Economic imperative

As political stalemate grips the country we have not been able to pay attention to a more catastrophic crisis in the making: possible economic meltdown. Our national economy continues to deteriorate and the downslide is so rapid that if the trend continues for a few more months, we may face a full-blown macro-economic crisis. Take for instance, the case of depleting foreign currency reserves. In the last eight months of the current fiscal year, the reserves dried up by Rs 43 billion, leaving just Rs 236 billion worth of foreign currency reserves with the central bank. If you compare this decline, which is 15.6 percent, with the growth rate of 27.4 percent just a year ago, it will give an idea how rapidly things have gone wrong on the economic front.



This decline in foreign currency reserves is caused by a number of factors. First, Nepal´s exports have taken a nosedive and the situation is further compounded by an accompanying explosive growth in imports. During the last eight months, our trade deficit (difference between export and import) expanded by 61.2 percent to reach Rs 213.33 billion. Nepal never had a surplus in foreign trade, but things didn´t appear as bad during the past few years as they do now because remittance inflow was always there to make up for the wide trade deficit. But remittance inflow remained very weak during the last eight months and failed to offset the loss in foreign currency reserves resulting from negative foreign trade.



By now one thing has become amply clear: remittance alone will not be able to anchor our macro-economic balance for long. The decline in our traditional exports, our inability to produce new exportable items and the rapid growth in imports suggest how rapidly the economy is losing its productive capacity. We are now importing not just manufacturing products, but huge quantities of agro-products as well. Last year, we imported about Rs 5 billion worth of meat products, Rs 4.5 billion worth edible oil and a huge amount of pulses. This means, we are now depending upon imports for items produced in factories and on farms alike.



We believe that governments are often just bystanders to colossal trends and shifts-- both economic and social-- that define society. But the state has a big role to play during times of great social and political instability. The decade-long insurgency and the lingering political instability since the end of the war in April 2006, have greatly weakened our national economy. The state should have played a leading role in stimulating the economy but fractious politics has only aggravated the economic downslide. Industrialists and businessmen do not have confidence in the political class, nor do they have any incentive to invest further. Though there are no official figures, banking officials claim that capital flight is huge, and unabated. The present political crisis and the ongoing general strike will take a further economic toll. The politicians must understand the economic imperative to end the political crisis sooner rather than later. Or else they will not be able to stave off total economic meltdown.

Related story

Channelize remittances for sustainable economic growth