The govt must focus on boosting domestic production to activate economy
Nepal Rastra Bank, the central bank, unveiled is macroeconomic update on Tuesday, revealing gradual economic recovery with improvement in remittance inflows, stable balance of payments (BoP), rising foreign exchange reserves, and narrowing down of the trade gap. However, price inflation stood at 8.19 per cent in mid-September, although slightly lower than that of last year when it stood at 8.64 per cent. Food and beverage inflation stood at 9.74 per cent while non-food and service inflation remained at 6.99 per cent in the review months. Despite the improvements at the macroeconomic level, domestic market activities appear sluggish as businesses have stopped borrowing money from banks and financial institutions. The central bank said remittance inflows surged 22.1 per cent to Rs 228.37 billion in the first two months of the current fiscal (mid-July and mid-September) against an increase of 19.8 per cent in the same period of the previous year. Total trade deficit narrowed down by 4.7 per cent to Rs 233 billion during the review period. Such trade deficit had decreased by 9.4 per cent in the corresponding period last fiscal. The trade deficit has decreased not because of the increase in export, but due to decrease in the import of goods and services. During the review period, merchandise imports fell by 5 per cent to Rs 259 billion.
Nepal's merchandise export also dropped by 7.8 per cent to Rs 26.45 billion during the review period, which is a worrying scenario. Export of goods and services had dropped by 34 per cent in the same period of the previous year. The intermediate and final consumption goods accounted for 54 per cent and 45 per cent of the total exports, respectively, whereas the ratio of capital goods in total exports remained negligible.
But a positive aspect of the macroeconomic situation in terms of BoP is it remained at a surplus of Rs 53.61 billion during the review period compared to a deficit of Rs 20.81 billion in the same period last fiscal.Current account – country's imports and exports of goods and services, payments made to foreign investors, and transfer such as foreign aid – recorded a surplus of Rs 23.50 billion during the review period compared to a deficit of Rs 36.84 billion in the same period of previous year.
Based on the imports of two months, foreign exchange reserves of the banking sector is sufficient to cover merchandise imports of 12.6 months, which is a positive sign, given the increased inflow of remittances. However, the country's economic situation will continue to stagnate as long as the domestic economic condition does not improve to the pre-pandemic level and export does not increase.
Given the current economic situation, the domestic economy and exports will not improve. The ongoing wars between Israel and Palestine and Ukraine and Russia will have lasting impact on Nepal's economy as both the wars have disrupted the international supply chain, especially that of petroleum products and food and edible oil. Therefore, it is high time the government focused on increasing its domestic production, mainly in the agriculture and manufacturing sectors. The government also must be able to spend its capital budget so that low-income and unskilled people can earn their living by working in the construction sector.
Monsoon disaster
Monsoon-induced natural disasters are a recurring phenomenon in this part of the world.
However, their intensity has been growing year after year and is not commensurate with the amount of rainfall the country receives. This year, the country saw less than average rain during the monsoon, which exited the country on Sunday, but that is not to say there were fewer numbers of natural disasters compared to the past. There were 459 incidents of landslides during the monsoon season, 142 incidents of flooding, 168 incidents of heavy rainfall and 113 incidents of lightning, according to the National Disaster Risk Reduction and Management Authority. There were, however, fewer deaths this year as a result of the natural disasters - 92 in total - while 168 suffered injuries and 30 have gone missing, Although there was less than average rainfall this monsoon, the natural disasters caused massive destruction.
The huge number of landslides is particularly worrisome. Did these landslides occur due to the haphazard construction of man-made structures such as roads in the hills? Planned developed of both urban centres and rural areas could help reduce the growing number of natural disasters in the country.
A version of this article appears in the print on October 19, 2023, of The Himalayan Times
