Purchasing power of rupee declines 400pc in two decades

Kathmandu, April 12

The purchasing power of Nepali rupee has declined by 400 per cent in the last two decades due to depreciation of Nepali currency vis-à-vis the US dollar and rising inflation, along with the weak production base in the country.

As per the household budget survey of the Central Bureau of Statistics (CBS) unveiled last week, an individual Nepali’s annual expenses in fiscal 2015-16 had increased to Rs 17,686 from Rs 6,802 of 1995-96 in real terms.

However, as per the nominal price (including inflation), an individual Nepali spends Rs 70,680, according to the CBS.

These figures reveal that the purchasing capacity of Nepali currency declined by 400 per cent over the two decades between fiscal 1995-96 and 2015-16. Purchasing power of the Nepali currency sharply declined in the last decade as compared to the previous decade due to quicker depreciation of Nepali currency against the US dollar and the country’s overdependence on imports.

“Nepali currency depreciated by around 54 per cent in between 2005 and 2015, and in that same period the country’s dependence on imports substantially increased along with massive deindustrialisation,” said Keshav Acharya, a senior economist. “Inflation was at a moderate level till 2003-04, but it skyrocketed in the next decade as the country’s production base worsened.”

The major reason behind the high inflation is the appreciation of the US dollar vis-à-vis the Indian currency to which the Nepali currency is pegged. Hence, this has a direct impact on the Nepali currency.

As per the CBS data, purchasing power of Nepali currency declined by 150 per cent in between 1995-96 and 2003-04, then 250 per cent in between 1995-96 and 2010-11, and 400 per cent in between 1995-96 and 2015-16.

Nara Bahadur Thapa, executive director at Nepal Rastra Bank, said that the rapid depreciation of Nepali rupee against the US dollar in the last one decade is the major reason behind high inflation. Citing the context of skyrocketing inflation in the last fiscal due to trade disruptions from India, Thapa added that inflation could be controlled if the country had a strong production base. But that has not happened due to over-reliance on imports.