South Asian countries are plunging into economic crises one after another. The Sri Lankan economy is struggling to recover from a devastating debt crisis and its subsequent political fallout, while Pakistan’s economy is teetering on the brink of collapse.
Nepal’s economy was sick before the Covid-19 pandemic due to continuous rise in imports and depleting internal production. And just as the country’s economy was getting back on track after the pandemic, it was knocked down again by the Russia-Ukraine war.
To make matters worse, extreme weather patterns are also seriously hampering economic activities. Nepal’s crop output is failing.
From buying groceries to energy, the cost of living is rising sharply, which has hit the low-income families the most. Meanwhile, businesses are also facing stress due to rising interest rates.
Nepal’s economic growth rate has fallen further than it was during the Covid-19 pandemic. According to the Central Bureau of Statistics, the country’s economy grew by a meager 0.8 percent in the first quarter of the running fiscal year. Slump in construction, minimal growth in agriculture and slow manufacture are ruining the economy.
As the crisis deepens, the government is struggling to strike a balance between income and expenditure. The federal budget was in a deficit of Rs 153.61bn as of March 5. A study conducted by the Confederation of Nepalese Industries shows that implementation of projects mentioned in the budget is sluggish, with zero progress in 36 economic sector programs.
In order to save forex, the government imposed a ban on the import of so-called luxurious items, but the move backfired, hitting the revenue collection. If the situation deteriorates further, there is a risk of society descending to anarchy. Some elements have already launched a campaign of not paying interests on loans they have taken from financial institutions.
So, addressing the economic crisis should be the number one priority of the government and political parties. Unfortunately, they are preoccupied with their own political agendas. Prime Minister Pushpa Kamal Dahal has only just started consulting with economists on ways to save the economy from a free fall. Well, better late than never.
Nepal’s economy has remained neglected by the political leadership for a long time now. This is mainly due to the lack of political stability in the country.
In the previous government, there was animosity between the finance minister and the central bank governor. Coordination between the Ministry of Finance and Nepal Rastra Bank was affected, as the two agencies did not see eye to eye. Now, change in the coalition has left the ministry without leadership. Frequent transfer of secretaries has not helped, either.
As of now, it remains uncertain when Dahal’s Cabinet will get its full shape. The incoming finance minister will have a lot of responsibility, so it is incumbent upon the prime minister to pick the right candidate—and not get caught in political seat-sharing.
Senior economist Chandra Mani Adhikari says though Nepal’s economy cannot be compared with that of Sri Lanka and Pakistan, it is certainly heading toward a disaster.
He says the political leadership should get serious and get to work without any delay.
Internal investment is gradually decreasing, the state of foreign investment and assistance is going down, and almost all economic indicators are poor, says Adhikari.
Remittance is the only thing that is keeping the economy alive, while there are some hopes from the tourism sector as well.
Economists suggest that the government maintain austerity measures and take steps to increase domestic production. This is not a normal situation, so the political leadership should think differently.
Economist Swarnim Wagle says instead of patch-up work, Nepal’s economy needs a serious surgical solution.
Party and political issues have overshadowed the problems in the economy, he adds, while suggesting that the current crisis should be viewed in short-term, mid-term and long-term perspectives and addressed accordingly.
Former vice-chair of National Planning Commission Govinda Pokhrel says the government should pay attention to increase the capital expenditure and decrease general expenditure.
In order to decrease imports, he suggests the federal government should set an agricultural production target to each local government to reduce imports.
To do all these things, Prime Minister Dahal should first appoint a strong finance minister who has a sound knowledge of the current state of the economy. He must act fast to prevent a looming economic disaster.