ECONOMIC PROBLEMS LINGER TO 2012

This commentary was first published in the Reporter Weekly. 

The year 2011 has been one of disappointment in terms of tackling the core constraints ailing the fragile economy. Prime Minister Dr Baburam Bhattrai's 'Economic Revolution' was on sale till the winter hit Kathmandu. Now, people are living in the 'darkness'. The 'hope' that PM Dr Bhattrai had rekindled while entering Baluwatar is almost dead. Welcome to the New Year 2012 with darkness and unresolved issues that are going to plague our economy like previous years.

Rising inflation, decreasing exports, more than 16 hours of daily load shedding , labor problems, Intra-party and inter-party disputes , and uncertainty over constitution making and the peace process will continue to remain the legacy of the past on the shoulder of the new Year. Shortage of petroleum in the domestic market has hit the when the new Year steps in.

The lives of people throughout 2011 were no better than in 2010. The high food inflation and frequent hike in the price of the petroleum products  hit the people everywhere,  in rural as well as urban areas, with no signs that the situation will be better in 2012.  Sudden downslide in food inflation in India has however, raised some hope here.  Economists are suggesting that this decreased rate of inflation in the Indian market will be reflected in our markets sooner or later. The food inflation rate in India has come down at 1.8 percent which is the lowest in the last four years. Our double-digit inflation might decrease slightly in 2012 though petroleum price in the international market and domestic food production would continue to put upward pressure on general price level.

The labor problems remained most challenging for industrial sector after the inadequate supply of power and infrastructures in 2011. From Surya Nepal to some of the star hotels were shut down due to the labor union politics. Political parties fueled to increase the density of problem rather than settling the issues. There are no signs of positive changes in the New Year as well until and unless political leaders stop  stepping  on the 'labor-carpet'. Industrialists are keeping the door open to see if anything positive happens in the horizon this year.

More than Rs 64 billion liquidity surplus in the banking sector has been a matter of head-ache for Nepal Rastra Bank (NRB) and the BFIs themselves. The International Monetary Fund (IMF)'s charge on NRB for its inefficient regulation of financial sector is not just a  'blame'.

After the 'almost' collapse of real estate in the domestic market most banks lost their prized area of investment. Now, Finance Minister Barshaman Pun and Governor Dr Yubaraj Khatiwada are busy meeting with bankers to ease the liquidity surplus problem. They are pushing on to decrease interest rate to ease financing for industries and people.

This tireless effort of NRB and Ministry of Finance (MoF) might lead to a decrease in lending rates in 2012. Investors and real estate brokers may have a respite as well. Banks will not be happy with this step but at the end of the day they will get some space to disperse their money. Let us hope that the financial sector will be put in order in 2012.

The food insecure population is going to increase in 2012. Chinese experts have warned that this year will remind us of year of 2008 again. Nepal has many more international agencies at home to help needy people, but equally important for us to see will be how the World Bank, United Nation Development program (UNDP) along with multilateral and bilateral donor agencies set their plans for this year, and how they go about feeding  the hungry in the mid and far west .

In short, we may not have much to celebrate the arrival of 2012.  But in the midst of all this gloomy scenario, Hope cannot be divorced from our future. Therefore, despite this end note, Happy New Year 2012!

BoP Breaks the Record since 1974

Country’s Balance of Payment (BoP) went up breaking the record since 1974/75. Nepal Rastra Bank (NRB)’s macro economic report of last four months of current fiscal year says that remittance and spending of foreign tourist have contributed for this. The BoP has reached Rs 46.31 billion in the last four months of current fiscal year till mid-November.

Here are the major points that the report of NRB has:

1) Trade deficit is still high—widened by 12.1 percent compared to the same period of last year. It has reached Rs 111.80  billion.

2) Remittance went up by 34.2 percent and has reached Rs 103.2 billion in the four months of current fiscal year.

3)  Imports grew 11.8 percent to Rs 135.49 billion compared to imports worth Rs 121.17 billion recorded during the same period in the last fiscal year.

Nepal’s BoP is continuously rising since the beginning of this fiscal year. Some of the experts here in Nepal claim that this is more like a miracle than the real improvement of situation. I think that this is not any miracle but a tremendous contribution of remittance and spending of foreign tourist—which means the NRB’s report is relied on the facts. As per one of the internal document of NRB (a senior official shared with me in his cabin) shows that the tourist flow even from Eastern Europe is increasing though the financial situation of that region is not in good condition.