Located on the two ends of the Indian subcontinent, north-eastern Nepal is suffering from the same illness that is ailing Sri Lanka: a severe and likely the worst economic crisis, compounded by the Covid-19 pandemic.
Like Sri Lanka, Nepal is heavily dependent on tourism and export of limited commodities for foreign exchange reserves that the country needs to meet its import expenditure.
While some of the measures that the Sri Lankan government took during 2019-21 have led to its current situation, in Nepal, the political crisis last year expedited the economic crisis in the country.
The Sri Lankan government announced massive tax cuts reducing its income and took measures such as banning chemical fertilisers to promote organic farming. As a result of this, the country’s main crop, paddy, failed. Revenue dwindled and Sri Lanka ran out of money to import essentials.
In Nepal, foreign exchange reserves have been declining since July 2021 soon after a political crisis in the country led to the fall of the KP Sharma Oli government. Imports have been surging ever since while the inflow of remittances and earning from tourism and exports has declined.
Nepal’s biggest forex earners were soyabean oil and palm oil even though Nepal produces only a paltry amount of soyabean and not a single drop of palm oil. Import is export here. It gets the benefit of the SAFTA or the South Asian Free Trade Area agreement.
Nepal’s forex reserves declined from $11.75 billion in mid-July 2021 to $9.75 billion in February this year. This is just enough to pay import bills for less than seven months the threshold set as a benchmark by the country’s central bank.