Nepali Times
Publisher\'s Note
Life support


Politics has pushed everything else off the headlines. We don't worry about what we don't see, but Nepal's deepening economic crisis is much more worrying than the political disarray.

No doubt the two are interlinked. Political stability is a prerequisite for investment, economic growth and sustained development. Chronic economic stagnation, on the other hand, can only have a corrosive impact on politics and fuel future instability.

Financial analysts are still debating whether to call the country's current cash flow problem a full-blown 'crisis' or just a 'crunch', but for ordinary Nepalis semantics don't really matter. Jobs are harder to get, even employment abroad has shrunk, sugar and other basic items cost nearly double as much as last year. The cost of financing for companies that have borrowed from banks is up 30 per cent, and very soon businesses are going to start going belly-up.

Yet the biggest irony is that one of the world's poorest countries imported Rs 45 billion worth of gold last year. We all know the nuggets and ornaments were destined for the Indian market. The trouble is that the payment for the exported gold didn't really come back to Nepal, but stayed abroad. By the time Rastra Bank banned gold imports earlier this year, it was too late.

The reason for the crisis is simple: we are spending beyond our means. The import bill for petroleum, vehicles and gold has surged and will probably be nearly double that for last year. But exports are down sharply from last year and revenue from remittances is stagnant. Nepal's balance of payments deficit will exceed Rs 20 billion this fiscal year.

One of the reasons the country's economy hasn't collapsed completely is because it is on life-support due to the Indian rupee peg. The shortage has already created a black market for Indian notes. But lift the peg and we could see Zimbabwe-style hyperinflation. Banking used to be relatively robust, but even the financial sector is feeling the strain of the real estate bubble and the drop in remittances. Capital flight has made things worse as Nepalis snap up apartments in Hong Kong instead of Hatiban.

There is no quick fix. These are structural problems that have built up over decades. But we have to start by cutting imports and increasing revenue. We can ensure higher earnings from tourism, revive remittance flows and increase exports. We may have to contemplate cutting imports of luxury items and injecting liquidity into the market to bring down interest rates. We shouldn't repeat last year's mistake of delaying the budget by six months.

There is one short-term measure to rescue the economy and it is one we can take immediately: resolve the political stalemate.




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1. Daniel Gajaraj

Economic Crisis is growing. Indian currency is in acute short supply.Import of luxury items  expensive cars ,gold etcs are increasing at a very fast  rate. It is high time to take  austerity measures,actions to check and control this kind of situation.Why not allow people to open account in the  local banks in Indian currency, when one can open in United States Dollars?Do,nt ask about the source as in Switzerland or elsewhere.Maintain interest rate in line with Indian banks as the currency is pegged with them. Make custom entry in the borders easy. Introduce CCTV CAMERAS  ,to avoid police harassment to tourists. Allow Free entry for Indian  Vehicles. Forget reciprocity at such times,do it unilaterally.Promote tourism in our nearby countries as the South East Asian countries. Catch some fish by thorowing your net nearby , do,nt throw your net far and catch nothing. Concentrate your efforts in India and China instead.

 



2. R RAI
Thank you very much for a very timely and relevant publisher's note. However,are our political leaders really bothered?

3. Arthur
Ummm, so what happened to the usual demands that the Maoists do this, that and the other?



LATEST ISSUE
638
(11 JAN 2013 - 17 JAN 2013)


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