The measures taken by the government to impose a ban on the import of luxury goods are only a short-term remedy
Economists have warned that bad governance, decisions made on whims, inefficient policies and financial opacity could lead Nepal towards a Sri Lankan crisis. Although Nepal's current economy and its indicators are better than those of Sri Lanka, there is still that risk of the country plunging into a crisis due to the government's incompetence in proper decision-making, dwindling foreign exchange reserve and depleting exports. There are worrying indicators in the economy regarding debt services and the balance of payments deficit. If the country's foreign exchange reserve continues to decline, Nepal will not be able to maintain debt servicing and balance of payments, leading to price escalation of essential commodities due to price hikes in fuel and raw materials, both of which are imported by paying in foreign currency. As per a report of the Office of the Auditor General, Nepal's public debt was only 22.5 per cent of the size of GDP in 2015. Now it has increased to a whopping 40 per cent of GDP within a span of seven years. If this trend continues unabated, Nepal will not be able to pay back the loans it has taken from various countries and multilateral lending agencies in the past. The economic policies taken by the government, including the ban on the import of non-essential goods till the end of the current fiscal year, are only a short-term remedy.
Although the World Bank (WB) and International Monetary Fund (IMF) officials, who are in constant touch with government officials, have said that the state of public debt in Nepal is satisfactory compared to its GDP, Nepal cannot be complacent unless it increases exports, and remittance and tourism recover to the pre-COVID level. The IMF has said that while Nepal's post-COVID eco-nomic recovery continues, the global economic impact of the war in Ukraine is exacerbating the existing vulnerabilities, and it is also impacting Nepal's import-based economy, increasing inflation and decreasing foreign currency reserves. In its recent findings, the IMF has said that despite growing economic activities, inflation has increased and prices of commodities have also jumped.
An IMF team, which visited Nepal from April 24 to May 2, has emphasised the need to further tighten monetary policy, including by increasing interest rates, which is expected to address decreasing international foreign reserves without the need to resorting to import restrictions that could exacerbate inflation and hamper economic growth. The IMF has hoped that the tighter monetary policy would help address inflationary pressures and growing external imbalances. What is true is that we cannot immediately substitute the import of petroleum products and other raw materials needed to run our economy, but we can at least take measures to increase the flow of remittances through the banking channels. If the interest rate on deposits is increased, the migrant workers will no longer opt to send money through the illegal hundi. In addition to taking a tighter monetary policy, the government should not take any loans from any lending agency that can impact the balance of payments. Learning lessons from the war, the government should come up with plans to make huge investments in the agriculture sector.
Detached voters
Election fever has gripped the nation, what with less than a week left for campaigning. Candidates are making door-to-door visits with high-sounding promises of development, but that is not to say that the electorate is equally enthusiastic about the polls.
The people have seen similar promises made in the past, which were never fulfilled. If anyone benefitted from these elections, it was a small coterie of people representing the elected officials, business community and the elite in the community. That is why the dalit settlement of the Musahars in Dakneswari Municipality in Saptari is indifferent to the local elections scheduled for next Friday.
Actually people don't have too high an expectation from the elected officials. In Dakneswari Municipality, for example, the Musahars just want a few more tube wells for drinking water, a sub-health post as they are too poor to seek medical care outside the village, and an embankment to solve the inundation problem. These are small projects that could be realised with the local level budget if there was the will.
No change is likely to come to the local units, or elsewhere, as long as candidates see the poor people as no more than vote banks.
A version of this article appears in the print on May 06, 2022 of The Himalayan Times.
