Thursday, 23 May, 2024

No Panic Please!

The coronavirus pandemic had a severe impact on the global economy. Nepal's small economy too could not remain untouched from it. Many industries and businesses were closed down due to the lockdown and other restrictions imposed to break the virus transmission. This travel restriction gravely affected two major foreign currency earning sources - remittance and tourism, piling pressure on the foreign currency reserves that was already shrinking owing to high imports of petroleum products, vehicles and luxury goods. Besides, capital flight via means of cryptocurrencies, hyper funds and educational fees flowing out to foreign countries is another reason for the present pressure on foreign currency reserves.

However, the opposition parties and some economists close to them were busy in comparing Nepal's economy with that of Sri Lanka that is currently beset with the worst economic crisis since its independence in 1948. They are providing false information and analysis after the government suspended the Nepal Rastra Bank Governor Maha Prasad Adhikari. They were making superficial comparison between Nepal and Sri Lanka. The island nation is facing so acute foreign currency reserves shortages that is has been unable to buy paper to conduct school examinations, let alone fuels and other essentials.

Speaking at a press meet the other day, Finance Minister Janardan Sharma refuted the claims that the Nepali economy was on the slippery slope. He said that it was stable in terms of production and revenue mobilisation though there was slight pressure on the foreign currency reserves. Actually, the economic situation that Sri Lanka is facing now is totally different from that of Nepal. Nepal has no huge foreign debt burden at just over 43 per cent of gross domestic product compared to at least 90 per cent of GDP in Sri Lanka and some estimates putting it as high as 110 per cent of GDP.

Similarly, the NRB has been mulling over curbing the imports of luxury items and goods that we can do without. The remittance, a major source of foreign currency earning, which was slowed for the past few months has grown slightly in February. Similarly, tourism, another major foreign currency earner, has witnessed gradual rebounding, giving a fillip to the much-needed foreign currency reserves. This has already shown a bright light on the horizon. Likewise, since Nepali currency is pegged with the Indian currency, huge devaluation shock is implausible.

Nepal's current forex reserves are enough to make payments for the imports of goods and services for about seven months, despite experiencing strain due to imports of petroleum products and some luxury items like automobiles. Thus, the arguments that Nepal’s economy is heading towards the imminent collapse are utterly fallacious. Those resorting to such misleading hypotheses are simply guided by parochial partisan interest. It is the duty of economists and media to provide the people with accurate information about the country’s economy. This requires taking credible measures to improve the health of economy instead of creating panic by comparing it with that of crisis-hit island nation. Likewise, the government should take the financial sector into confidence to avoid unintended consequences arising from the panicky and detrimental rumours.