Gloomy economy

Nepal’s economy is not just shrinking, it is sinking. Its economic sickness is worsening with no convincing possibility of a turnaround in the near future. This is the impression that one gets while analyzing the half-yearly economic statistics of the country. A closer look reveals that almost all vital economic indicators except for revenue collection are in disarray. The mid-year economic indicators paint a gloomy picture—growth in both agriculture and manufacturing sectors are shrinking, inflation is creeping up, new investments are drying up, monetary indicators are in tatters, and energy-supply problem is worsening.



Among all the worries, prolonging coexistence of low economic growth rate and high inflation – symptoms of chronic stagflation – have been the most serious. Barely two weeks after a Central Bureau of Statistics report estimated economic growth rate to be just 3.5 percent this year, Nepal Rastra Bank (NRB), the central bank of the country, recently released the half-yearly report indicating that the rate of inflation will be much higher than the initial estimate of 7.5 percent. Soaring inflation, which lately touched 12 percent, has emerged as a challenge for the shaky economy. Since average income level is unlikely to rise at least at the level of inflation rate, chances are high that the consumption capacity of the general people will dwindle in the coming days.



Likewise, alarmingly widening trade deficit – difference between total imports and exports – has posed another major challenge to the economy. According to the latest NRB report, the trade deficit was Rs 160 billion in the first half of the fiscal year. The export volume has declined by a whopping 12 percent during the period, as the country’s export pillars – garment and carpet – continued to shrink. The impact of this has been echoed in the alarming deficit in the Balance of Payment. Though the deficit has marginally declined in recent months, the level is still enough to trigger a serious financial crisis.



The economic woes are further compounded by deteriorating law and order situation, resulting in a massive erosion of investors´ confidence. The private sector’s declining confidence in the economy is reflected by the increasing volatility of the stock market that has been declining for the last several months. Similarly, steeply rising lending rates resulting mainly from lengthening liquidity shortage in the banking system has not only darkened the prospects of ongoing business ventures but also discouraged upcoming ventures. The toxic combination of rising lending rates and unfriendly environment for doing business could trigger bankruptcy rates, pushing the entire financial system into a deep crisis.

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