Nepal’s economic challenges are real, but suggestions that it is already in deep crisis and may be going the Sri Lanka way are probably premature, unfair and unjustified. The surging trade deficit remains a big concern as it is expected to reach $18 billion this fiscal year. A Balance of Payments (BoP) deficit and a spiralling debt liability will pose a very grave risk to the economy that is already in deep trouble. Nepal’s central bank statistics show the country’s inflation averaged 7.14% in the current fiscal, which is the highest in the last 67 months.
Emerging scenario
There are other worrying trends. The country’s debt to Gross Domestic Product (GDP) ratio has crossed over 40% as of the second quarter of the current fiscal year. What is needed is a prudent fiscal management plan. So is the need to boost demand and empower Micro, Small and Medium Enterprises (MSMEs) with soft institutional liquidity support. To emerge from the shocks caused by the BoP deficit to the tune of NR258.64 billion, the decrease in remittance inflow and the fall in the country’s foreign exchange reserve by 16.3% to NR1,171 billion (in mid-March 2022 from NR1,399.03 billion in mid-July 2021), industry needs hand holding by the government and a rationalisation of taxes. Such a collaborative effort will help in increasing national economic productivity and mitigating the systemic risk on the economic front.
