Economic crisis

By now, it is evident that the economy is bearing the brunt of sustained inflation, which is at close to 10 percent, and swelling deficit in Balance of Payment (BoP). The four-month economic report made public by Nepal Rastra Bank on Thursday showed that inflation that was slowing down in the past few months after touching 13 percent last fiscal year, has again crept up to 10 percent, thanks primarily to an over 16 percent rise in prices of food items. Central bank officials have already expressed worries that inflation rate might go up further given the fact that food prices in India, which is Nepal’s major supplier of food, has already risen by over 20 percent. To add to the misery, experts have warned that the production of winter crops in the Tarai region might be hit by the recent cold wave, thus further shrinking supplies.



Rising deficit in BoP that touched a record Rs 20.5 billion during the first four months of the current fiscal year against the surplus of Rs 11 billion during the same period last year is posing another threat to the economy. Boosting exports and curbing imports is the best prescription to deal with the problem but the million dollar question is: Is it possible to translate that into practice? Nepal’s export base is so weak that it is almost impossible to see it strengthening in the short-run. The export of woolen carpets and readymade garments, the two primary export items, is not only shrinking but sinking. The performance of other exportable products is very poor. Developing sustainable exportable products needs a long-term and concrete vision, which is again something difficult to achieve because of the ongoing political turmoil. Curbing imports by imposing additional duties can be a way out but that cannot be done without hurting the already slow growth. In addition, it might fuel inflation further.



The other worrisome development has been the growth rate of remittance, which played the most crucial role in boosting consumption. The latest NRB data shows that remittance growth rate in the first four months of this fiscal year has dwindled to 6.6 percent from 60 percent. Promoting tourism is one of the most powerful tools that the country can resort to in order to deal with the BoP crisis. However, again, that is easier said than done considering the existing political situation of the country.

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