<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022111016110/636d12189c7e80680e0a98bajpeg.jpg" alt="" width="664" height="450"/>Nepal Rastra Bank’s report last month was badly timed — it was a bad idea to sound a warning that Nepal is going belly up just as the country was grinding to a halt for a month of Dasain-Tihar-Chhat festivals.The indicators were ominous: Nepal’s foreign currency reserves fell to $11.1 billion in September, much below the figure for last year and only enough to pay for 8 months of imports. There has been a 76% increase in the import bill to a record Rs352 billion last fiscal year — despite a pandemic slowdown.In the first two months of this fiscal year, <a href="https://www.nepalitimes.com/banner/defying-predictions-nepals-remittances-still-high/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/banner/defying-predictions-nepals-remittances-still-high/&amp;source=gmail&amp;ust=1636429484700000&amp;usg=AFQjCNHKGPEf-eEDtwjn0f_p_HMzrqYQGw">overseas remittances that had held steady despite the pandemic</a> went down by 6.3% to Rs155 billion.One of the holy days of Tihar last week was dedicated to Goddess Laxmi, and many prayed for individual wealth and prosperity. We should have been praying for the country’s economic survival.Just those two figures for falling remittances and rising imports should have been enough to sound the emergency alarm. But fatalism is so steeped in Nepal’s governance culture that we hope things will sort themselves out.After all, if things go really wrong, Pashupatinath will come to the rescue. But the Lord Protector of Nepal must be shaking his head at the disarray of the state.We have come to expect lack of accountability in self-dealing politicians and elected officials, but the judiciary used to be relatively untainted and independent.The violation of the principle of separation of powers by <a href="https://www.nepalitimes.com/latest/what-is-happening-to-nepals-supreme-court/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/latest/what-is-happening-to-nepals-supreme-court/&amp;source=gmail&amp;ust=1636429484700000&amp;usg=AFQjCNG-raVzHQQBlpr5oUCza97BMC7wkA">Chief Justice Cholendra SJB Rana</a> and the mutiny in the Supreme Court has dragged the judiciary also into dysfunction.With the court system paralysed, Rana has been reported to be looking for a ‘graceful exit’, and apparently proposed a leave of absence until his term expires. The <a href="https://www.nepalitimes.com/latest/who-wants-early-elections-and-why/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/latest/who-wants-early-elections-and-why/&amp;source=gmail&amp;ust=1636429484700000&amp;usg=AFQjCNHWRzSQmjSbl2C65i3KvLsEqN0uUA">top leadership</a> of the main parties have been silent about the fate of Chief Justice Rana, who after all was instrumental in overturning K P Oli’s dissolution of the Lower House which <a href="https://www.nepalitimes.com/here-now/nepal-court-orders-deuba-to-succeed-oli/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/here-now/nepal-court-orders-deuba-to-succeed-oli/&amp;source=gmail&amp;ust=1636429484700000&amp;usg=AFQjCNHI-krjS3d3YX690askSFTe2LB0vA">put Deuba in office</a> on 14 July.They also have all kinds of pending cases in the Supreme Court, and do not want antagonise a Chief Justice in case he survives this crisis. Rana has reportedly used the holidays for intense political lobbying through emissaries. That would likely entail a quid pro quo over not starting an impeachment process in Parliament in return for future favours.Whether Rana remains chief justice or is forced to step down is mixed up with politics — after all it was the failure of politicians to sort out their power struggles in Parliament that allowed the judiciary to have such a magnified role in who gets to be in government and who doesn’t. There is so much corruption and vested interest in the political nominations to the Supreme Court that just removing Chief Justice Rana will not stem the rot.Besides, the real emergency Nepal faces today is not about who succeeds Rana or if the coalition remains intact till elections, but the fate of the economy.Remittances pay for imports, and inflows are down and imports are up. Hard currency reserves to finance <a href="https://www.nepalitimes.com/editorial/blood-sweat-tears/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/editorial/blood-sweat-tears/&amp;source=gmail&amp;ust=1636429484700000&amp;usg=AFQjCNH52fe2VOfxxaDWmxbqr8rkJcg-Hg">Nepal’s imports, mainly of petroleum</a>, food and other items are falling. Exports did go up, but the trade deficit rose to Rs270 billion in the past two months.Besides, Nepal’s main item of export is processed palm and soya oil that depend on massive imports of raw material. A <a href="https://www.nepalitimes.com/latest/nepal-less-and-less-able-to-feed-itself/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/latest/nepal-less-and-less-able-to-feed-itself/&amp;source=gmail&amp;ust=1636429484700000&amp;usg=AFQjCNHt2gsBj5b0itg1RhxrL9unH8Y3-Q">growing asymmetry between imports and exports</a> means the balance of payments is now Rs83.4 billion — double what it was in July.Prime Minister Sher Bahadur Deuba pledged at COP26 to reduce Nepal’s carbon footprint, and Energy Minister Pampha Bhusal is pushing for a transition to electric transport. They seem to have finally realised that having a petroleum import bill more than all exports combined is not sustainable.Destructive post-monsoon rains will reduce rice harvests by 20%, which means increased food import. What will we use our remaining foreign exchange reserves for: to buy food or fuel? It might to be an either/or.There does not seem to be a sense of urgency about this emergency in the Finance Ministry. It must act immediately to increase taxes on luxury items, encourage local agriculture production and invest heavily in infrastructure to create local jobs.The economic crisis is a result of political neglect and disarray. Trouble is: we cannot wait for the politics to sort itself out to fix the economy this time.

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Urgency about Nepal’s economic emergency

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221110161132/636d19939c7e80680e0ac827jpeg.jpg" alt="" width="664" height="450"/><figcaption></figcaption></figure>Even as Nepal tries to recover from the impact of the pandemic, the country’s economic indicators released this week by the central bank show dismal performance in the first two months of the fiscal year.The report by the Nepal Rastra Bank shows that Nepal’s foreign currency reserves fell to $11.1 in mid-September, 6.6% below the figure for last year, this is enough to pay for only 8 months of total imports.Even more worrying is that <a href="https://www.nepalitimes.com/banner/defying-predictions-nepals-remittances-still-high/" target="_blank" rel="noopener noreferrer">overseas remittances that had held steady despite the pandemic</a> for the past two years have now started declining. Nepalis abroad sent home Rs155 billion in the past year, which is 6.3% below the same period last year.Despite the pandemic, remittances had risen by 8.1% in fiscal year 2019-2020. Experts attributed that to overseas workers sending money home as the economic crisis hit families back home, and not necessarily due to higher earnings.The concurrent decrease in foreign currency reserves to finance <a href="https://www.nepalitimes.com/editorial/blood-sweat-tears/" target="_blank" rel="noopener noreferrer">Nepal’s imports, mainly of petroleum</a>, food and other commodities, is seen as an indicator of an impending economic crisis. The main reason for the current downturn is shrinking remittances, which prop up Nepal’s economy.Indeed, compared to 2019-2020, the past year has seen a steep 76% increase in imports to a record Rs352 billion, mainly due to a rise in the import of petroleum products, gold, silver and other items, according to Rastra Bank figures.Even though exports went up by 115% in the same period to Rs44.4 billion, it did not put much of a dent on the trade deficit which has risen to Rs270 billion in the past two months of the fiscal year. This represents a 71% increase in the trade gap compared to last year.The <a href="https://www.nepalitimes.com/latest/nepal-less-and-less-able-to-feed-itself/" target="_blank" rel="noopener noreferrer">growing asymmetry between imports and exports</a> means that the country’s balance of payments situation is now Rs83.4 billion in the red — up from Rs38.7 billion in July.With the alarm bells ringing, the government has drastically reduced the amount of money Nepalis can officially exchange before traveling abroad from $1,500 to $200-500. This week, further austerity measures were announced, including a ban on the purchase of vehicles for official use.The negative trend in economic indicators could not have come at a worse time. Just as the country was recovering from the <a href="https://www.nepalitimes.com/banner/the-real-cost-of-nepals-second-wave/" target="_blank" rel="noopener noreferrer">economic impact of the pandemic</a>, it was hit by extreme rainfall this month which killed more than 110 people across the country, and destroyed up to one-third of the country’s ready to harvest rice crop.The Ministry of Agriculture estimates that nearly 90,000 hectares of rice fields were severely damaged by <a href="https://www.nepalitimes.com/latest/post-monsoon-rain-ruins-nepals-crops/" target="_blank" rel="noopener noreferrer">the unseasonal post-monsoon rains</a>, and paddy losses will amount to more than Rs8 billion. Lumbini Province is said to have suffered the worst, with more than half of the initially reported damage nationwide.The unprecedented destruction comes just as farmers and officials were optimistic about a healthy rice harvest because of a healthy monsoon season. Rice is such an important component of Nepal’s economy that it will impact on the GDP, economic growth, and have a knock-on effect on the trade deficit because more rice will now need to be imported.Last year Nepal produced 5.6 million tonnes of rice from 1.4 million hectares of paddy fields, up 1.3% from the previous year. However, rising income levels of Nepalis has also meant that rice consumption is growing, and the country had to import Rs 51 billion worth of rice last year, compared to only Rs23 billion in 2019.Analysts say the <a href="https://www.nepalitimes.com/here-now/are-nepalis-really-eating-more-rice/" target="_blank" rel="noopener noreferrer">sharp increase in rice imports</a> cannot be attributed only to rising consumption, explaining it by the rise in demand from Nepal’s breweries and the dramatic rise in domestic beer consumption.

Nepal’s remittances, forex reserves drop

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221109191124/636bf0a94b0ad905ca02f024jpeg.jpg" alt="" width="1618" height="1000"/><figcaption>Pushpa Kamal dahal and K P Oli factions within the ruling Nepal Communist Party is on the verge of a formal split. Illustration: BHANU BHATTARAI</figcaption></figure>After a year of stagnation due to the Covid-19 crisis, Nepal’s economy has just started getting back on track. But political uncertainty once more threatens to derail it.Just as Nepal Rastra Bank put out an optimistic economic report last week, Nepal plunged once more into instability as the ruling Nepal Communist Party (NCP) <a href="https://www.nepalitimes.com/latest/nepals-1-party-2-central-committees-system/" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/latest/nepals-1-party-2-central-committees-system/&amp;source=gmail&amp;ust=1609215418397000&amp;usg=AFQjCNFz9xXx-qQQ18yjS74HPf9Ap1Xpdg">headed for a split</a> after Prime Minister Oli’s dissolution of the Lower House on 20 December.All macro-economic indicators were looking up: foreign exchange reserves and balance of payment situations have improved, the trade deficit has narrowed, remittances from Nepali workers overseas is robust, bank lending rates are going down, and as economic activity picks up even tax revenue is looking satisfactory.Imports of industrial raw materials have hit Rs38 billion in November, which is only slightly lower than last year, and capital investment is back to pre-Covid levels indicating that the wheels of the economy are starting to turn again.All these are indications that despite Covid-19, Nepal’s economy has not been hit too badly — at least at the macro level. However, the dissolution of the Lower Home last week, daily protest rallies on the streets, and <a href="https://www.nepalitimes.com/editorial/step-back-from-the-brink/" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/editorial/step-back-from-the-brink/&amp;source=gmail&amp;ust=1609215418397000&amp;usg=AFQjCNHlqurvAcevQGFke2PyBadt7SErdQ">moves to split the NCP</a> do not bode well for the economy. Snap elections in April-May next year will be expensive, and will eat a big hole in the budget.<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221109191124/636bf0ac4b0ad905ca02f025jpeg.jpg" alt="" width="1125" height="750"><figcaption>Protests erupted across the country against the Prime Minister’s move to dissolve the House of Representatives early last week. Photos: BIKRAM RAI</figcaption></figure>Three private sector organisations have expressed deep concern about the country being pushed towards uncertainty. They said continuity in economic policy and investment are only possible when politics is stable.“There is a real need now to accelerate infrastructure development, create jobs and spur economic growth, but because the NCP government’s focus is elsewhere, we are wasting the opportunity,” says economist Biswo Poudel.Nepal’s foreign exchange reserves have hit $12.65 billion, the highest ever, and enough to pay for a record 14 months of imports. Most developing countries have foreign exchange reserves only for 4-5 months of imports. Just in the past five months, the treasury added another $1 billion in reserves.While <a href="https://www.nepalitimes.com/business/remittances-from-nepali-workers-rise/" data-saferedirecturl="https://www.google.com/url?q=https://www.nepalitimes.com/business/remittances-from-nepali-workers-rise/&amp;source=gmail&amp;ust=1609215418397000&amp;usg=AFQjCNHNXypcj_xP95YRL0I-zxi7vZNF6A">remittances have defied expectations</a> by not decreasing drastically, Nepal’s imports also fell because of the lockdown. Petroleum imports came down in the first half of 2020, and because there were no tourists, the import of luxury items also fell.Experts say that the foreign exchange reserves should be put to good use to import industrial machinery and capital investment to boost manufacturing and infrastructure, which in turn will generate employment and create lasting downstream benefits for the economy.Says Poudel: “We are not putting this huge foreign exchange reserve to productive use. It is being wasted.”<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221109191124/636bf0af4b0ad905ca02f026jpeg.jpg" alt="" width="1125" height="750"><figcaption></figcaption></figure>Nepal’s current account position is also finally looking healthy after four years of recurring deficits. This year, the current account savings were at Rs20.46 billion, indicating that the deficit fell sharply this year because of the drop in imports. Similarly, the balance of payments is also looking better than previous years because imports fell by 10.6% in August-November, and exports rose by 10.8%.The average bank lending rate has fallen to 9.5% this year compared to last year’s 12%, and this could encourage investors. Says economist Keshav Acharya: “This is the perfect opportunity for those interested in starting quality medical care, better schools, and financing infrastructure and manufacturing.”In fact, there is no lack of money in Nepal, what the country lacks is the capacity to spend. The government wastes billions every year on infrastructure projects that never get built. Even in the first five months of this fiscal year, only Rs35.1 billion has been spent, which is 10% of the development budget.Economist Poudel says the government has enough resources to accelerate the construction of 500km of fast-track highways. “You need the political will to go ahead with it, and the slow pace of work on infrastructure is proof that such political will is absent,” he adds.Indeed, there are several hydropower projects with 700MW capacity under construction, but no one seems to be in a hurry to complete them because of delays in putting up transmission lines. Similarly, the Kathmandu-Tarai expressway, Melamchi Water Supply Project, Tama Kosi Hydropower project, Sikta Irrigation and the Mid-Mountain Highway are all languishing.Prolonged political uncertainty will delay these projects further, and remove the benefits that Nepal can accrue from its healthy macro-economic position.

foreign-reserves

Urgency about Nepal’s economic emergency

Nepal’s remittances, forex reserves drop

Instability to cost Nepal dear in 2021