Effect Of Instability

The economy is bearing the brunt of insurgency, political instability, rising oil prices and suspension of aid by key agencies

By SANJAYA DHAKAL

Factory workers : uncertain future

A number of internal and external developments have ganged up to further bleed the already ailing economy. The economy is set to face even harder times ahead as there seems to be no end to the rising prices of oil in the international market. As the current price of the petroleum products are not going to be sustainable, the beleaguered state-owned Nepal Oil Corporation (NOC) will need to take hard decisions soon further escalating the rate of inflation, which is already hovering dangerously at over 6 percent.

Apart from oil prices, the decision by key multilateral donor World Bank that it could downgrade Nepal from base case to lower case (which will effectively result in halving of annual aid) and similar suspension by some bilateral agencies have hurt the aid-dependent economy.

Moreover, the non-inclusion of Nepal in the priority list of highly indebted LDCs – who qualify for debt relief programs, apparently because of political situation here, could further damage the future prospects of the country.

The latest economic update the Asian Development Bank (ADB) has stated that continuing conflict-related disruptions have suppressed the tourism and industry sectors in recent years. It has projected that the GDP would grow this year by only two percent, which is less than half of the government’s initial projections.

According to its report, the agriculture sector grew by 2.8 percent in fiscal year 2005 compared with 3.9 percent in fiscal year 2003 – contributing 1.1 percent point of GDP growth. Economic growth in fiscal year 2005 was, thus, largely led by remittance-driven consumption, which contributed almost 1.8 percent points to GDP growth in 2005.

Coupled with these situations, the prolonged political instability and insurgency has continued to haunt the vitals of the business and economic sector. In a show of frustration, businessmen have started to come out in streets.

Less than a month after the Federation of Nepalese Chamber of Commerce and Industry (FNCCI) organized a major peace rally in Birgunj, a group of top industrialists and businessmen have come together in a forum demanding peace and reconciliation. In order to promote peace and contribute towards peace from the private sector, a Nepal Business Initiative (NBI) has been formed under the convenorship of industrialist Padma Jyoti. The NBI includes presidents of various business organizations including Federation of Nepalese Chamber of Commerce and Industry (FNCCI) and Nepal Chamber of Commerce (NCC), among others, as its members.

No wonder, the government is desperately looking for alternatives. In search of funds, the government has already obtained overdraft of Rs 2.5 billion from the Nepal Rastra Bank (NRB) in the current fiscal year.

In the first two months of the current fiscal year, expenditures on development and construction have declined leading to minimum capital expenditure. According to the Finance Ministry, only Rs 51.1 million of capital expenditure were incurred during the period whereas the current expenditure, for the same period, amounted to Rs 5.27 billion. The Ministry informed that Rs 403.3 million were spent to service foreign debts and interests. During the period revenue worth Rs 8.97 billion were raised – which is more by 13.4 percent compared to the previous year.

While addressing the annual board of governors meeting of the World Bank recently, Finance Minister Madhukar SJB Rana has requested the Bank not to suspend aid or downgrade it to lower case. It has urged the Bank to release the second tranche of Poverty Reduction Strategy Credit (PRSC). The WB had, in the previous fiscal year, suspended the second tranche of PRSC totaling Rs 7 billion.