Economy may collapse anytime: IfDS

Kathmandu, February 2:

Senior economists and experts talking about the existing economic scenario have expressed serious concerns over the possibility of the economy collapsing within three months, if

the ‘current’ scenario continues unaltered.

Dr Raghav Dhoj Pant, executive director of the Institute for Development Studies (IfDS), while talking at a press meet, has warned the current government and political parties of ‘stagflation’ which is already bleeding the economy, due primarily to unresolved political problems and lack of initiatives by the Ne-pal Rastra Bank (NRB), ministry of finance (MoF) and National Planning Commission (NPC).

While talking to journalists, Dr Pant blamed political parties for turning their heads from the flagging economic outlook.

Pant, who is the chief of IfDS, mentioned that per capita income is stagnant, prices are rising and the balance of payment problem with major trading partners is deteriorating. He warned that the economy ‘might collapse abruptly’.

In recent times, the major source of revenue to the national coffer, according to Dr Pant, has been ‘remittance’. The question is whether this would continue in the long run as migration of Nepalis to bordering Indian cities has already taken place and capital flight is gradually making its way. In the first four months of the current fiscal year, price has increased at an annual rate of about 28 per cent compared to an increase of 2.7 per cent in the first four months of the preceding year, said Dr Pant.

In such a context, there is a ‘stagflation’ in the economy, due to low or even negative growth in real income combined with unprecedented rise in prices, he claimed.

Nepal Rastra Bank (NRB) in its recently released economic update has stated that inflation stands at 8.5 per cent (consumer price index) currently.

He said that Nepal’s inflation rate is believed to be equal to India’s, given the open border and fixed exchange rate between Nepali and Indian currencies. But currently, Nepal’s rate of inflation is substantially higher than the prevailing rate in India.

At the end of October 2005, according to Dr Pant, the foreign exchange reserve of the banking system totalled to Rs 134 billion, out of which the total Indian currency reserve amounted to only Rs 7 billion or five per cent of the total reserve, reflecting deteriorating trade balances with India. He said that recently NRB has imported Indian currency from India to finance domestic needs.

He said that the fiscal situation of the government is alarming. He was of the view that the authorities have failed to maintain simple consistency and coordination among revenue, expenditure, budget deficit and the sources to finance the budget deficit.

Of the total revenue estimation done by the government at Rs 81.82 billion, the nation will only see Rs 76.56 at the end of the current fiscal year, said Dr Pant. Expenditures will reach Rs 92.05 billion instead of Rs 89.65 billion, as estimated by the government.