Wednesday, 19 June, 2024

Averting Economic Crisis

Nepal's economy is passing through rough water, necessitating the implementation of various tools to avert a severe crisis. Economists and financial sector experts have urged the concerned bodies and the government to introduce some strong economic and financial measures to avoid a Sri Lanka-like situation. Currently, Sri Lanka is passing through one of its worst economic crises since it got its independence from British colonial power. Depletion of foreign currency reserves, the outcome of the worst impacts of the COVID-19 pandemic on its tourism sector, heavy borrowings, failed agriculture and industrial productions and an import-oriented economy are some reasons that led to the present crisis. Some economists have warned that if our government fails to make a timely intervention, Nepal will find itself in the same situation.

Economic indicators such as inflation, foreign currency reserves, trade deficit and balance of payment are in worrisome condition at present. The decline in agriculture products, lack of additional investment capacity of banking sectors and low government development expenditure have created a roadblock to the government's capital expenditure, which in turn adversely affected the opportunity for employment creation. High rises in fuel and gas prices and rising inflation have led to a decline in purchasing power of the common citizens. As imports have risen several folds creating pressure on the country's foreign currency reserves, its dearth has compelled our authority, the central bank, to implement monetary measures such as barring the commercial banks from opening Letters of Credit to discourage the imports of luxury items and the import of expensive vehicles and goods.

Another disturbing economic scenario is the decline in remittance inflow. Our economy is dependent on the money remitted by Nepali migrants from abroad. However, in recent times the amount of remittance has declined, causing a sharp fall in our foreign currency reserves. The amount of remittance received through banking channels has gone down considerably in recent times due mainly to the migrant Nepalis opting to remit money through informal ways, through hundis and havalas. Many of them are said to be attracted towards investment in crypto-currency such as bitcoin mining and some networking business with the hope of gaining quick and heavy returns from these investments. In the meantime, the coronavirus pandemic has hit our tourism and hospitality sector, which are important sources of earning foreign currency. Our industrial and agricultural products have also declined in the aftermath of the pandemic outbreak, which played a spoilsport in the growth of the economy. Add to this the frequent changes in the government and you will get a complete recipe for a lurking economic crisis.

Despite naysayers saying all negative things, a timely intervention by implying monetary, financial and other efficacious instruments will help prevent any looming economic crisis. Authorities and private sector players must remain wary not to allow any small problem to explode into a major crisis. They should also aim at increasing remittance flow, agricultural, and industrial products as well as boosting investments in industries and energy sectors. Curbing trade deficits and negative balance of payments, creating jobs, and discouraging the imports of luxury and expensive goods are other effective ways to save our economy from facing a Sri Lanka-like economic crisis.