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NEPALI ECONOMICS

By Prajwal Shrestha

The World Bank officials have assured that Nepal’s economy is not in a bad shape as its foreign debt burden is under control, nevertheless, they have remained silent on whether the country’s economy is taking a proper track or not.

Nepal’s finance minister, as well as, the Nepal Rastra Bank have claimed that the country’s foreign currency reserve is enough to meet imports and services for six and a half months. Nepal is hopeful that gradually the tourism industry will flourish and also Nepal starts receiving remittance revenue from those Nepalis gone abroad for foreign job.

The fianace minister has lambast those who have remarked whether Nepali economy is going to fase the fate of the Sri Lankan economy. He claimed that the economy cannot compared with the Sri Lankan economy!

It seems, the finance minister, who is not an economic expert but a Maoist PLA fighter, is unaware about the present global economic trend. The major challenges in front of us are the prolonged war between Russia and Ukraine and the war is further escalating as the EU countries and the USA have become ready to support Ukraine by providing more sophistigated arms. Will Russia step back from the war then? Considering the present mood of Russian President Vladimir Putin, it seems, he is ready to take strong steps against Ukraine, perhaps, using powerful arms. It is already two months since begining of war there has been seen no ceasefire environment. Present war, if prolonged, would contribute the global market inflation. Nepal, a solely import depended nation cannot remain aloof from the global market inflation. Meanwhile, Nepal’s hope for promotion of tourism can be affected adversely.

Also, the Covid-19 pandemic has not ended. The cases are on the rise in India, Nepal’s immediate neighbor having open border. One cannot assure that the next wave would not hit India and Nepal. Nepal’s northern neighbor China has imposed lockdown in different cities after the infection cases witnessed there. We cannot say that the Covid-19 pandemic may not hit Nepal’s economy again. If it happens, Nepal may not receive remittance revenue as expected.

The other but serious problem is capital flight. It is suspected that different networking and bitcoin agents based in foreign countries have attrated Nepali investors by showing an attractive profit margin. If the Nepal government fails to check capital flight, the country cannot receive foreign currency as expected but the trend of sending dollars from Nepal through black market will intensify.

Already US dollar and Indian currency price is above five rupees than the Nepal Rastra Bank set exchange rate in the black market. This indicates that the real value of the Nepali currency is lower than the government set exchange rate with the Indian currency. If the government will not devalue Nepali currency, sending money through Hundi cannot be controlled. The commercial banks have offered higher interest rates on sending foreign currency to nepal from Nepalis working abroad. But the Hundi rate is attractive than the offer made by the commercial banks.

The government is afraid from devaluing Nepali currency against the Indian currency as it will have a chain effect on the economy but keeping artificially exchange price higher will have more negative impact. Therefore, economic experts have suggested for devaluing the currency exchange rate fixed three decades ago.

The economic health of a country is determined from the gross domestic product and its contribution in the foreign trade. In the past three decades, Nepal’s industrial and also the agricultural production have declined. Nepal has become totally a consumer country. Nepal is importing billions of rupees worth agricultural products contributing further in the foreign trade deficit. In such a scenario, we cannot say that the economy is out of danger.

In the past nine months of the present fiscal year, imports have established a new record on trade deficit by 13.6 trillion rupees. The present trade deficit is 28.47 percent higher than the same period in the previous fiscal year. If the present trend will continue, by end of the present fiscal year, the nation may face deficit worth 18 trillion rupees on foreign trade. If the country cannot manage such a negative trend, it is obvious to face an economic crisis in the near future.