‘Is Nepal on its way to becoming another Sri Lanka?’ This question is being repeatedly asked, in the media and out on the street, as Nepal’s economic woes deepen. Many economists say the comparison between the two countries is misguided: the problems they face are different. Big foreign loans are Sri Lanka’s primary concern while for Nepal the big worry is a mix of high fuel import cost and erratic remittance. Nepal’s foreign loan-repayments (around $400m due by the end of this fiscal) are peanuts compared to Sri Lanka’s (around $4bn due). But if Nepal does not take drastic steps, it could well go Lanka’s way.

Senior economist Chandra Mani Adhikari says Nepal needs to learn the right lessons. Sri Lanka shows how small and emerging economies can plunge into a deep crisis despite their good economic indicators, he says. That will be the case especially “if their economic policies are flawed and their resources are haphazardly mobilized.” Comparing the economy to a traffic-light system, he says Nepal’s economy right now is in the ‘yellow’ zone and inching toward the dreaded ‘red’ zone.

One big problem in Nepal is lack of coordination on economic policies between concerned agencies. For instance, in the words of Bishwarmbhar Pyakurel, another senior economist, there is little coordination between the National Planning Commission, the Ministry of Finance, and the Nepal Rastra Bank. “These three agencies have competing visions and often encroach on each other’s jurisdictions,” he adds.

So besides drastically cutting the country’s fuel imports and adopting other fuel-saving measures, there is a need to harmonize economic policy-making. What we see instead is the government taking reckless measures like dismissing the sitting central bank governor. This is playing with fire. Hopefully our policymakers realize the folly of doing so before the flares lap up the whole country.

More details, Fixing Nepal’s broken economy and Editorial: Central folly