Fixing The Economy

Nepal’s economy has shown some signs of positive development amidst multiple challenges. The remittance inflow has increased by 25.3 per cent and reached Rs. 794.32 billion while gross foreign exchange reserves have increased to Rs. 1,401.21 billion by mid-March 2023. The contribution of remittance to the GDP stands at around 23 per cent. In the absence of employment opportunity at home, Nepali youths fly to foreign labour destinations to make a fortune. Every year around 550,000 youths enter the labour market but it hardly absorbs around 50,000 and the rest are forced to search for jobs abroad. Going abroad for a job may not be a bad idea in itself but that should not be a permanent trend because we cannot afford to drain our youth power to toil in foreign soil forever while the nation demands their labour and entrepreneurship. 

According to a news report of this daily, around 540,000 people went abroad for jobs within the first eight months of the current fiscal year. Their number is likely to reach 800,000 by the end of this fiscal. Relying on remittance to fuel the national economy cannot be rational approach in the long run. The remittance-based economy is unsustainable and can tumble any time with crisis in the international labour market. At the moment, Nepal enjoys the dividend of robust manpower status. It has now the largest number of active population that can be involved in the productive works. The state should bring the policy of utilising the energy of young population within the country. There is the need for domestic and foreign investment in opening industries and commercialising the agriculture. 

The COVID-19 pandemic and Russian-Ukraine war have turned the import-based Nepali economy upside down. The recession-prone economy can be saved only with the massive investment in major infrastructure projects. This helps to mobilise huge amount of money, thereby resolving the liquidity crisis facing the banking sector. The government has assured to reduce the high interest rates in view of slackening business activities. Owing to the high interest rate, investment from the private sector has drastically gone down. With the reduction in the current account deficit, the industrialists and businessmen have lost their confidence, which can hurt the goal of attaining stated economic growth. The situation has further exacerbated due to high inflation, fall in trade, import restrictions and imbalance in Balance of Payment (BoP). 

In view of the poor collection of revenue, the government needs to chalk out proper strategy to boost revenue and capital spending. The government had put restrictions on imports to check the depletion of the foreign currency reserves but this had negative impact on the revenue collection. It collected revenue only worth Rs. 683 billion but the total expenditure has reached Rs. 943 billion, resulting in a deficit of Rs. 260 billion. Recurrent expenditure was Rs. 706 billion, with the revenue deficit of Rs. 23 billion. This is the first time, the revenue failed to meet the recurrent expenses this year. As the revenue collection target is limited to 48 per cent, the development and construction sectors have run out of needed budget. 

The country has seen a surge in the arrival of tourists. Banks have started to reduce interest rates that can improve liquidity. The focus should be on the production and job creation. Long-term policies are needed to save the economy from internal and external shocks. It is necessary for the government to muster the support of private sector while the banks and financial institutions must pursue pro-business strategy so that the investment can be channelled to stimulate the economy.