NEW DELHI: The common fear amongst most Nepalese citizens at present is heading the Sri Lankan way. Their fears are based on the fact that their forex reserves are plummeting, imports have been restricted and inflation is spiraling.
"Restrictions have been imposed on forex and imports and people across the country fear going the Sri Lanka way as there is no discipline in the Finance Ministry. The outbreak of Covid-19 and mismanagement by the government has made things worse,’’ says Ajaya Bhadra Khanal, Research Director at Center for Social Inclusion and Federalism (CESIF) Nepal.
However, an analysis shows that the crisis is not as dire as people are making it out to be. Nepal’s current forex crisis was long in building due to its huge dependency on the import of goods and services alongside years of neglect by the government to incentivize domestic manufacturing and exporting capacity, the crisis is not as dire as individuals are assuming it to be.
"With the country discarding most of its Covid-19 restrictions, demand for imported goods was bound to increase. Nepal’s total import bill for the first eight months of the current fiscal stands at Nrs 1308.73 billion, which is a 38.6 percent increment, year-on-year. Being an import-dependent nation, this is not an alarming figure,’’ according to the latest report prepared by CESIF.
Nepal still has enough forex to sustain imports (both merchandise imports and service imports) for the next six to seven months.
With the economy running in the ninth month of the current fiscal, one can rationally assume that the economy does have sufficient foreign reserves to sustain imports until the formulation, introduction, and implementation of a new national budget is done, says a policy expert on Nepal, adding that the cost of logistics have shot up exponentially leading to inflation. However, remittance earnings have dropped.
"Remittances sent home from domestic migrant laborers have come down by 1.7 percent year on year. Nevertheless, this too is a short-lived problem that has been propelled by the rising domestic inflation. With global prices (goods and services) at an all-time high due to uncertainties inflicted by the Russia-Ukraine crisis, prices for most basic goods, and commodities have risen,’’ says the CESIF report.
The increasing cost has led to a reduction in saving pushing people to use their savings.
Factoring all these issues one can say that today’s depleting forex crisis is a short-term phenomenon.
"Nepal has always paid its loan installments on time, never know to have defaulted from their borrowings from IMF, ADB, World Bank. That is the reason for us to believe that this situation is temporary which Nepal will be able to tide over,’’ added the expert on Nepal.