Skift Take

An economic crisis is looming, with the nation's recovery now hampered by inflation and rising oil and coal prices in the wake of the Ukraine war. Not exactly a welcoming pitch for tourists.

Nepal will fall short of its growth target, a top government official said on Thursday, underscoring the troubled state of an economy grappling with a pandemic-induced loss of tourism, a widening trade deficit and soaring commodity prices.

This month, the Himalayan nation of 29 million people imposed curbs on imports of luxury goods in a bid to rein in outflows of its dwindling foreign exchange reserves and suspended its central bank governor, stoking concerns about a potential economic crisis.

Nepal’s GDP target of 7 percent growth for the financial year to mid-July will be missed and growth could be “limited to only 4 percent,” a senior government official with the direct knowledge of the matter told Reuters.

The official was not authorized to speak to media and declined to be identified.

Sky-high prices for crude oil, coal and edible oils in the wake of Russia’s invasion of Ukraine have battered Nepal’s economy which had been gradually recovering from large losses of tourist dollars during the pandemic.

Deependra Bahadur Kshetry, a former central bank governor, said the biggest worry was the country’s widening trade deficit which could grow to equal the size of the government’s annual budget.

“This is an alarming trend and needs to be controlled,” he said.

The trade deficit expanded 34.5 percent year-on-year to 1.16 trillion Nepali rupees ($9.5 billion) in the first eight months of the fiscal year as import costs surged.

Fueled by higher commodity prices, surging inflation is also making life much tougher for many Nepalis. Kshetry said retail inflation, currently at a five-year high of 7 percent, could reach double-digit figures by the end of the financial year.

“If prices continue to increase this way it will be difficult for ordinary people like me to survive,” said Sita Magar, a 35-year-old house maid in Kathmandu.

She added that her monthly income of $90 can barely cover her daughter’s school expenses and two simple meals of rice and lentils for them each day.

Nepal’s economic woes have draw comparisons with Sri Lanka, though the situation in Colombo is much more severe. The country faces a sovereign default and its economic crisis has prompted protests calling for the ouster of President Gotabaya Rajapaksa.

In its South Asia report, the World Bank on Wednesday warned rising global commodity prices could cut Nepal’s growth by 0.2 percentage points this fiscal year to 3.7 percent and 0.4 percentage points next year to 4.1 percent.

(Reporting by Gopal Sharma; Additional reporting by Manoj Kumar; Editing by Edwina Gibbs)

This article was written by Gopal Sharma from Reuters and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].

Tags: coronavirus, covid-19, inflation, nepal, russia, tourism, ukraine

Photo credit: Nepal's economy is still grappling with a pandemic-induced loss of tourism. Avel Chuklanov / Unsplash