Gloomy economy

Latest statistics released by the central bank make for yet another economic report full of doom and gloom, rendering the much-needed economic revival anything but certain. Of all the ills emerging lately, the obnoxious return of a hefty deficit in the Balance of Payments (BoP), that had reached over Rs 12 billion by the end of seventh months of the current fiscal year, is the most serious challenge before the economy.



It is particularly worrisome in that the BoP deficit has re-emerged even while all measures taken last year to contain a record Rs 23 billion BoP deficit are still in place. It seems that the chronic ills of the Nepali economy are slowly becoming immune to measures that worked impressively in lowering the deficit in the initial months. In addition, the continuing double-digit inflation, though slightly less severe than last month, has added to the woe.



The problems are there but, unfortunately, the frail Nepali economy has little to hit back with. The alarming trade deficit continues to be a major reason for the big hole in the BoP, though this time the central bank has blamed imbalance in foreign currency management. The skyrocketing global oil price has already become a major headache as it is bloating Nepal’s oil import bill, thereby further aggravating the trade deficit.



The best prescription for containing the BOP deficit is boosting exports and checking imports, so as to stem further drain of foreign currency from the state treasury. However, the sad part is Nepal has already deployed almost all available means to contain imports and plug the foreign currency outflow. It is good to note the positive policy outcomes as imports have been contained at almost last year’s level. But we have little policy option left to further check imports without hurting the prospects of economic growth.



Another option for dealing with the problem is promoting exports. However, so many obstacles lie in the way of reviving the sick export sector. As we have already said many times, the biggest among all the barriers is power shortage, which has made Nepal one of the most undesirable places to do business.



Power shortage has affected every vital sector of the economy, ranging from manufacturing and services to agriculture. And as a new medium-scale hydropower project will take at least five years to come into operation, it’s high time the government started thinking about hiring moveable diesel plants under dry-lease arrangements. It is probably the only means of breathing life back into Nepal’s flagging industries.

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