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Is Nepal heading for a full blown economic crisis?

After Sri Lanka, concerns rise over Nepal's rapidly deteriorating macroeconomic indicators

After Sri Lanka’s debt default, concerns are rising over Nepal’s macro economic indicators with rising inflation and balance of payment (BoP) deficit coupled with depleting foreign exchange reserves. In March the inflation rate was 7.14 per cent—the highest in 67 months. Though the country’s finance minister Janardan Sharma said that there was no economic crisis, sources said that the government is looking at measures to reduce its import bill. The flow of remittance has slowed down as well.

Hit by rising oil and commodity prices in the wake of the Russia-Ukraine conflict besides fast depleting foreign exchange reserves, Nepal has now announced restriction of imports of non-essential goods. These include cars, gold and cosmetics.

A World Bank report said that Nepal’s inflation is accelerating due to higher non-food inflation. Non-food price inflation rose with higher transportation prices associated with the increase in global fuel prices, alongside increased educational fees, and housing prices, it said, adding that government policies to subsidize the electricity tariff for lower-income households and liquefied petroleum gas prices has helped to keep inflation manageable despite increasing global commodity prices.

Recently, the government suspended Maha Prasad Adhikari, governor, Nepal Rastra Bank—the country’s central bank, citing the deteriorating economic situation in the country and rising disagreements with Sharma. The relationship between the two particularly nosedived in the last six months. Following his suspension Neelam Dhungana Timilsina, who was earlier deputy governor, has taken charge of the central bank.

According to the Kathmandu Times, Tribhuvan University professor Ram Prasad Gyawali said that the country is heading for a crisis with falling foreign reserves.

“All external indicators, including trade deficit, remittance, service imports and BoP are negative,” the newspaper quoted Gyawali as saying.    

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