Economy In Trouble | Will Nepal face Economic crisis?
Will Nepal be the next stop of the Economic crisis?
South Asian countries after facing big economic crises like Afghanistan, Sri Lanka, and now Pakistan are the countries having the highest GDP, Foreign reserve, etc in comparison to Nepal, one question always arises Nepal whose production is not enough to fulfill national demand neither it can create sufficient employment in own country but still managing to survive, Haven’t the termites eaten Nepal from inside?
According to World Bank, 2023 has a huge chance of going into a global recession. According to the World Bank Group president said “Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,”
As surprising to the world first ever in the history united states of America also made a debt default which means America also doesn’t have a sufficient amount of money to pay its borrowing however this doesn’t mean that it has worst scenario it’s their internal political tension for this reason. The essence of this is, bigger countries are also in little trouble regarding their economy. Let’s talk about our neighboring country China whom Nepal depends for various sectors also china has been providing multiple grants and loans to Nepal for the upliftment of the Nepalese economy but coming days if the economic condition of china gets worsens then Nepal can’t expect any grants or economic support but at the pros side India’s economic transformation is kicking into high gear. Global manufacturers are looking to set up their plants in India also Indian Government is spending nearly 20% of its budget this fiscal year on capital investments, the most in at least a decade. Which are very positive aspects for Nepal.
Current lagging indicator of Nepal
Export-import: foreign exchange reserve inclines by 6.3% and trade deficit 18.8% from mid-July of 2022 to mid-December of 2022 but on the contrary during the 5 months of 2022 merchandise trade decreased to 20.7 % in an increase of 59.5% a year ago. So if we critically analyze export is continuously decreasing which may cause serious issues in the coming days also initially we seem to be increasing the foreign exchange reserve but due to the no imports government must spend that money in the future as our production is in retardation so in future, it may trigger a shortage of food materials and high inflation as newly appointed finance minister Bishnu paudel also accepts that current scenario of Nepalese economy is challenging due to the various factors like COVID-19, Russia-Ukraine war, etc. So there is a huge chance of facing a crisis shortly due to the global scenario and its poor performance.
How is the Nepali business community facing current macroeconomic challenges?
The first impact of the current economic challenges is the shortage of funds on the domestic front and various restrictions on imports on the external front. Although macroeconomic indicators like the foreign exchange reserves, the balance of payment, and bank rates are being corrected gradually, challenges like poor government expenditure, higher inflation, external sector pressure, high-interest rates, and financial sector vulnerability persist which are affecting the private sector. Likewise, the guidelines on working capital loans have also created new problems for the private sector. Although some of our demands regarding the guidelines have been addressed, many are yet to be incorporated in the amendment.
The cost of doing business has gone up significantly and most industries have stalled their new investment plans while many industries are running at a very limited capacity which also has repercussions on revenue and employment. This situation demands collaborative efforts from the public and private stakeholders whereas the government and regulatory bodies like Nepal Rostra Bank should exhibit flexibility to provide relief to the private sector.
Long-term policy measures the private sector wants from the new government
There has always been criticism of Nepalese businessmen to create an investment-friendly environment in the country also there are pertinent issues like Local taxes, land, labor, and infrastructure so in the long term government must work hand in hand with the private sector to resolve various issues. Hope the new government will address it.
All-time production low: The production of Sugarcane, which is the main cash crop of Nepal, is decreasing in recent times. Government data shows that sugarcane production decreased by more than 305,000 metric tons in the last three years. According to the data provided by the Ministry of Agriculture and Livestock Development, sugarcane cultivation was done on 71,625 hectares of land in the fiscal year (FY) 2075/76 yielding production of 3,557,934 tons of sugarcane. But by FY 2077/78, the cultivation area was reduced by 7,271 hectares to 64,354 hectares, and the production was reduced by 373,991 tons to 318,3943 tons. Meanwhile, the productivity of sugarcane decreased to 49.47 tons which were 49.6 tons in FY 2075/76.
The dependency on wheat from India is still continuing, the data of Birgunj Customs shows that no wheat was imported from mid-July to mid-January due to India's policy to restrict food exports. The lack of initiative of the Government of Nepal is also to blame for the short supply. As a result, the price of wheat flour in The domestic market has skyrocketed. Informed that during the review period of the previous year, 16,334,000 kg of wheat worth Rs 516.1 million was imported through Birguni Customs alone. Due to the Russia -Ukraine war, India adopted a policy of restricting food exports while considering the possibility of food shortages around the world. India has adopted a policy of controlling prices even by halting exports. Around 24% of GDP comes from agriculture but the production in agriculture is getting worse day by clay which can trigger huge problems in near future.
Some favoring indicators
Despite many facts currently, Nepal is in a balanced state somehow until the next quarterly report, here is a list of 5-month data ending mid-December 0f 2022/23
- Remittance inflows increased 23.0 percent to Rs.480.50 billion in the review period against a decrease of 6.3 percent in the same period of the previous year. In US Dollar terms, remittance inflows increased 13.1 percent to 3.71 billion in the review period against a decrease of 6.8 percent in the same period of the previous year.
- The number of Nepali workers (institutional and individual-new) taking approval for foreign employment increased by 80.6 percent to 236,779 in the review period. The number of Nepali workers (Renew entry) taking approval for foreign employment increased 16.4 percent to 115,948 in the review period. It had increased by 295.8 percent in the same period of the previous year.
- The y-o-y consumer price inflation remained at 7.38 percent in mid-December 2022 compared to 7.11 percent a year ago. Food and beverage inflation stood at 5.85 percent whereas non-food and service inflation rose to 8.59 percent in the review month so until now it’s the ok situation.
Consumer Price Inflation in Nepal and India
- The y-o-y consumer price inflation in Nepal remained at 7.38 percent in mid-December 2022. Such inflation in India stood at 5.72 percent in December 2022.
Hunger Report, Nepal has made improvements in reducing hunger with a score of 19.1 in the 2022 Global Hunger Index (GHI), a drop from 21.2 in 2014. The country is ranked 81st out of 121 countries and is ahead of some South Asian countries including India, Pakistan, Afghanistan, and Bangladesh. However, it is behind Sri Lanka.
Though these indicators are not sufficient to determine the future prospects or crisis more depends upon import export and production which is currently against our Nepalese economy likewise Pakistan which is getting worse day by day due to the fiscal deficit Nepal also can face just near future because we completely depend upon other countries. In 2022 there had been economic turmoil and a liquidity crisis because of low remittances and high outflow of money in Crypto, network marketing, etc. as a result banks did not lend a sufficient amount of money to businesses. Private sectors are not happy with banking they termed as “bank terror” because businessmen are under extreme pressure from banks and financial institutions. In recent days the self-immolation of the prem acharya incident became an eye-opener for various private sectors and businessmen because it is a truth that carries which most people don’t dare to express so there should be proper regulation and control from Nepal rastra bank and proper coordination must be done between private sectors and Government this need to address from the Newly formed government. If we analyze our Local market the inflation regarding different products are way more than in the previous month so we are slowly facing it, Up to now though it seems the situation is normal but any time our economy may take u-turn if things go on the same as going.
( As a citizen of Nepal we have a right to access information about a country and it's our personal duty to share the things that we know so this is a small step from my side to let you aware of the situation, though I am, not a professional researcher or economist having said that it doesn’t mean that I must not share my insights and my knowledge. Your feedbacks are highly appreciable feel free to express it.)
Article by: Shishir Raut
Hello, it’s me Shishir Raut and I'm an economic enthusiast, in this article I have highlighted the current economic scenario and the challenges that Nepal Can face. This article is solely based on my research, knowledge, and my understanding so I do not take any responsibility if you use this for your research and any type of project based on this data. Though data presented here is an analysis of mine through different indicators and sources which is 100% official and can be trusted.
Download In PDF: ECONOMY IN TROUBLE