as well.

Necessary fund has been allocated to set up Export Promotion Zone (Dry Port) in Bhairahawa with the participation of the private sector.

In order to observe the year 2003 as the Export Year and make export trade reliable and sustainable, various promotional fairs at regional, national and international level will be organized with the participation of the private sector. Five top exporters and foreign importers of the Nepalese products will be selected and nationally recognized.

Rehabilitation of Tourism Sector

Various promotional programs will be implemented under Destination Nepal program in the major tourist destinations of the world by the Nepal Tourism Board with the participation of the private sector to rejuvenate the tourism sector, which is sick at present. The private sector will be encouraged to implement various package programs to promote regional and internal tourism.

As a part of diversification of touristic destinations and programs, elderly and retired foreign nationals will be encouraged for longer stay in Nepal. In pursuant to the government policy of developing Nepal as a center for international seminars and conventions and sports centers, Nepal will be developed as a venue for various international sports including cricket.

Financial Sector Reform

Under the financial sector reform program, management contract of Nepal Bank Limited and Rastriya Banijya Bank will be awarded within the next four months to improve their management and efficiency. Similarly a study will be carried out in the first trimester of the next fiscal year to improve management efficiency of Agriculture Development Bank and Nepal Industrial Development Corporation.

A program to reform the organizational structure of Nepal Rastra Bank will be initiated to develop it as an autonomous, efficient and powerful monetary authority.

In order to regularize monetary liquidity of commercial banks with adoption of flexible monetary policy and the regular monitoring by Nepal Rastra Bank, monetary policy will be improved and adjusted and made public at the end of this Fiscal Year.

Assets Management Company will be established and action will be initiated to manage bad debt. Debt Recovery Tribunal will also be instituted for the effective recovery of the bank loans.

Process will be initiated to establish Insurance Fund as a joint venture of His Majesty's Government, insurance committees and companies to protect the destruction of property by the terrorist. Public Expenditure Management, Prioritization and Resource Mobilization

Measures to curtail unproductive and unnecessary expenditures under regular expenditure with a view to maintain it at a desired level were initiated by the Government few years ago. To continue such efforts a provision has been made to cut down the allocation up to 20 percent of the amount allocated for the current fiscal year, under the line items for printing, office materials, service and newspapers and repairs and maintenance. Similarly allocation up to 50% will be cut down under the miscellaneous headings and except
for approved programme expenses under the heading of charity and donations will not be allowed.

I have put embargo on procurement of vehicles by Government Offices, Committees and Public Corporations. This embargo however will not be applied to security agencies and foreign aided new development projects from the next fiscal year. The Security entities will also be allowed to purchase only vehicles such as Trucks, Pickups with the prior approval of the government.

The provisions will be made for contracting out of services of
mailing, cleaning, guarding, gardening etc. and necessary guidelines will also be prepared and duly executed.

Only those identified and prioritized projects in education, health, drinking water, road, electricity, irrigation and agriculture sectors after the intensive exercise under MTEF are included in the Annex of Expenditure Estimation as priority (P1) projects. The National Planning Commission will priorities all projects and programs and estimate resources for the next three years under MTEF by mid August 2002.

The provision of block grant to local bodies has been secured. Similarly, a provision has been made to channelize resources allocated to agriculture extension services, sub-health post, basic and primary education through local bodies.

Necessary resources are made available to high priority projects as prioritised in line with the effective implementation of Mid-term Expenditure Plan. To make the effective implementation of the Projects, budget release process will be tied up with project output.

In line with the policy of increasing peoples' ownership and participation in infrastructure development and to ensure water supply in Kathmandu Valley. Melamchi Development Bonds will be floated to customers of Nepal Drinking Water Corporation, which will also generate sufficient resources to construct Melamchi Project.

Buyers of this Development Bonds, valued at Rs. 5,000 per unit, will have their choices to convert into full cash with an interest rate of 8.5%, or convert into shares or an adjustment in drinking water charges.

Provisions will be made to develop National Development Problem Solving Committee presided by the Prime Minister as the effective mechanism for delivery of desired outcome from development efforts and services directly related to the people. Likewise, to effectively implement development projects including "Immediate

Action Plan" including Decentralization Action Plan and reform
programs will also be addressed by this Committee. This committee will look after the development programs including implementation, monitoring and evaluation of Priority Programs.

AGGREGATE DEMAND AND SAVINGS
In Million Rupees
	Percentage Change		Ratio to GDP
	2000/01	2001/02	2000/01	2001/02
Nominal GDP at Producer's
Price Total consumption Private consumption Public consumption Total Investement Gross fixed captital formation Public sector Private sector Change in stock Gross domestic saving Gross national saving	8.1 8.5 7.3 18.2 6.5 6.4 18.3 -0.3 1.7 6.0 9.2	2.7 6.4 6.5 5.4 5.4 4.1 2.6 5.2 10.2 -18.4 -11.7	85.1 75.3 9.8 24.0 19.0 7.6 11.4 4.9 14.9 18.8	88.2 78.1 10.1 24.6 19.3 7.6 11.7 5.3 11.8 16.2

List of industries reserved for domestic Investment

Clause (a)

Cottage Industries.
Personal service.
Arms and ammunition industries.
Explosives and gun powder.
Industries related to radioactive materials.
Real Estate business.
Security printing.
Currency and Coinage business.

Clause (b)

Retail business.
Travel agency.
Trekking agency.
Water rafting.
Pony trekking.
Horse riding.
Cigarette and tobacco, liquor ( excluding those exporting more than 90%)
Poultry farming
Fisheries
Consultancy service such as management, accounting, and legal service.

Highlights of foreign investment in Nepal.

Foreign investors can participate in all sectors of business and industrial activities, which do not fall under the restriction list. Investors can make 100% investment in any project.

Repatriation is allowed in the following cases:

The amount received from the sale of whole or part of the equity.
The amount received as benefits or as dividends against foreign investment.
The amount received as payment of principle and interest on any foreign loan.
The amount received under the agreement for the transfer of technology

No income tax on interest income earned by a foreign investor from foreign loans. However, there will be an income tax of 15 % on royalty, technical and management service.

Income tax will not be levied on export income.

There will be no intervention on the part of the government in fixing prices of products of any industry.

Business visas for foreign investors; authorized representatives and their dependent family members will be given so long as they maintain their investments in the country.

Real Sector
(Rs. in Million)
	1999/00	2000/01	2001/02R	2002/03P
Total Investment Gross Fixed Capital Formation Public Sector Private Sector	92272 73324 26436 46888	98815 78031 31268 46763	108226 81613 32044 49569	122171 86963 31252 55711
P Provisional. R Revised.

Balance of Payments
(Rs. in Million)
	1999/00	2000/01	2001/02R	2002/03P
Financial Account (excluding Group E) Direct Investment in Nepal Other Investment: Assets Other Investment: Liabilities Trade Credits Loans General Government Drawings Repayments Other Sectors Drawings Repayments Currency and Deposits	6205.4 232.6 10507.8 16480.6 5444.2 8878.4 8485.4 12548.0 -4062.6 393.0 905.5 -512.5 2158.0	-28522.2 -33.0 -30191.1 1701.9 -9319.0 6693.4 6976.5 11715.1 -4738.6 -283.1 24.5 -307.6 4327.5	-37333.4 -282.3 -35136.9 -1914.2 -5279.0 2899.6 2963.5 8040.3 -5076.8 -63.9 1.7 -65.6 465.2	-15673.3 961.4 -34629.5 17994.8 16899.3 -52.4 -432.8 5236 -5668.8 380.4 614.0 -233.6 1147.9
P Provisional. R Revised.

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