No sooner had Nepal started recovering from the coronavirus pandemic than the war between Russia and Ukraine since February 24 has further weakened the import-based economy. The war is likely to exacerbate the economic woes of Nepal as the prices of petroleum products and other commodities of daily use have surged following the war, which is nowhere to coming to an end in the near future, although Ukrainian President Volodymyr Zelenski has vowed not to seek NATO membership. Preliminary economic indicators suggest that there is pressure on the country's balance of payments and foreign exchange reserves. Prices of fossil fuels per litre of petrol and diesel have gone up by Rs 5 within a week of the war. The hike in fuel prices will have a cascading effect on doing business due to higher logistics cost. The prices of raw materials imported from Russia, Ukraine and other countries have already skyrocketed, resulting in inflation on the economy.

Nepal imported fuel worth Rs 182 billion in the last seven months of the current fiscal, resulting in a steep decline in its foreign exchange reserves. At the same time, Nepal is also losing remittances, which help to keep the national economy running. The tourism sector, which used to be a major source of foreign currency earnings, is at its lowest ebb due to the COVID-19 pandemic.

As per Nepal Rastra Bank report, foreign exchange reserves decreased by 15.9 percentage points to $9.89 billion from $11.75 billion at the start of the current fiscal. The foreign exchange reserves will be sufficient to cover merchandise and services imports for just 6.6 months, which is the lowest in many years. Economists have warned that Nepal would face a food crisis, pushing more and more people into extreme poverty should the war continue unabated. The war has already disrupted the supply chain of chemical fertilisers due to disruption in the supply of natural gas from Russia and elsewhere. As Nepal's currency is pegged with the Indian currency, the slide of the Indian rupee against the dollar will have adverse impact on Nepal's macroeconomic stabilisation.

The price hike of petroleum products has hit the public transportation sector the hardest. The price of diesel has gone up by Rs 29 per litre since the public transportation fare was adjusted last year in a gap of four years. The transport operators have warned they would raise the transport fare unilaterally if the government does not readjust the fare. If the transport fare is increased further, it will increase the prices of daily commodities. The central bank has taken a number of measures to curb imports, including slashing gold imports to 10 kg per day. In order to ensure macroeconomic stabilisation and keep the foreign exchange reserve intact, the government needs to stop importing unnecessary goods listed as luxury items. The government also needs to encourage migrant workers to send money back home through the banking channels, a measure which will help increase the foreign reserves. As it is not possible to increase export in the near future, the government should take other austerity measures and cut unnecessary spending to save precious foreign exchange to be used only for urgent needs.

Disaster management

Nepal is one of those countries that are highly vulnerable to natural disasters, with floods, landslides and earthquakes occurring routinely year after year. Now with climate change here to stay, Nepal's agriculture is being impacted with either too little rain or too much of it. According to a study, in a period of 45 years, from 1971 to 2015, more than 40,000 people have lost their lives to disasters while more than 75,000 others have suffered injuries. With 60 per cent of the country's area prone to natural disasters and 80 per cent of the population at constant risk, all the stakeholders must chip in reducing the disaster risks or their impact.

In this endeavour, the media have a major role to play, as was stressed at a discussion held the other day. The media can not only create awareness among the people but also influence government policy, especially with the haphazard use of land across the country. The big earthquake of 2015 has shown how unplanned urbanisation with uncontrolled high-rises can pose a death trap for its citizens. The government must partner with the media in building opinion on reducing disasters, which cause heavy financial losses.

A version of this article appears in the print on March 11, 2022, of The Himalayan Times