Economic momentum yes, but no breakdown

Nepal’s economic challenges are real, but the suggestion that it is already in deep trouble and heading towards Sri Lanka is perhaps premature, unwarranted and unfair. The growing trade deficit continues to be a major concern as it is expected to reach $18 billion this fiscal. The Balance of Payments (BoP) deficit and an increasing debt liability will pose a very serious risk to the economy which is already in deep trouble. Data from Nepal’s central bank showed that the country’s inflation averaged 7.14% in the current fiscal, the highest in the last 67 months.

emerging landscape

There are other worrying trends. The country’s Gross Domestic Product (GDP) ratio has crossed 40% in the second quarter of the current financial year. A prudent financial management plan is needed. Hence there is a need to boost demand and empower Micro, Small and Medium Enterprises (MSMEs) with soft institutional liquidity support. To recover from a shock of NR258.64 billion due to BoP deficit, reduction in remittance flows and a 16.3% decline in the country’s foreign exchange reserves to NR1,171 billion (from NR1 in mid-March 2022, to NR399.03 billion in mid-July 2021) ), the industry needs to join hands with the government and rationalize taxes. Such a collaborative effort will help increase national economic productivity and mitigate systemic risks on the economic front.

The lack of practical policy interventions in Nepal and a sudden move to orient economic planning towards ‘self-reliance’ has exposed the structural vulnerability of Nepal’s economy. It is also true and unfortunate that Nepal’s economy is being politicized openly. Tension between Finance Minister Janardan Sharma and Central Bank Governor Maha Prasad Adhikari with Mr Sharma suspending Mr. Officer The perceived failures in the discharge of their responsibilities have undoubtedly contributed to the uncertainty. Mr Adhikari has been reinstated on the orders of the country’s Supreme Court, but the damage has been done.

In the short run, the government’s revenue and expenditure should be assessed to reduce the installation cost. In particular, it is necessary for provincial governments where the operational portion should be dealt with thrifty in order not to burden the economy beyond a point. While several drastic measures such as import restrictions on luxury goods and reduced working hours have been announced, these have not been quite successful in allaying fears of an impending crisis. ban on imported goods Those who do not have an efficient substitute in the domestic market will hurt the economy unless the production of domestic consumables increases. Fortunately, the economic recovery is showing some positive signs, tourism has picked up due to the easing of visa and entry restrictions and foreign remittances are also showing an upward trend. These need to be consolidated.

Undoubtedly, India will make extra efforts to help Nepal ensure prompt and comprehensive reforms. India did not hesitate to be liberal and come to Sri Lanka’s aid, irrespective of political views, which may have suggested other approaches. In the case of Nepal, Prime Minister Sher Bahadur Deuba is a well-known friend of India who prefers to prioritize development rather than playing with the political gallery.

His recent visit to India was successful in reaching a critical understanding on economic cooperation projects. It should be possible for Nepal to expect liberal Indian support for its economic recovery based on a broad-based consensus in Nepal, which will ultimately help resolve the bilateral troubles that crop up all the time.

Today the national economy of Nepal is facing a kind of crisis.

Lately, the government is finding it difficult to ignore the looming trade deficit, but instead intervene with unfortunately misplaced measures such as curbing the autonomy of the Nepal Rastra Bank (NRB) and the much needed structural economic To spoil the import. The reformed NRB highlights problem areas such as rising inflation, BoP deficit, reduction in remittance flows, depletion of foreign exchange reserves and imports rising beyond acceptable levels. The NRB’s projection of an impending crisis has nothing to do with the finance ministry – it is on making strange short-term provisions, but rather looking for a way to avert a crisis.

Nepal desperately needs a need-based infrastructure along with ramping up its preparedness on the domestic economic front to propel an economy that is openly politicized and dominated by big business ideas. Not giving enough motivation to be and thrive. Nepal’s political economy should gain the traction of national consensus to meet the aspirations of the people and restore the country to a global state with its strong economic prowess.

In order not to adversely affect the normal flow of goods and services, the government should lift restrictions on imported goods that do not have viable substitutes in the domestic market. As long as Nepal takes steps to increase the production of household consumable goods and eliminate the cartel of businesses embracing competition and innovation, it will be helpful if Nepal is open to successfully completing the current type of mandatory transition. lives.

There is no magic wand to ensure economic recovery and avert a crisis like scenario. Nepal’s neighbor and the world’s largest democracy, India, is a good example of a country that faced a severe BoP crisis in 1991 and went through a sustained wave of economic reforms without letting political priorities dominate important economic matters. changed the economy. At a time when isolation cannot further the growth impulses of the economy, it is important for Nepal to cope with the pressures of a lack of industrial production and trade imbalances through excessive imports, but for healthy cooperation with the world. To remain open for non-stop.

geopolitical change

Broader geopolitical and economic trends are also indicating opening doors for more active Nepalese participation in the Indo-Pacific economic agenda, with the Nepalese Parliament approving a $500 million Millennium Challenge Corporation (MCC) grant from the United States; This could substantially upgrade energy cooperation between India and Nepal, and India is working closely with the United Kingdom, the European Union and other major investment partners on development projects in third countries. Interestingly, Nepalese independently re-evaluated the risks in deepening ties with China, thanks in large part to Beijing’s missteps and the style and essence of the aid provided by the Chinese.

There has been much receptivity and “feeling” in the public and across the political spectrum of the reality of India’s friendship with the aim of contributing to the welfare of the people of Nepal. The decision of the Government of India to set up an Inter-Ministerial Standing Group, headed by the Foreign Secretary, to coordinate sections and ensure more rapid implementation of project decisions, is also a welcome move.

Business leaders in India should be encouraged to be proactive in exploring new opportunities in expanding and diversifying trade and investment ties with Nepal, including in the context of the reset of supply chains in the aftermath of the COVID-19 situation. includes doing. There is no doubt that the economic challenges in the post-COVID-19 situation and the overall churn in the geopolitical environment have made it difficult for both the countries to develop innovative perspectives on long-standing issues and aim for new horizons in bilateral cooperation. opportunity has been created.

It is important that Nepal deepens its economic ties with India and facilitates joint ventures that create immense economic opportunities. India’s unwavering commitment to peace and prosperity in Nepal and its complementarity in its relations with Nepal will help create a healthy economic ecosystem in Nepal. While the economic landscape is troubled – and it is unlikely that Nepal will emerge from it anytime soon – it would be wrong to assume that a breakdown in Nepal is inevitable. Economic adversities have created room for course correction and Nepal should be encouraged to develop a new approach to achieve this through calibrated efforts.

KV Rajan is the former Ambassador of India to Nepal. Atul K. Thakur is a policy professional, columnist and author with a special focus on South Asia. Views expressed are personal