A long-winded tenure typified by sluggish growth and a high unemployment rate bolstered by inflation is termed as "stagflation". The words "inflation' and "stagnation" combine together to form "stagflation".

The trouble maker for economic growth is stagflation. Generally, no particular equation well explains what stagflation is, but a milieu where economic growth is lessening and there is high inflation, particularly, for more than two quarters, is considered to be stagflation. With increasing inflation and retarded growth, stagflation threatens the economy. A typical difference between inflation and stagflation is with regard to the slow economic growth. The rise in price of goods and services is inflation while stagflation is the situation where there is increment in price and economic growth as well as demand is decelerating.

A certain level of inflation is healthy for the economy, but if it accelerates way too rapidly, it weakens the purchasing power of the people. For instance, developed economies' threshold for inflation would be approximately 2-3 per cent, but for the developing economies, the threshold would be 5-6 per cent.

The present day scenario since COVID-19 and the invasion by Russia of Ukraine have halted economic growth basically due to the swirling price of oil and food, catapulting the cost of living. Also, there is rising concern about this scenario worldwide as the emerging economies and even the developed economies are facing huge challenges in responsibly handling the food crisis. Despite all these, the major differentiation lies in the unemployment rate.

Though the earlier recessions showed slow economic growth and a high unemployment rate, this anticipated recession showcases an odd trajectory and a quandary for those mulling over it. The year 2022 has presented a scenario where economic output is falling, but the hiring trend shows an upward graph. Economists believe that despite the puzzling indicator, there are high chances of a fuller or deeper recession.

The present day scenario flashbacks to the 1970's, like constraints in the supply side pushing up inflation, followed by a prolonged period of adaptive monetary policy in the advanced economies, and the contractionary monetary policies to combat inflation in the developing economies, weakening the possibilities of economic growth.

The World Bank has anticipated Nepal's economic growth to be 4.1 per cent in the current fiscal year 2022/23 and 5.8 per cent in the coming fiscal. The pandemic and additionally Russia's invasion of kraine have led to masive damage to the econoy of the South Asian reion. Depleting remittance, aning forex reserve, fatening trade deficit and alance of payments deficit re chronic and a risk for conomic stability. The ersistent stagflation, low rowth and elevated inflaion that reached up to 8.5 er cent are alarming. Critial factors like lack of forign as well as private secor investment and minial financial assistance ave added to the deteriorating situation.

In India, the rising inflation level is causing interruption in its growth. But the most affected ones are Sri Lanka and Afghanistan. Also, Bangladesh and Pakistan have been struggling with economic activities.

In Nepal, an inflation of 8.56 per cent was recorded in the first 11 months (till mid-June 2022) of this fiscal year, according to the central bank's macroeconomic indicators. In 2016, the inflation was 9.9 per cent, and the rate since then has been less than 6 per cent. The current inflation clearly indicates that the low income people are going to be affected more as most of their income is spent on food. The food and beverage inflation was 7.43 per cent and non-food and service inflation was 9.44 per cent.

There is a need for policies that will prohibit black marketing and artificial shortage, and eliminate the pricing disorder due to carteling and syndicating. Also, there should be easy supply of goods and services, and the market should allow the entry of new players without any unnecessary hassle. The government has failed to take any necessary steps to address the problem and directed the cause to a series of international events.

Nepal's poverty level is expected to increase despite increased social protection coverage, according to the World Bank. This is because the country's political leaders are reluctant to accept the bitter truth regarding the economic crisis the country might face. And both the fiscal and monetary policies have failed to categorise the economic issues and inscribe a solution given their urgency. The few measures accommodated regarding tax exemption, subsidy on loan facilities for businesses hard hit by the pandemic and the stoppage on the import of high-end products are just temporary name-sake solutions.

The prevailing issues like the widening trade deficit, lack of institutional capacity, failure of the government to increase its capital expenditure, and improper coordination for economic diplomacy are the real issues which are taking the country towards a downward path. A national level commitment by the government and serious approach should be undertaken about the impending perils and the stagflation. Since Nepal depends heavily on imports and remittance, leading to a consumerism culture, it is hard to see how the country will meet its projected growth rate of 7-8 per cent and overcome this situation of stagflation with such a low level of production and manufacturing along with decelerating foreign investment.

In consideration of these aforementioned factors, the pandemic-spurred situation does not seem to ease the stagnant economic environment anytime soon, and stagflation in Nepal looms large. Employing the Keynesian approach during this period of sluggish economic growth is just a temporary solution. An expansionary policy with a supply side solution would be a more viable solution to amplify the aggregate demand despite raising inflation rate.

Rauniyar is Assistant Manager, Nepal Bank Ltd, New Road

A version of this article appears in the print on September 26, 2022 of The Himalayan Times.