Thursday, 1 June, 2023

Economists’ Wake-up Call

In a worrying sign, Nepal’s economy has been facing serious headwinds recently, mainly because of the dwindling inflow of remittances, according to a macroeconomic NRB report published recently. The report shows that the remittance inflows plunged by 18.1 per cent to Rs. 75.96 billion in the first month of the current fiscal year in contrast to an increase of 23 per cent in the same period of the previous year. That has begged the question: why is that happening against the backdrop of one successful vaccination campaigns one after another and many countries gradually emerging from the pandemic? Though the report has painted a negative picture of the economy, the experts have also said that there is no need to panic, probably because this can be just short-lived phenomenon. It can also mean that the countries hosting Nepali expatriates themselves are faring badly, and it is a matter of time before tables are turned for better.

That said, the report has sent a sobering signal across the country, because falling remittance has far-reaching consequences. Critical economic indicators – current account, balance of payment, and foreign currency reserve – all suffer because of this. In a country where virtually everything from staples – like rice, pulse, machinery – to fossil fuel is imported, depleting foreign currency reserve bodes ill for the economy, threatening to turn the situation into a matter of gave repercussions.

Given the situation, the government has a crucial role to play to turn the tide. The political instability in which the country is mired in surely has put a lid on the government expenditure, starving many businesses of the cash they need to survive and thrive and hobbling much-needed cash flow. That has also slowed down the developmental activities and unnerved the prospective investors. Given that the outsized role the country’s political climate plays in making a conducive environment for businesses, anything that threatens to upend it must be kept at bay before it is too late. And it is no one but the government that has the legitimacy and popular expectations to do that. It must enact policies to create such environment that is entirely independent of who is in the government.

That we have only foreign exchange reserve to support six months of imports is a wake-up call to all. That’s because it is the reserve of foreign currency that breathes life into the economy. Now that the economists have sounded the alarm bell on the economy, it’s time for the policymakers to step in, to act before it is too late. The government should put the lid on the unrestrained import of luxurious and non-essential goods, which not only drains the foreign currency reserve, but also poses risk to the local industries. At the same time, liquidity crisis facing the banking sector should also be sorted out before it becomes complicated. And it is the NRB which we all look up to for solutions of such problems. It must take corrective action in time and make sure nothing serious happens to the health of the national economy.