Economic PDF

# Introduction ## 1. Meaning and Definition of Bank A bank is a financial institution that accepts deposits from people, provides loans, and offers various financial services. Think of a bank like a secure box where people save money (deposits), and others borrow money from it to start businesses...

# Introduction ## 1. Meaning and Definition of Bank A bank is a financial institution that accepts deposits from people, provides loans, and offers various financial services. Think of a bank like a secure box where people save money (deposits), and others borrow money from it to start businesses or buy houses (loans). ## 2. Role of Banking System in the Economy - Facilitates Savings: Helps people save money safely. - Provides Loans: Supports businesses, industries, and individuals. - Encourages Investments: Promotes economic growth by providing funds for projects. - Without banks, farmers wouldn't get loans for seeds, and entrepreneurs couldn't fund startups. ## Classification/ Types of Banks - **Central Bank:** Controls the money supply and oversees the banking system. - Example: Nepal Rastra Bank (NRB) in Nepal. - **Commercial Banks:** Offer services like deposits, loans, and payments to the public. - Example: Nabil Bank or Nepal Bank Limited. - **Development Banks:** Provide long-term loans for infrastructure and industrial development. - Example: Agricultural Development Bank. - **Other Types:** - Cooperative Banks: Help small businesses and farmers. - Microfinance Institutions: Provide small loans to low-income groups. # Central Bank ## 1. Meaning of Central Bank A central bank the supreme financial institution that manages a country's currency, money supply, and interest rates. ## 2. Functions of Central Bank - **Issuing Currency:** Only the central bank has the authority to print money. - Example: Nepal Rastra Bank prints Nepali Rupees. - **Controlling Inflation:** Adjusts interest rates to control the price level. - Example: During high inflation, NRB increases interest rates to reduce spending. - **Lender of Last Resort:** Helps commercial banks in financial crises. - Example: During the pandemic, NRB provided financial support to banks. - **Managing Foreign Reserves:** Ensures stability in exchange rates by managing foreign currencies. - **Supervising Banks:** Regulates and monitors commercial and development banks. # Commercial Bank ## 1. Meaning and Definition A commercial bank is a financial institution that provides banking services like accepting deposits, giving loans, and facilitating payments. - Example: Nabil Bank, NIC Asia Bank. ## 2. Functions of Commercial Banks - **Accepting Deposits:** Saves money for individuals and businesses. - Example: A savings account at Global IME Bank. - **Providing Loans:** Lends money to individuals and companies. - Example: A home loan for buying a house. - **Facilitating Payments:** Processes payments through checks, online banking, etc. - Example: Paying bills using mobile banking. - **Investment Services:** Helps customers invest in bonds or shares. - **Foreign Exchange Services:** Provides currency exchange for international trade. # Financial Market ## 1. Concept of Money Market A market for short-term loans and financial instruments ( less than year). - Example: Businesses borrowing money for 3 months to buy inventory. ## 2. Concept of Capital Market A market for long-term investments like shares and bonds. - Example: A company issues shares to raise funds for expansion. # Monetary Policy ## 1. Meaning of Monetary Policy The process by which the central bank controls the money supply and interest rates to maintain economic stability. - Example: When inflation rises, NRB increases interest rates to reduce spending. ## 2. Types of Monetary Policy - **Expansionary Policy:** Increases money supply and lowers interest rates to encourage spending and investment. - Example: Lowering rates during a recession. - **Contractionary Policy:** Reduces money supply and increases interest rates to control inflation. - Example: Raising rates during high inflation. # Province-wise Distribution of Banks in Nepal Banks and branches are distributed across provinces to ensure financial services are available everywhere. - Example: Provinces like Bagmati have more bank branches due to higher economic activities. - Remote provinces like Karnali have fewer branches but are expanding with development banks and microfinance institutions. # Metaphors for Understanding - **Banks as Reservoirs:** Imagine banks as reservoirs. People deposit their savings (like water), and banks distribute these savings as loans to grow the economy (like irrigation). - **Central Bank as a Gardener:** The central bank is like a gardener who carefully waters plants (money supply) to ensure the garden (economy) grows steadily without overwatering (inflation). # Introduction to Government Finance ## Concept of Government Finance - **Definition:** Government finance refers to how a government manages its income (revenue) and spending (expenditure) to fulfill the country's needs. - **Example:** Just like a family plans its income and expenses to run the household, the government plans for the country. ## Importance of Government Finance - **Economic Growth:** Helps fund infrastructure, education, and healthcare. - Example: Roads and schools built by the government. - **Reducing Inequality:** Collects taxes from the rich and provides welfare to the poor. - Example: Social security programs. - **Job Creation:** Funds public projects that create employment. # Government Expenditure ## Concept of Government Expenditure Money spent by the government for public services, development, and administration. - **Example:** Salaries for teachers, building highways, and military expenses. ## Classification of Government Expenditure in Nepal - **Recurrent Expenditure:** Day-to-day expenses like salaries, subsidies, and pensions. - **Capital Expenditure:** Investments in infrastructure, like building airports or hospitals. - **Financial Expenditure:** Debt repayments and interest payments. ## Importance of Government Expenditure Promotes development, ensures public services, and stabilizes the economy. # Concept of Tax - **Definition:** A mandatory financial charge imposed by the government on individuals or businesses to fund public services. - **Example:** Income tax, VAT on goods, customs duty. ## Types of Taxes - **Direct Taxes:** Paid directly by individuals or businesses to the government. - Example: Income tax, property tax. - **Indirect Taxes:** Collected on goods and services. - Example: VAT, customs duty. # Concept of Proportional, Progressive, Regressive, and Digressive Taxes - **Proportional Tax:** The tax rate is the same for everyone, regardless of income. - Example: 10% tax on all incomes. - **Metaphor:** Like splitting the bill equally, regardless of how much each person ate. - **Progressive Tax:** Higher incomes pay a higher percentage of tax. - Example: 10% tax on $10,000, but 20% tax on $20,000. - **Metaphor:** Like asking the wealthiest friends to pay more for a group gift. - **Regressive Tax:** Lower incomes pay higher percentage of their income in tax. - Example: VAT on essential goods affects poorer people more. - **Metaphor:** Like charging everyone the same fee to enter a park, even if some can barely afford it. - **Digressive Tax:** Tax increases with income but at a decreasing rate. - Example: The first $10,000 is taxed at 10%, the next $20,000 at 5%. - **Metaphor:** Like adding weight to a bag but slowing down as it becomes heavier. # Qualities of a Good Tax System - **Fairness:** Should not burden the poor disproportionately. - **Simplicity:** Easy to understand and pay. - **Flexibility:** Adapts to economic changes. - **Efficiency:** Collects enough revenue without wasting resources. # Government Revenue ## Concept of Government Revenue Money the government earns to fund its activities. ## Sources of Government Revenue - **Taxes:** Income tax, VAT, customs duties. - **Non-Tax Revenue:** Fees, fines, dividends from government-owned companies. - **Grants and Donations:** Foreign aid or donations. ## Sources in Nepal Major sources include customs duties, VAT, excise taxes, and foreign grants. # Government Borrowing ## Importance of Government Borrowing - Funds large projects like dams or highways - Helps during economic crises. ## Sources of Government Borrowing - **Internal Borrowing:** Loans from banks, public bonds. - **External Borrowing:** Loans from international organizations (IMF, World Bank). # Government Budget ## Meaning of Government Budget A financial plan showing expected income and expenditure for a specific period, usually a year. - **Example:** Just like a family budget outlines earnings and spending, the government does the same. ## Components of Budget - **Revenue Budget:** Shows expected income (taxes, non-tax revenue). - **Expenditure Budget:** Shows planned spending (recurrent, capital, financial). ## Types of Budget - **Balanced Budget:** Income = Expenditure. - **Deficit Budget:** Expenditure > Income (common in Nepal). - **Surplus Budget:** Income > Expenditure. ## Process of Budget Formulation in Nepal - **Preparation:** Ministries submit their needs to the Ministry of Finance. - **Approval:** Parliament discusses and approves the budget. - **Implementation:** Government starts spending as per the budget plan. - **Monitoring:** Ensures money is spent as planned. # Metaphors for Understanding - **Government Budget:** Like a recipe for a dish, where ingredients (revenue) and their use (expenditure) are carefully planned. - **Taxes:** Like a membership fee everyone pays to use the country's services (roads, schools, hospitals). # Introduction to International Trade ## Concept of International Trade - **Definition:** International trade is the exchange of goods and services between countries. - **Example:** Nepal exports tea to India and imports petroleum from Saudi Arabia. ## Importance of International Trade - **Access to Goods and Services:** Countries get products they cannot produce. - Example: Nepal imports electronics from China. - **Economic Growth:** Trade brings foreign currency and boosts the economy. - Example: Exporting carpets and pashmina increases Nepal's revenue. - **Improves Relationships:** Promotes cooperation between countries. - Example: Nepal and India trade for mutual benefits. # Balance of Trade (BoT) and Balance of Payment (BoP) ## Concept of Balance of Trade - **Definition:** The difference between the value of a country's exports and imports of goods. - **BoT = Exports - Imports** - **Example:** If Nepal exports tea worth $10M and imports rice worth $15M, its BoT is - $5M (trade deficit). ## Concept of Balance of Payment - **Definition:** A comprehensive record of all financial transactions between a country and the rest of the world, including trade, investments, and aid. - **Example:** Nepal receives foreign aid from the UN, which is recorded in BoP. # Measures to Reduce Trade Deficit in Nepal - **Promote Exports:** Increase the production of unique Nepali products like handicrafts and tea. - Example: Encourage tourism and pashmina exports. - **Reduce Imports:** Substitute imports with local products. - Example: Use locally produced rice instead of imported rice. - **Attract Foreign Investment:** Build industries to produce goods domestically. - Example: Encourage foreign companies to set up factories in Nepal. - **Diversify Trade Partners:** Trade with more countries to reduce dependence on a few. # Exchange Rate ## Concept of Exchange Rate - **Definition:** The value of one country's currency compared to another's. - **Example:** If 1 USD = 130 NPR, the exchange rate is 1:130. ## Types of Exchange Rates - **Fixed Exchange Rate:** The government sets and maintains the exchange rate. - Example: Some countries fix their currency to the US dollar. - **Floating Exchange Rate:** Determined by the market (supply and demand). - Example: If demand for Nepali rupees increases, its value rises. # Free Trade and Protectionism ## Free Trade - **Definition:** Trade without restrictions like taxes or quotas between countries. - **Example:** European Union allows free trade among member nations. ## Advantages - Boosts competition and innovation. - Increases consumer choice. - **Metaphor:** Free trade is like an open buffet where everyone can choose whatever they like without restrictions. ## Protectionism - **Definition:** Policies to protect domestic industries from foreign competition by imposing tariffs, quotas, or subsidies. - **Example:** Nepal might tax imported vehicles to protect local auto manufacturers. - **Advantages:** - Safeguards local jobs. - Reduces dependency on imports - **Metaphor:** Protectionism is like building a fence around a garden to protect your plants from outside animals. # Metaphors for Understanding - **International Trade:** Like exchanging your homegrown apples for your neighbor's mangoes, each getting what they lack. - **Balance of Trade:** Think of it as your bank account; if you spend more than you earn, you face a deficit. - **Free Trade vs. Protectionism:** Free trade is like an open road, while protectionism adds tolls to safeguard local traffic. # Here's a simple, clear explanation of Poverty, Inequality, Unemployment, and Human Resource # Introduction This topic explains key economic and social challenges like poverty, inequality, and unemployment, as well as the importance of human resources in a country's development. # Poverty ## Concept of Poverty - **Definition:** Poverty is a condition where people lack the resources to meet their basic needs. - **Example:** A family in rural Nepal that struggles to buy food and cannot afford school fees lives in poverty. ## Types of Poverty - **Absolute Poverty:** Lack of essentials to survive. - Example: A person who cannot afford 2 meals a day. - **Relative Poverty:** When someone’s income is lower compared to others in society. - Example: A farmer earning less than city workers. ## Characteristics of the Poor Low income, illiteracy, poor health, lack of access to resources, and dependency on others. ## Causes of Poverty - Lack of education and skills. - Unemployment or low-paying jobs. - Overpopulation. - Political instability and corruption. - Example: Poor infrastructure in rural Nepal limits job opportunities. ## Present Status of Poverty in Nepal Approximately 17% of Nepal’s population lives below the poverty line (2023). Rural areas are more affected than urban regions. ## Measures to Reduce Poverty - Create jobs through industrialization. - Provide free education and vocational training. - Promote agriculture and tourism. - Increase access to healthcare. - **Metaphor:** Reducing poverty is like planting seeds; with care (education, jobs), people grow and flourish. # Inequality ## Concept of Inequality - **Definition:** Unequal distribution of income, wealth, or opportunities among people - **Example:** Urban areas in Nepal have more schools and hospitals than rural areas. ## Causes of Inequality - Unequal access to education and healthcare. - Gender discrimination. - Corruption and unfair policies. ## Measures to Reduce Inequality - Provide equal access to education and healthcare. - Encourage women’s participation in the workforce. - Implement fair tax policies - **Metaphor:** Reducing inequality is like leveling a field so everyone can play the game fairly. # Unemployment ## Concept of Unemployment - **Definition:** Unemployment occurs when people are willing to work but cannot find jobs. - **Example:** A graduate in Nepal who cannot find work in their field is unemployed. ## Types of Unemployment - **Frictional Unemployment:** Temporary unemployment during job transitions. - **Structural Unemployment:** Jobs lost due to technological changes or outdated skills. - Example: Farmers losing jobs to machines. - **Seasonal Unemployment:** Jobs available only in specific seasons. - Example: Workers in Nepal’s tourism sector during the off-season. - **Cyclical Unemployment:** Job losses due to economic downturns. ## Causes of Unemployment - Lack of skills and education. - Population growth. - Political instability and poor industrial growth. ## Measures to Create Employment - Develop industries and infrastructure. - Encourage entrepreneurship. - Provide vocational training. - **Metaphor:** Creating jobs is like building bridges; it connects people to opportunities. # Human Resource ## Concept of Human Resource - **Definition:** Human resource refers to the people who contribute their skills, knowledge, and labor to the economy. - **Example:** Teachers, doctors, farmers, and engineers are all human resources. ## Role of Human Resource - Drives economic growth and innovation. - Builds industries and infrastructure. - Improves social welfare and quality of life. - **Metaphor:** Human resources are the engine of a car; without them, the country cannot move forward. ## Concept of Human Development Indicators (HDI) - **Definition:** HDI measures a country’s development based on: - Life expectancy (health). - Education (literacy rates). - Income (standard of living). - **Example:** Nepal’s HDI in 2022 was .602, showing moderate development. # Current Status of Population in Nepal - Nepal’s population is around 30 million (2023). - Young people make up a large part of the population, but many migrate for jobs. - Urban areas are growing faster than rural areas due to job opportunities. # Here's a clear explanation of Foreign Trade and Foreign Employment of Nepal # Introduction Foreign trade and employment play a significant role in Nepal’s economy. Trade connects Nepal to global markets, while foreign employment supports millions of families through remittances. # Nepal’s Foreign Trade ## Growth of Nepalese Foreign Trade Nepal’s trade has grown over the years, but it faces challenges like trade deficits. - **Example:** Nepal imports goods like petroleum and electronics. Nepal exports fewer goods like tea, carpets, and handicrafts. ## Composition of Nepalese Foreign Trade - **Exports:** Includes tea, coffee, carpets, pashmina, and medicinal herbs. - **Imports:** Includes petroleum, machinery, electronics, vehicles, and food items. ## Direction of Foreign Trade of Nepal Nepal trades mostly with countries like India, China, the USA, and European nations. - **Example:** India is Nepal’s largest trade partner, accounting for over 60% of its trade. # World Trade Organization (WTO) - **Concept:** The WTO is an international organization that promotes free trade and resolves trade disputes among nations. Nepal became a member in 2004. - **Benefits:** Access to global markets and fair trade opportunities. # South Asian Free Trade Area (SAFTA) - **Concept:** An agreement among South Asian countries (like India, Nepal, and Bangladesh) to reduce trade barriers and promote regional trade. # Problems of Nepalese Foreign Trade - **Trade Deficit:** Nepal imports more than it exports. - **Limited Export Base:** Fewer industries and products for export. - **Poor Infrastructure:** Roads, storage facilities, and transportation are underdeveloped. - **Political Instability:** Affects trade policies and investments. # Foreign Employment and Remittances ## Concept of Foreign Employment and Remittances - **Foreign Employment:** Nepalese workers employed in other countries, mainly in the Gulf, Malaysia, and India - **Remittances:** Money sent back by these workers to their families in Nepal. - **Example:** A construction worker in Qatar sends money home to support their family. ## History of Foreign Employment in Nepal - **Early Phase:** Began during British rule when Nepalese (Gurkhas) served in British and Indian armies. - **Modern Phase:** After the 1990s, foreign employment increased significantly, especially in Gulf countries and Malaysia. ## Present Status of Foreign Employment and Remittances in Nepal - **Contribution to GDP:** Remittances contribute nearly 24% to Nepal’s GDP (2023). - **Main Destinations:** Qatar, UAE, Saudi Arabia, Malaysia, and South Korea. - **Number of Workers:** Millions of Nepalese work abroad. ## Advantages of Foreign Employment - **Economic Support:** Remittances improve family income and reduce poverty. - **Skill Development:** Workers gain new skills and experiences. - **National Economy:** Increases foreign currency reserves. ## Disadvantages of Foreign Employment - **Brain Drain:** Skilled workers leave Nepal. - **Exploitation:** Workers face poor working conditions abroad. - **Family Separation:** Long-term separation from families leads to emotional stress. # Conclusion Foreign trade and employment are vital for Nepal’s development. However, challenges like trade deficits, limited export capacity, and the risks of foreign employment need to be addressed through better policies and investments in domestic industries. # Here’s a simplified and clear explanation of Development Planning in Nepal: # Introduction Development planning is a systematic approach to defining and achieving economic and social goals within a set timeframe. Nepal uses development plans to guide its growth, focusing on poverty reduction, infrastructure, and sustainability. # Meaning and Definition of Development Planning - **Meaning:** Development planning refers to creating a structured roadmap for achieving economic and social goals. - **Definition:** According to Todaro, "Development planning is a deliberate effort allocate resources effectively to achieve economic and social goals within a set period.” # Overview of Development Planning in Nepal - **Historical Context:** Nepal introduced its first plan, the First Five-Year Plan, in 1956. Since then, Nepal has focused on agriculture, industrialization, and infrastructure. - **Progress:** From early reliance on agriculture to modern initiatives in hydropower, tourism, and digital technology. - **Challenges:** Political instability and limited resources. # Current Plan of Nepal: Fifteenth Plan (2019/20-2023/24) - **Vision:** "Prosperous Nepal, Happy Nepali.” - **Objectives:** - Achieve rapid, sustainable, and inclusive economic growth. - Reduce poverty and inequality. - Improve infrastructure, especially hydropower, roads, and digital connectivity. - Strengthen human capital by investing in education, health, and skills. - **Targets:** - Achieve an annual economic growth rate of 9.6%. - Reduce poverty to 15%. - Increase access to clean drinking water and renewable energy. # General Evaluation of the Fourteenth Three-Year Plan (2016/17-2018/19) - **Achievements:** - Expanded infrastructure (e.g., roads and hydropower). - Reduced poverty from 21.6% to 18.7%. - Growth in remittances and tourism. - **Challenges:** - High unemployment and reliance on foreign employment. - Inadequate industrial growth. - Poor governance and slow implementation. # Process of Plan Formulation in Nepal The planning process in Nepal involves multiple stages to ensure alignment with national priorities: - **Preliminary Assessment:** Analyze the current socio-economic condition. Identify challenges and opportunities. - **Policy Formulation:** Set broad national goals. Involve policymakers, experts, and stakeholders. - **Resource Allocation:** Estimate available resources (financial, human, and natural). Prioritize sectors like agriculture, education, and health. - **Drafting the Plan:** Prepare a detailed draft with timelines, goals, and budgets. - Example: Hydropower projects like Upper Tamakoshi may be included. - **Approval and Implementation:** Submit the plan to the National Planning Commission (NPC) for approval. Implement through government agencies, NGOs, and private sectors. - **Monitoring and Evaluation:** Regularly assess progress and adjust as needed. - Example: Mid-term reviews of hydropower projects. # Conclusion Development planning is crucial for Nepal’s progress, ensuring effective use of resources and addressing long-term challenges. The Fifteenth Plan reflects Nepal’s ambition to become a middle-income country while focusing on sustainable and inclusive growth. # Sustainable Development Goals (SDGs) and Nepal # Introduction Sustainable Development Goals (SDGs) are a global framework adopted by The United Nations in 2015 to address global challenges like poverty, inequality, and climate change. Nepal is committed to achieving these goals by 2030 to improve the well-being of its citizens. # Concept of Sustainable Development Goals of United Nations: The 17 SDGs The 17 SDGs aim to ensure a sustainable future for all. They cover economic, social, and environmental dimensions. Key goals include: - No Poverty - Zero Hunger - Good Health and Well-being - Quality Education - Gender Equality - Clean Water and Sanitation - Affordable and Clean Energy - Decent Work and Economic Growth - Industry, Innovation, and Infrastructure - Reduced Inequalities - Sustainable Cities and Communities - Responsible Consumption and Production - Climate Action - Life Below Water - Life on Land - Peace, Justice, and Strong Institutions - Partnerships for the Goals # No Poverty and Nepal - **Goal:** End extreme poverty by 2030. - **Nepal’s Context:** Poverty has declined from 42% (1995) to 17.4% (2023), but rural areas still face high poverty levels. - **Programs:** Programs like the Prime Minister Employment Program aim to provide jobs. - **Challenges:** - Over-reliance on agriculture and remittances. - Poor infrastructure in rural areas. - **Efforts:** - Expanding social security schemes (e.g., old-age pensions). - Improving rural development through programs like Agricultural Modernization Project. # Zero Hunger and Nepal - **Goal:** Achieve food security and improved nutrition. - **Nepal’s Context:** Malnutrition affects 36% of children under five. Agriculture employs 65% of the population, but remains inefficient. - **Challenges:** - Dependency on imports for food. - Climate change affecting crop yields. - **Efforts:** - Promoting modern farming techniques. - Subsidizing fertilizers and seeds for farmers. - Programs like Food for Education to tackle malnutrition. # Quality Education and Nepal - **Goal:** Ensure inclusive and equitable quality education. - **Nepal’s Context:** Literacy rate: 67.9% (2023), with significant gaps in rural areas. School enrollment has improved due to Free and Compulsory Education Act (2018). - **Challenges:** - Inadequate infrastructure in rural schools. - Teacher shortages and low quality of teaching. - **Efforts:** - Expanding digital learning platforms. - Scholarships for marginalized communities. - Strengthening vocational training programs. # Decent Work and Economic Growth and Nepal - **Goal:** Promote sustained economic growth and decent employment for all. - **Nepal’s Context:** GDP growth rate:~4% (2023), mainly driven by agriculture, remittances, and tourism. Unemployment remains high at 11.4%. - **Challenges:** - Limited industries and job opportunities - Brain drain due to migration for foreign employment. - **Efforts:** - Encouraging entrepreneurship through programs like the Youth Self-Employment Fund and Start-Up Nepal Initiative. - Promoting sustainable tourism and hydropower as key economic sectors. - Improving labor laws to protect worker's rights and ensure fair wages. # Nepal’s Commitment to the SDGs Nepal has integrated the SDGs into its Fifteenth Plan (2019/20-2023/24) with clear targets for poverty reduction, education, employment, and environmental conservation. However, progress has been hindered by: - Political instability. - Inadequate funding and resources. - Vulnerability to natural disasters, such as earthquakes and floods. To meet the SDGs by 2030, Nepal must strengthen its policies, mobilize resources, and work with international organizations and development partners. # Conclusion The SDGs represent a comprehensive pathway to sustainable development for Nepal. With focused strategies in areas like poverty alleviation, education, food security, and economic growth, Nepal has made progress but still faces significant challenges. Achieving these goals requires continued commitment, innovation, and partnerships are both national and global levels.