What the government has done to address the problem seen with the foreign exchange reserve is inadequate
In a bid to save the dwindling foreign exchange reserve solely for the import of most essential goods in the coming months, the government has decided to cut the fuel allowance to government bodies by 20 per cent until the end of this fiscal or mid-July. A cabinet meeting held on April 13 decided to cut the fuel allowance to its government bodies following the ballooning trade deficit and slowdown in remittance, which is the main source of foreign currency earning.
Inflow of remittance has decreased by 5 per cent in the recent months while earnings from the tourism sector has also not picked up although the arrival of foreign tourists has increased since February. As per the notice issued by the Ministry of Finance, the allowance allocated under the heading of fuel to various ministries, line agencies and public enterprises affiliated to the government will be cut by 20 per cent from the remaining budget. However, this decision will not apply to those government bodies affiliated to development projects, peace and security forces, emergency services and upcoming local elections.
Practically this decision will apply only to those government administrators who are not associated with development projects, security forces and the local level elections.
Pressure on the foreign exchange reserve started to surface after the coronavirus pandemic began to decline, and many development projects, which were halted for months due to the spread of the pandemic, expedited their works. The development projects, launched either by the government or private sector, consume the largest amount of fuel, which is imported by paying in US dollars. Nepal Oil Corporation spent Rs 185.17 billion in the last eight months, which is 14.1 per cent of the total import and more than the total merchandise exports, which stood at just Rs 147.75 billion in the same period. As per the latest macroeconomic update unveiled by the Nepal Rastra Bank, foreign exchange reserves during the review period shrunk by 18.5 per cent to US$9.58 billion from the previous reserve of US$11.75 billion.
The government's decision to slash the fuel allowance to its ministries and line agencies will not make a dent on the current rate of fuel consumption as the private developers, political parties and their candidates will be consuming more fuel compared to normal times during the upcoming local level elections, which will ultimately put more pressure on the foreign exchange reserve. The government can tighten its belt on fuel consumption, but not the private sector and individuals. There is also no guarantee that remittance will rebound to the previous level within the next few weeks or months due to the ongoing war in Ukraine, which has led to the price rise of fossil fuels in the international market. What the government has done this time around to address the problem seen in the foreign exchange reserve is inadequate, and this kind of measure will not resolve the looming economic crisis. If the government is really serious about the depleting foreign reserve, it needs to make huge investments in select areas of production - either in agriculture or the manufacturing sector - which can be exported with competitive advantage.
The ongoing economic crisis has taught us a lesson that earnings from remittance is not sustainable in the long run.
Agro-census
The seventh agriculture census kicked off in the country on Tuesday, which is expected to help Nepal formulate plans and policies to achieve self-sufficiency in the sector. Even today 66 per cent of the population is engaged in agriculture, and it contributes 27 per cent to the country's gross domestic product (GDP). Yet for one reason or the other, Nepal has failed to become self-sufficient in cereals and other farming produce, such as meat, fruits and vegetables.
Agricultural products account for a third of all imports, amounting to more than $3 billion annually, and keep rising year after year.
The country held its first census in 2004-05, collecting data of crops, livestock and fishery. But no plan or policy based on the censuses has given a boost to the sector. Instead, the agriculture sector continues to be afflicted by the same problems that were there decades back - shrinking arable lands, lack of farming hands, and a shortage of fertilisers and seeds. If the census is being collected solely as a ritual, then it holds little meaning. The collected data should mirror the status of agriculture in the country and help put the sector on the right track.
A version of this article appears in the print on April 20, 2022, of The Himalayan Times.
