1.1 Introduction

The Kingdom of Nepal is one of the least developed countries in the world with approximately 42% of the population living below the poverty line. Agriculture provides a livelihood for over 80% of the population and accounts for over 40% of its Gross National Product. Over 85% of the total population lives in rural areas of the country.

1.2 Geography

The Kingdom is located in South East Asia wedged between China on the edge of the Himalayan mountain range and India on the Indo-Gangetic Plain. Nepal is a country of large geographic diversity. There are three main geographical regions including the Terai region, the Hill region and the Mountain region. Mt. Everest, the tallest mountain is the world, is located in the northern are of the country.

Source: Ministry of Foreign Affairs, Kingdom of Thailand

1.3 Socio-economic Profile

Demographics

Nepal is a multi-lingual, religious and ethnic society. The National Language Policy Advisory Commission has listed 60 living languages in the Kingdom. According to 1991 census more than 50 percent of total population has Nepali as their mother tongue followed by Maithili (12%). Other main languages are Bhojpuri, Tharu, Tamang, Newari, Magar, Rai and Abadhi.

The major caste/ethnic groups identified by the 2001 census area Chhetri (15.8%) Brahmin Hill (12.7%), Magar (7.1%), Tharu (6.8%) Tamang (5.6%) Newar (5.5%), Muslim (4.3%) Kami (3.9%), Rai (3.9),Gurung, (2.8%) Damai/Dholi (2.4%).

Nepal is constitutionally a Hindu Kingdom with Hinduism accounting for over 80% of the population with Buddhism practiced by approximately 11% and Islam accounting for 4.2% of the population.

Religious Affiliations 2001 Census

Description
Source: Ministry of Population and Environment

Population

The population of Nepal was 22,736,934 as of the 2001 Census as compared to 18,491,097 reported in the 1991 Census, representing a 2.25% growth over the past 10 years. According to the World Bank, the estimated population as of July 2003 was 24.2 million. The mix between males and females is almost equal with males accounted for 49.96% of the total population and females 50.04%. According to the Central Bureau of Statistics in 2002, 14.2% of the population lived in urban areas while the remaining 85.8% lived in rural areas.

As shown in Table 2, approximately 50% of the Kingdom's population is less than 20 year old.

Labor Force

Over 80% of the population is involved with agriculture with over 90% of women working in the agricultural sector.

Poverty Levels:

According to the Asian Development Bank, approximately 42% of the population lives below the national poverty line of NRs4,400 ($77) per capita per annum, which is based on minimum caloric intake, housing, and other nonfood standards. However, this figure varies widely across the country. While only 23% of the urban population does not have sufficient incomes to meet basic consumption needs, 44% of the rural population fall below the standard. Geographically, the incidence of poverty in the Midwestern and Far Western development regions greatly exceeds the national average, as does the rate in the mountain districts.

Economic Indicators

According to the Asian Development Bank (ADB), Nepal's economic performance weakened in FY2002 registering negative growth for the first time in the past 20 years. Gross Domestic Product (GDP) contracted by 0.6% after posting a growth of 4.6% in FY2001. This was primarily due to a series of domestic and external shocks, especially escalated after the insurgency and an irregular monsoon season. The agriculture sector decreased registering a 2.2% growth in 2002 compared to a 5.5% growth in FY2001. Manufacturing production dropped as the industrial sector output fell by 3.3% in FY2002. Tourism arrivals decreased 40% in FY2002 while tourism receipts declined 33%. Inflation increased from 2.4% in FY2001 to 2.9% in FY2002.

Gross Domestic Product (GDP)

Gross Domestic Product grew by 2.3% in 2003 as compared to a negative growth of .6% in 2002. GDP in 2003 was US$5.7 billion.

GDP Breakdown by Sector

Description
Source: The World Bank

Budget

According to the ADB, the budget deficit (after grants) was 3.3% of GDP in FY2002 as compared to a deficit of 4.5% in FY2001. This was primarily due to the sharp decrease in development expenditures.

Imports

The value of imports decreased by 11.4% in FY2002 due to a weaker demand, particularly due to a decrease in manufacturing and development activities.

Exports

The value of exports declined by 18% in FY2002 due to a drop in ready-made garments, woolen carpets and pashmina

1.4 Government

The Kingdom of Nepal is a parliamentary democracy and constitutional monarchy since the ascension of King Gyanendra to the throne in June 2001. Nepal's parliament was dissolved in May 2002, however a bicameral parliament consisting of a National Council and a House of Representatives existed prior to it being dissolved. The monarchy is hereditary and with legislative elections, the leader of the majority party is usually appointed prime minister by the Monarch. Prime Minister Surya Bahadur Thapa was appointed by the King in June 2003.

1.5 National Social Welfare System

There is a provident fund system in place which was updated in 1996 and is administered by the Employees Provident Fund. The coverage is compulsory for government employees and voluntary for any organization with 10 or more employees. The sources of funding for the provident fund are made through 10% contributions from the insured person's earning plus 10% from the employer.

Qualifying Conditions are as follows:

• Old-age benefit: Termination of employment, or retirement.
• Personal accident insurance: In case of the permanent disability or accidental death of the fund member.
• Survivor benefit: Death of the fund member.

Old-Age Benefits

A lump sum equal to employer and employee contributions, plus 7.25% interest a year with additional profit-sharing benefits for a varying number of years up to 9 years based on the employee's net provident fund balance at the time of retirement and the number of years of employment between April 15, 1996, and retirement.

Drawdown payment: Fund members may draw down up to 60% of total employer and employee contributions after 5 years' contributions. (Funds withdrawn may be deposited again as a lump sum or in installments.)

Permanent Disability Benefits

Personal accident insurance: A lump sum of 50,000 rupees in case of the permanent disability or accidental death of the fund member.

Survivor Benefits

100% of the deceased fund member's lump-sum benefit. The benefit is payable to a named survivor or to the heirs of the deceased.

Funeral grant: 4,000 rupees on the death of the covered fund member.

Work Injuries fall under the Labor Department and is based on an employer liability scheme through statutory insurance. Companies with 10 or more employees are forced to provide coverage and include:

Temporary Disability Benefits

Employees receive 50% of their earnings and benefits are payable from the first day of incapacity.

Partial Disability

A lump sum of 2 to 3 years' earnings according to the schedule in law

Survivor Benefits

Two years' earnings payable to dependent family members in installments

1.6 Education Profile

Education System:

The schooling system in Nepal has been divided in four levels including a) primary (grade I-V), b) lower secondary (VI-VIII), c) secondary (IX-X) and d) higher education.

Education in Nepal and primary education in particular has developed significantly since 1971 when the New Education Plan was introduced. The number of primary schools increased from 10,600 to over 26,000 between 1971 and 2001. Between 1991 and 2001, on an average more than 900 new primary schools were added each year and the number of primary school teachers has reached nearly 100,000 in 2001.

The lower secondary level begins at grade 6 and is completed at grade 8. Most of the lower secondary schools are either integrated with the primary schools or with the secondary schools. The number of lower secondary schools increased by nearly three times between 1971 (2,700 schools) and 2001 (7,289 schools). On an average, nearly 400 new lower secondary schools were added each year.

The secondary level of education in Nepal comprises grades 9 and 10. Like the expansion of primary and lower secondary level schools there has been a substantial increase at this level as well. For example, between 1971 and 2001, the number of secondary schools increased by more than four fold, from 918 to 4,350. Due to high drop out rates in earlier grades, the current net enrollment rate is approximately 20%.

Higher secondary education, which comprises schooling in grades 11 and 12 is relatively new in Nepal's educational history. Approximately 65,000 students were enrolled at more than 500 higher secondary schools in 1999. Tertiary education is being provided through the umbrella of five universities, Tribhuvan University, Mahendra Sanskrit University, Kathmandu University, Pokhara University and Purwanchal University.

Enrolment Ratios:

According to the Ministry of Education, the enrolment rate at the primary school has been increasing over the years, however, the completion rate at the primary level is still low and a substantial work needs to be done to improve the graduation rate at the primary level.

The net enrollment rate for the primary level of education is 80.4% while the rate for boys and girls are 86.0% and 74.8% respectively in 2002. The over-all drop out rate during 2002 according to the Ministry of Education in the primary level grade 5 is approximately 17.7% while for the boys and girls separately are 18.4% and 16.9% respectively.

The net enrollment rate in the lower secondary level is 33%. Despite a large increase in number of schools, number of children enrolled in these schools is still low indicating a high drop out and low percent graduating to lower secondary schools.

Public Expenditure on Education

According to a World Bank Report in 2000, Government expenditures on education as a share of GDP continually increased between 1981 and 1993, from 1.4 to 2.5%, and remained constant at approximately 2.7%. As a share of total government expenditure, the trend in education expenditure is generally similar having increased from 9.4 to 13.4% between 1981 and 1993 and remained around that level for the following four years before again increasing to 13.9% in 1996/97. For the fiscal year 2002, the government increased its expenditures on education to 15.4% of its overall budget.

Literacy Rates

The 2001 census data indicates that the overall literacy rate was 53.7% of the total population aged 6 years and over. Gender differences in literacy were 65% for males and 42% females. The literacy rate has increased gradually over the last 45 years as indicated in Table 10 from a low literacy level of 5.3% in 1954.

1.7 Health Profile

According to the World Health Organization (WHO), life expectancy of males and females is 59.5 and 60.2 years old respectively. The child mortality (per 1,000) for males and females is 81 and 87, respectively.

AIDS was first identified in Nepal in 1988. Since then, AIDS cases have been steadily increasing. As of October 2001 cumulative HIV/AIDS cases had reached 1,564, based on the number of people who have tested their blood at health centers. Because of very limited number of persons have been tested for HIV/AIDS it is likely that this figure could be much higher. According to the World Health Organization the estimated HIV prevalence in Nepal in 2000 was over 30,000 or close to 0.3% of the total 15-49 year old population. Based on this estimate, the number of AIDS deaths that can be expected in the year 2000 was close to 3,000 and is expected to double to approximately 6,000 by the year 2005.

1.8 Information Communication Technology

According to the Untied States Central Intelligence Agency, the number of telephone lines in use approximated 236,816 in 2000 while the total number of mobile phone users was unknown. As of 2000, there were 6 Internet Service Providers in the country. The number of internet users was estimated at 60,000 in 2002. The Internet code for the country is .np.