KATHMANDU, March 25: The Ministry of Finance (MoF) has begun assessing the potential impacts of escalating tensions in West Asia, as it prepares to recommend alternative strategies to help the government minimize possible economic fallout.
The ministry initiated the exercise about a month after the conflict began, as its effects have already started to surface in Nepal’s economy, which is largely driven by remittance. The crisis in West Asia intensified after the United States and Israel launched airstrikes on multiple sites across Iran on February 28.
MoF spokesperson Tanka Prasad Pandey said the ministry has started consultations with other government agencies and experts to explore possible ways to address the external shock. He said the initiative aims to formulate contingency measures in case the conflict drags on.
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Economists have warned that a prolonged conflict could trigger multiple challenges for Nepal, including rising inflation, slower economic growth, and declining household incomes. Early signs are already visible, with tightening supplies of petroleum products and rising fuel prices pushing up the cost of living.
Studies show that a 10 percent increase in global oil prices could raise inflation in Nepal by 0.4 percentage points while reducing economic growth by 0.15 percentage points. Recently, Nepal Oil Corporation raised petrol prices by Rs 15 per liter and diesel by Rs 10 per liter, citing losses exceeding Rs 4 billion.
India remains Nepal’s sole supplier of petroleum products. Analysts say the risk to Nepal’s fuel supply is high, as India sources around 45 percent of its petroleum imports from West Asia.
A prolonged conflict could also weaken remittance inflows and tourism revenue. It may further affect the agriculture sector due to rising chemical fertilizer costs and broader inflationary pressures driven by higher fuel prices.
The labor market could face disruptions as well, as West Asia employs around 40 percent of Nepali migrant workers. Any decline in foreign employment could reduce remittance earnings, strain foreign exchange reserves, and increase pressure on the government’s debt servicing capacity.
Tourism could also suffer, as many international travelers to Nepal transit through West Asia, potentially leading to a decline in visitor arrivals and tourism revenue.
