The story of Nepal’s economic crisis started in 2015 when in a massive earthquake, the country witnessed loss of over 8000 lives and infrastructure worth over 10 billion USD. To rebuild the country, Nepal government had to take loans from Asian Development Bank as well as World Bank over next four years. This can be understood by the fact that pre-earthquake, the external debt of Nepal was just 5.2 billion USD which grew to about 10.2 billion USD by 2019. Further, when the repayment period started in 2019-20, the world was hit by COVID19 pandemic and not only tourism but overall exports of the country were affected too resulting in piling up of debt further to 12.5 billion USD by 2022.
The collection of revenue in Nepal is also affected in last five years or so. The average revenue collection over this period ranged between 75-80% of the target which is burning holes in the Nepalese economy too. While at the same time, Nepal’s forex reserves had decreased 17 per cent to USD 9.75 billion from USD 11.75 billion in mid-July 2021. Although it is not so critical but a matter of concern for sure.
Till 2015, the country was doing well and had a positive balance of payment account but things become complicated when KP Sharma Oli took over the reins of the country. He signed for Chinese Belt and Road Initiative (BRI) in 2017 and started inviting heavy Chinese investments in the country without any realisation of future complications. As he was considered a Chinese stooge, China invested largely in several infrastructure projects which did not have any worth to Nepal. Some of these projects were like Damak Clean Industrial Park (DCIP) in Jhapa, China-Nepal Agricultural Technology Corporation and many more. Not only this, overall imports during Oli government were also at all-time high without any farsightedness. At one time China overtook India to be the highest FDI provider to Nepal however soon after the government led by KP Sharma Oli was sacked, things started taking a positive turn.
Recently Nepal government took some harsh decisions to curb imports and reduce dependency on foreign currency which will deliver results soon. Petroleum products are largest import items of Nepal accounting for nearly 15 per cent of Nepal’s entire import figures. Further, due to ongoing Ukraine Crisis, price of crude oil has become dearer. Hence, Nepal government has banned government vehicles from plying on holidays which will slash the fuel consumption by 20 per cent overall. Further, Nepal has stopped issuing the letter of credits (LC) against luxurious imported items and announced a ban on the import of vehicles and other luxury items, citing liquidity crunch and declining foreign exchange reserves. There are other austerity measures too which will benefit the economy and help it to stabilise in next 3-4 months.
Nepal has seen many ups and downs in the past. The Himalayan country being situated between two arch-rivals India and China had to face decision making challenges several times during its recent history and now engulfed in an economic crisis. Although Nepal is not the only country to face this. COVID19 pandemic coupled with the Ukrainian crisis has put several other economies of the world too on the brink of collapse but Nepal has lot of positive avenues. It is a land of Gorkha fighters and will emerge as winner to the current economic crisis too. Present government is competent enough to fight this and they have shown their intentions by ordering strict measures in the country