Government seems unconcerned economic problems about

Abhilasha Rayamajhi
Kathmandu

T he economy is in tatters. After suffering the massive earthquake in April 2015 the ongoing political deadlock and economic blockade is creating havoc with the economy and worsening things for the country.
The private sector had pinned its hopes on the new constitution which was promulgated on September 20, 2015. However, the economic situation worsened sharply due to the protests and disruption in supply of essential goods. Even today there is an acute shortage of fuel and other basic amenities.
Impact on every sector “ The economic blockade is causing severe damage in the financial system, more serious than the earthquake and its aftermath.
There is only 30 per cent of occupancy in hotels; trade and commerce is adversely affected, construction and development projects are halted and agriculture is facing a major deadlock,” said Prof Dr Bishwambher Pyakuryal.
Supply disruption and the fuel crisis that began on September, 2015 has led to the shutdown of 90 per cent of industries all over the country. More than 60 per cent of business that takes place during the festive season also failed to take off. The agricultural sector that employs more than 70 per cent of the population today also faced challenges, first because of the earthquake and later due political unrest and economic depreciation.
Upendra Poudyal, President of Nepal Banker’s Association, said that both the government revenue collection and expenditure has decreased due to the ongoing crisis. He said, “ The government has not been able to invest in development projects due to obstruction in the supply of construction materials. This has a direct impact on credit flow and employment opportunities.” “ The energy sector is mismanaged and the country cannot develop if the energy sector fails to function properly,” said Er Gyanendra Lal Pradhan, Chairman, Energy Committee FNCCI. “ The government claims it will end power cut within one year but this is not feasible at all,” he said.
Talking about the inefficiency of the government, he questioned, “ Is there even a government in our country?” He further recommended that a team of experts in every sector be brought together to formulate and plan the strict execution The Financial Comptroller General Office reports that the government in the first six months of the current fiscal year was able to spend only 7.18 per cent of the total capital expenditure budget.
Pashupati Murarka, President of the Federation of Nepalese Chambers of Commerce and Industries ( FNCCI), said, “ It seems that the government is not serious about mitigating the political turmoil that has severely hindered economic activities. We have been continuously lobbying with the government to make a commitment to relieve businesses from the difficult predicament they are finding themselves in due to political unrest.” He estimates that it will take around five to 10 years for the economy to recover completely. He said, “ The economy can bounce back to normal only if a safe and secure business environment is ensured and market regulated strictly.” Tourism decline The tourism sector provided 3.5 per cent of total employment by generating 4,87,000 jobs in 2014 and attracted approximately 8,00,000 tourists, according to World Travel and Tourism Council ( WTTC) and research partner Oxford Economics.
However, the massive disaster and continuous political strife has decreased tourist arrivals to 4, 00,000, which is a sharp decline.
DB Limbu, Immediate Past President of Nepal Association of Tour and Travel Agents ( NATTA), said, “ Given the fuel crisis, it is difficult for us to retain whatever limited number of tourists we have left today. It seems that resolving the political unrest is the only concern of the government at the moment.
They may have a recovery plan but is yet to show any urgency to help the tourism sector,” he said.
Heading towards stagflation The inflation rate which was within single digits till October, 2015 was reported to be 10.4 in November, 2015. The most recent NRB report puts inflation at 11.6 per cent. This has led to a steep rise in the cost of food items, clothing materials, educational fees and other daily necessities. Citing the negative impact of inflation, Pyakuryal said, “ Double digit inflation economic growth indicates stagflation and hyper inflation.” He explained that hyper inflation is a condition where price increases are so out of control that the concept of inflation is meaningless.
Similarly, stagflation is a situation caused by slow economic growth and high unemployment accompanied by inflation and decline in Gross Domestic Product.
Normally, inflation can be controlled if the growth of money supply is contracted. This can be done by decreasing bond prices and increasing the interest rates.
However, during hyper inflation this policy does not work.
Pyakuryal added, “ In a situation of hyper inflation the growth percentage in the prices of goods and services cannot be calculated. The cost solely depends on the sellers and there are no fair market prices at all.” He said black marketing has a huge adverse impact on the economy as it does not contribute, in any way, to the real economy.
What needs to be done? Considering the hardships faced by the private sector, Nepal Rastra Bank ( NRB) announced relief packages on borrowings. The central bank also waived charges imposed by banks and financial institutions ( BFIs) on delay in loan repayment till mid- January, 2016 ( second quarter of the current fiscal).
According to reports, banks and financial institutions can arrange their loan- loss provision accordingly, which means no additional loan- loss provision will be needed till the second quarter.
According to Poudyal, the financial sector should now focus on the development of industries that have a comparative advantage over giant global economies. He said, “ We cannot compete with other countries in terms of large manufacturing industries. Our emphasis should definitely be on small and medium scale enterprises ( SMEs) that are agro- based, the energy sector, tourism sector and other entrepreneurial ventures.” He said that the focus should be on investment in SMEs because they have the potential to turn into large scale industries that can benefit the economy in the long run.
The economy of the nation is import based and now, more than ever, it must convert to becoming production oriented.
Political crisis and fuel and energy shortages crippling economy Illustration: Ratna Sagar Shrestha / THT “ The government claims it will end power cuts within one year but this is not feasible at all.” Er Gyanendra Lal Pradhan, Chairman, Energy Committee, FNCCI “ The government has not been able to invest in development projects due to obstruction in the supply of construction materials. This has a direct impact on credit flow and employment opportunities.” Upendra Poudyal, President, Nepal Banker’s Association “ It seems that the government is not serious about mitigating the political turmoil that has severely hindered economic activities.” Pashupati Murarka, President, FNCCI

(The printed version was published in The Himalayan Times- Perspectives, January 24, 2016.)