The troubles for South Asia show no signs of stopping. As if the crisis in Pakistan and Sri Lanka was not enough, another of India’s neighbors, Nepal, is in economic trouble. The government’s decision to form a committee to probe the actions of Nepal Rastra Bank Governor Maha Prasad Adhikari, which led to his automatic suspension, has brought up the debate on Nepal’s economic crisis besides intensified the political blame game. Many experts were saying that Nepal’s economy is heading towards a crisis. “
Nepal crisis was very much expected as the World Bank had speculated about it in its global economic prospect report in January 2022. The report identified the crisis emerging due to macroeconomic imbalance, rising income inequality reciprocated into unexpected uncertainty.” The restrictions on the import of non-essential goods have been followed by instructions to all banks not to issue Letters of Credit for the import of items and services deemed non-essential. An NRB spokesperson justified the move last week saying, “something had to be done to discourage such imports.” The decision comes against the backdrop of the removal of NRB Governor Maha Prasad Adhikari for allegedly leaking sensitive information to the media, a move which is harmful for the Nepal government to global lending institutions that place a duty on a country’s commitment to ensuring autonomy for its central bank.
The World Bank and the International Monetary Fund are also likely to be concerned about reports ~ echoed by former Prime Minister and Opposition leader KP Oli ~ that Mr Adhikari was punished because he refused to accept finance minister Janardhan Sharma’s “request” to release an amount of $3.2 million thereby thwarting the minister’s alleged attempt to “eat up” illicit funds that were transferred from a foreign account. Mr Oli has also accused the government of using the economic crisis as an excuse to postpone local elections. Politics aside, there is no denying the fact that the NRB’s figures paint a grim picture of the country’s economy. Its foreign reserves have reduced by more than 18% to $9.6 billion from $12 billion in just eight months. With this, the country could only purchase the merchandise goods for around six months.
According to the Asian Development Bank, debt has surged to 41.4 per cent of Nepal’s Gross Domestic Product as the government seeks to increase spending to mitigate the impact of Covid-19. Additionally, in the first 8 months of the fiscal year 2021-2022, inflation hit a 67-month high of 7.14%. As per the Nepalese government statistics, its remittances dipped by 3 per cent to $5.3 billion between mid-July 2021 to mid-March 2022, against a rise of 5% in the same period in the previous year when Coronavirus was at its peak in the country. As per locals in Nepal, it would have gone up had Russia and Ukraine not taken place. The war between the two countries has prevented European footfall in Nepal. Nepal is paying a high cost for oil import, which constitutes 13 per cent of the total import. The surge in fuel prices has had a cascading effect on the price of commodity goods. If the country fails to maintain its foreign currency reserve, there could be a liquidity crisis which often leads to economic crisis.