Ironically, when the global economy slumped into recession, our economy was least affected as we have exchange restrictions on capital accounts and very few exports that were exposed to external economic risks. The belief that we had crossed this timeline of global crisis without having to suffer much has now been challenged by the fact that our economy has started to show some problematic symptoms. This is in fact the lagging effect of global economic downturn in our economy.
The first such symptom was seen when we registered a negative Balance of Payment (BoP) during the first six months of this fiscal year. After posting a BoP surplus continuously for almost half a decade, we now have a deficit. The deficit has obviously been prompted by rise in imports (40.8 percent in the first half of Fiscal Year (FY) 2066/67 compared to the same period last year) and fall in exports (12.1 percent) as a result of diminished demand. The economic downturn also showed its effect on remittance, which has registered a lower growth rate this fiscal year.
The major sectors of our economy are agriculture, remittance, tourism, etc. Export has been a redundant sector and has been losing steam with the withdrawal of incentives vis-a-vis duty drawbacks and export quotas. The appreciating local currency against the US dollar has also been another factor that has dwarfed our exports and inward remittances to some extent. The local currency has appreciated by 7.5 percent during the first six months of this FY as against the depreciation of 11.9 percent during the same period a year ago. Major economic indicators have so far been mixed.
Agricultural output, which constitutes a major part of our Gross Domestic Product, is expected to have shrunk during FY 2066/67 due to adverse monsoon; however the winter crop yield is expected to rise due to favorable climate. Industrial output has gone up by 0.1 percent during the first quarter of this FY, which was 1.2 percent during the same period a year ago. The major problem for all the economic sectors has been the continued and ever rising power cuts.
Source of economic recession in Nepal has primarily been the irrationally prolonged political recession.
Tourist arrival has increased by 8.1 percent during the first half of this FY over the same period last year. Ten new development banks and two new finance companies have come into operation. Last FY saw a drop of 12.8 percent in the number of Nepali laborers going for work abroad. However, this has gone up by 3.3 percent during the first half of this FY. Consumer Price Index rose by 11.801 percent as against 14.4 percent last FY. Wage index rose by 17.7 percent against 15.4 percent last FY.
Political uncertainties, state of lawlessness (impunity), rampant killings, extortions, civil commotions and frequent strikes and lockouts have now become an everyday reality of our socio-political system. This is having an extremely negative impact on business and industry. The major problem for businesses today have been trade unions, power cuts, frequent strikes, transportation halts, insecurity and so on. This has converted some of the industrial corridors into industrial graveyards. Many foreign investors have withdrawn and this trend is continuing and prospects of Foreign Direct Investment remain a distant dream.
Despite the prevailing uncertainties, the private sector is still marching ahead with the hope that there would be revival in the economic situation. Furthermore, I believe that the private sector will still aim to achieve their goals through proper planning, implementation and effective monitoring.
The source of economic recession in Nepal has primarily been the irrationally prolonged political recession. Political consensus is a must for boosting the moral of the private sector that will eventually revive the national economy.
The process of nation-building is not a game in isolation but a team activity where government ensures the availability of infrastructure, stability and security and the private sector excels to uplift the national economy.
(Writer is General Manager, Sunrise Bank Limited, Nepal.)
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