Milan Bishwakarma

April  8: The country’s economy, which was recovering after the Covid-19 pandemic, has once again plunged into crisis. The situation has worsened when the economy battered by the impact of Covid-19 for 2 years was gradually clawing back to normalcy.

The economy has been pushed to the brink due to various factors including liquidity crunch in the banking system, inflation, energy scarcity, declining foreign exchange reserves among others.

There were ominous signs since the beginning of the current fiscal year that the economy would undergo stress. The Current Macroeconomic and Financial Situation Report published by Nepal Rastra Bank every month had indicated that the economy was on the verge of crisis.

The Balance of Payments (BoP) was in deficit while the foreign exchange reserves were declining since mid-July.

Besides, trade deficit was increasing and remittance inflow was declining. Banks were struggling to manage investible capital since the start of the current fiscal year. Experts say that the economy is already in crisis because the concerned authorities did not take proper measures to address those problems in time. They argue that the economy has been further troubled by the energy crisis and hike in fuel prices of late. They suggested that the government must take measures to ensure that the foreign exchange reserves get replenished.

Foreign exchange reserves are vital indicator of the economy. The economic situation depends on the volume of foreign exchange reserves. Foreign currency is needed for importing goods and services.  It is not possible to import goods and services in lack of foreign exchange reserves. Lately, the economy is in crisis mainly because of the decline in foreign exchange reserves.

Economist Dr Chandra Mani Adhikari suggests that the government must take immediate steps to effectively mobilize the foreign exchange reserves to resolve the current crisis.

“The main crisis faced by the economy at present is the declining foreign exchange reserves,” says Adhikari, adding, “It affects the overall economy. But the government has done nothing to attract foreign currency but has only kept a stock of the currency.”

He suggested the government adopt a policy to attract foreign investment and promote exports and tourism as well as encourage remittance inflow that in turn will earn foreign currency.

According to Adhikari, the government must immediately announce a promotional package to bring the remittance into the country through formal channels.

“Remittance is a good source of earning foreign currency. However, inflow of remittance has declined in recent period. It is said that the remittance is sent through informal channels. Therefore, the government must encourage to bring remittance through formal channels,” he added.

He is of the view that foreign currency can be earned if the expenditure of the projects run with foreign aid is increased.

“Nepal’s economy was in grey zone but it has already entered the yellow zone now and will drift towards the red zone if immediate measures are not taken,” said Adhikari.

Stakeholders of the private sector have expressed their willingness to help resolve the current crisis. They say that they are ready to seek a solution in collaboration with the government.

President of the Federation of Nepalese Chamber of Commerce and Industries (FNCCI) Shekhar Golchha says that the private sector is ready to go for any extent to help the government resolve this crisis.

“This is the time of crisis. We won’t consider profit and loss during such times. We are ready to rise above our business and cooperate with the government,” said Golchha, adding, “But the government must take the private sector in confidence, which is yet to happen.”

Golchha says that the government has held discussion with the private sector in this regard but hasn’t taken any policy-level decision.

Golchha says that the latest move of the government is not helpful in solving the crisis.

“The government has not taken adequate measures to resolve the problem. It has just warded off immediate crisis. It is necessary to involve the private sector to seek a solution to the problem,” added Golchha.

He said that problems have surfaced due to the measures taken by the government to discourage imports all of a sudden.

“It was necessary to take such steps considering the current situation. But it has created additional problems. It is time to rethink if this is a long-term solution or not.”