Sunday, 3 March, 2024

The Economic Alarm

In the last two years, Nepal’s economy took a nosedive owing to COVID-19. An array of restrictive measures, including the lockdowns, disrupted the economic activities as the priority shifted to saving the lives of people from the pandemic. Although the country has returned to normalcy, it is now facing an uphill task of economic recovery owing to its own structural problems and new challenges posed by the Russia-Ukraine war. Low capital expenditure, import-based revenues, rising inflation, widening trade deficit, capital flight, and declining foreign currency reserves and remittances have rung alarm bell on already shrinking economy. The prices of fuels have skyrocketed in the domestic markets because of their hike in the international market. This will have ripple effects on various economic sectors, too. Russia is the world’s second largest oil producer, and the ongoing war in Ukraine and multiple sanctions on former's economy has obstructed the supply of petroleum products globally, giving rise to increase of their prices.

If the war drags on and sanctions against Russia tighten, this will have unintended knock-on effects on the costs of production and supply of goods. Being an import-driven economy, Nepal is now gradually going to endure the full impacts of global fuel price hike. The prices of all consumer goods from gold to food are expected to see a record high rise, hitting the kitchen of every Nepali. One expert has warned that the inflation will hit double-digit by the end of this fiscal year, which calls for immediate measures to curb it. Sometime back authorities were upbeat about growth in Nepali export but the fact is that it is based on customs arbitrage. Nepal imports palm oil and soybean oil and then exports them to India by adding value. But now some South Indian states have complained that palm oil and soybean oil imported from Nepal have hurt their industries. This amply suggests that the country’s export trade is fragile and can take a down turn any time.

Against this backdrop, Prime Minister Sher Bahadur Deuba has called upon the stakeholders to take measures to control soaring prices, help narrow down trade deficit and declining foreign currency reserves so as to control further economic deterioration. While addressing the meeting of the National Development Action Committee on Tuesday, Prime Minister Deuba laid emphasis on import substitution to reduce trade deficit and increase foreign exchange reserves. In order to cut imports, the country should establish industries and promote commercialisation of agriculture, with proper incentives to the farmers. Participants at the meeting suggested the government effectively implement national pride projects and smooth away the complexities in contract process, availability of construction materials and legal provisions.

The attending Chief Ministers from different provinces shared that they faced troubles in prioritising the projects, resulting in the duplication and lack of coordination in the work. The provincial governments need to be equipped with adequate resources and coordinate, cooperate and support with each other to make sure that new federal set-up is economically viable and benefit the people. Meanwhile, speaking at an interaction on ‘Current Economic Status and Forthcoming Budget of Fiscal Year 2022/23’ in the capital, Finance Minister Janardan Sharma underlined the need for strong institutions, transparency, effective mobilisation of resources, labour and capital available in the country for the sustainable economic development. Now the country must find an alternative to the customs-based revenue and solution to economic woes triggered by the international crisis.