Nepal’s economy is slowing and at risk amid economic challenges, experts say

Amid gloomy major macroeconomic indicators, Nepal has faced economic challenges and hassles according to the latest data from the central bank.

Although Nepal’s Finance Minister, Janardan Sharma, affirmed that there was no economic crisis in the country and that the global economic indicators were in the recovery phase, some experts and industrialists warned of a danger imminent.

According to data released by Nepal Rastra Bank earlier this month, the country’s inflation averaged 7.14%, which is the highest in the past 67 months and also the first eight months of FY2021- 22 in progress.

Consumers are feeling the heat of rising prices due to rising prices for petroleum products.

The Nepalese government has already decided that all government vehicles will be banned from driving during the holidays and has decided to reduce fuel consumption by 20% overall.

Petroleum products are the country’s main import, accounting for 14% of Nepal’s total import volume, and due to the ongoing war between Russia and Ukraine, supplies of petroleum products are on the rise.

The Confederation of Nepalese Industries (CNI), an apex body of traders and commerce in the country, said on Wednesday that Nepal’s economy is not like Sri Lanka and the Himalayan nation’s economic crisis is not in poor condition as some claim.

“The economic situation of the country is not in danger, there is no reason to be pessimistic,” said Bishnu Agrawal, president of the CNI. “We’re not pretending it’s all good and well, but it’s not getting worse like some claim.”

Due to the Covid-19 pandemic, Nepal’s tourism industry, which is considered a major earner of foreign currency, has been one of the hardest hit.

But due to the lack of exportable items, Nepal’s currency reserve was quickly depleted due to the increase in imported items.

According to central bank data, the balance of payments (BoP) deficit has climbed to $2 billion since the first months of the current fiscal year (from mid-July).

In contrast, remittances fell by 1.7% over the eight-month period under review. Remittances are Nepal’s main source of foreign exchange.

With rising imports and falling remittances, foreign exchange reserves continued to decline. In the first eight months of the current fiscal year, the country’s foreign exchange reserves fell by 16.3%.

Available reserves are sufficient to support imports of goods and services for only 6.7 months against the central bank’s policy of maintaining reserves to support imports for at least seven months.

Officials and experts say the indicators prove that all is not well with the economy, with the external sector looking vulnerable.

As an import-dependent country, Nepal should have a healthy external sector, especially the country should have enough foreign exchange reserves to purchase essential consumer and industrial goods, they added.

After the huge swell of imported items, Nepal stopped issuing Letter of Credit (LC) against some luxury imported items, which still continues.

The country’s economic situation is not as perilous as some say, but it is manageable, said Chirinjibi Nepal, a former governor of Nepal’s central bank. “But we have to stay vigilant.”

At the end of last year, the government and the central bank started to take some indirect measures to control imports.

In November, the customs service began to seize imported gold in the form of jewelry that exceeded the legal limit.

In December last year, the central bank unveiled a new policy requiring importers to maintain a 100% margin amount to open a letter of credit for the import of 10 types of listed goods.

Importers of motorcycles, scooters and private diesel-powered automobiles must also maintain a margin of 50% of the total value of imports.

The list of products to be encouraged for import was increased to 47 in February this year. The central bank has also adopted the policy of encouraging non-resident Nepalese to open accounts in domestic banks in foreign currencies.

But these measures do not yet bring significant gains to the economy.

Although overall foreign exchange reserves declined in month eight, the rate of decline declined. One of the reasons, according to central bank statistics, is that fund inflows have increased significantly in the eighth month of the current fiscal year.

Although major economic indicators remain bleak, officials and experts say Nepal’s economy is unlikely to experience the same situation as Sri Lanka.

They said that although the economy seems to be heading towards Sri Lanka, there are certain differences between the conditions of the two countries and this will prevent the country from becoming another Sri Lanka. Some elements are trying to create noise that Nepal is heading towards a Sri Lanka-like situation,” Finance Minister Janardan Sharma said. electoral platform, but we will not let that happen”.



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