Nepal is heading the Sri Lanka way and there’s every possibility but the only thing that can save Nepal is a change in policy at the right time.
After being hit by China for the Virus accompanied by rising oil prices like the rest of the world and thanks to the Russia-Ukraine war. Unlike the rest of the world, Nepal has suffered Political instability and with weak economic fundamentals, it is caught in China’s debt trap.
Ban on import of luxury goods.
Ban on Lays, Kurkure, and Playing cards.
The import ban is to save its economy and conserve Nepal’s forex reserves.
After Sri Lanka, Nepal is going through a pretty bad phase of the financial crisis and is to run out of dollars.
Why Nepal is running out of Dollars?
There’s a new economic trend in south Asia i.e., going the Sri Lanka way but this time trouble is in India’s north. Nepal’s tragedy is ominously similar to Sri Lanka accompanied by falling foreign exchange, no tourism, and no remittances.
Nepal is a looming forex crisis but with the advantage of time. Nepal still has time to try new policies but Nepal’s government is going through an import ban. 10 goods have been identified so far which fall under two categories:
Non-essentials ex: – Liquor, cigarettes, mobiles worth more than $600, diamonds, tv sets over 32 inches, foreign vehicles, lays, Kurkure, toys, playing cards. All of these goods can’t be imported to Nepal.
It may sound like a joke but what difference will it make by not importing playing cards?
The items listed above demonstrate how every penny of foreign exchange is crucial for Nepal at this moment but the Nepalis have their thing about playing cards, what’ll happen to it?
According to stats, in the last 5 years, Nepal imported 66.2 million packets of playing cards and paid around $8 million for it.
The government says the ban is temporary and will last until mid-July to improve the situation but how did Nepal Land itself into this mess?
A small country in the footsteps of the Himalayas, how did they run out of forex reserves?
There may be many reasons s highlighting this paradox Nepal is in but there’re four reasons:
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Wuhan virus pandemic
Like Sri Lanka, Nepal is also dependent on tourism, which makes up around 8% of its GDP. When tourists visit, they bring foreign exchange with them and they spend money but unfortunately in the last two years that didn’t happen.
In 2019, 1.2 million people visited Nepal which fell to 230,000 in 2020 and further to 150,000 in 2021.
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Falling remittances
Around 3.5 million Nepalese work outside the country and most of them in southeast Asia. Before the pandemic, they used to send money, a home which was valuable foreign exchange but after 2019 it acquired snail’s pace.
Last year Nepal’s remittances fell around by 5%.
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Rising imports
In the last few years, Nepal reports imports rose by 38%, and the year before they rose only 2%.
To import more you need to spend more forex and that’s what Nepal did.
Talking about numbers, in July 2021 Nepal’s forex reserves were around $11 billion but in march 2022 it was down to $9 billion, a drop of 18% inside 365 days. This means Nepal can’t offer to splurge on foreign exchange but they’ve enough to cover 6 months of imports.
War in Ukraine has made things worse because Nepal’s biggest import is oil and in the last 9 months, they’ve spent $1.5 billion on oil.
Changes like these are not new to Kathmandu as these problems have affected every country but why does it seem like Nepal is following the trails of Sri Lanka?
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Lack of economic resilience
Very little foreign investment accompanied by very little industrialization has primed the pandemic to shatter Nepal’s economy. Their leaders too deserve the blame.
The political crisis of 2020, then again in 2021, and all the tantrums were thrown by KP Sharma Oli which has been the feature of Nepal’s politics. Instability and fighting which the foreign investors hate because they prefer a stable and rational politics something Nepal has struggled to achieve.
Conclusion
This is where things stand in the Himalayas but not as bad as in Sri Lanka.
The last two years have been challenging, revenues have fallen and expenditure has been rising and some loan sharks like China rubbed salt into the wound.
