November 1: Stating that Nepal’s situation is not as dire as that of Sri Lanka, the World Bank has suggested removing the ban on the import of the some luxury goods. The government had banned the import of 10 items including personal vehicles, expensive mobile phones, readymade liquor, high-capacity motorcycles, playing cards, diamonds, tobacco products, and large-sized televisions since April due to the pressure on foreign exchange reserves.

Although the ban on the import of 6 out of 10 items has already been lifted from the last week of August, ban on the import of cars, jeep, vans, readymade liquor, motorcycles of more than 150 cc capacity and smartphones worth more than 300 USD still continues.

The World Bank suggests that the ban on imports should be removed to strengthen the country’s economy. Releasing the Nepal Development Update report, the bank emphasized on the need to increase the policy interest rate stating that increasing the policy interest rate will discourage imports.

Similarly, the World Bank also asked to impose value added tax in the areas where excise duty and customs duty are imposed. In the 51-page report, there are suggestions to reduce the list of items that are currently subsidized by increasing the price, to increase the spending capacity of the local level and the province, to increase the internal consumption of electricity, to cooperate with countries like India and Bangladesh to bring investment in hydropower sector, and to improve the foreign investment policy.

World Bank’s economist Alice J Brooks said that although there are rumors of Nepal's situation becoming similar to that of Sri Lanka, the reality is rather contrasting. She reassured that even though there were some problems due to the economy weakened by Covid-19 and the high pressure on imports, Nepal’s economy is currently improving.

Brooks said that the government's debt is 42 percent of the gross domestic product (GDP), imports are decreasing and the positive improvement in foreign exchange reserves shows that Nepal's economy is improving. She said that the foreign exchange reserves are positive as they can sustain imports for at least 7 months. The World Bank suggests that necessary policies should be made in time as climate change has a major impact on Nepal's agriculture and other sectors. The report mentions that the recent changes in weather may affect Nepal's infrastructure and foreign employment.

The World Bank warned that the impact of climate change has already started to be seen in agriculture and it may directly affect Nepal's hydropower as well. The bank says that global temperature increase will have a direct impact on power plants based on river flow system. As per the World Bank, “Electricity is a sector with great potential in the Nepali economy. Affecting it means directly affecting the economy.” It added that it has been providing financial and policy support in climate change control and is ready to cooperate further.

The micro-fiscal model prepared by the World Bank was also handed over to the Government of Nepal. The World Bank has been using this model to prepare the Nepal Development Update as well as in economic and monetary analysis.