“Nepal’s Economy: A New Death Machine?”
The economy’s suspicion to trust…
Recently, the economic condition of Nepal has been at an alarming level and is deteriorating every second due to the financial crisis. This ongoing crisis and liquidity crunch are one of the biggest issues facing the country, and it is also a big problem for many of its people.
Macroeconomic conditions, inflation, and changes in interest rates are significant drivers of currency markets. Economic conditions can affect the level of economic activity, therefore impacting exchange rates and interest rates.
The IMF report highlighted the risk of a banking crisis, as well as weak governance and public finances among other factors. The constraints on the government include a volatile external environment, both in terms of prices and growth, with price volatility having risen recently while growth is projected to remain slow.
The current economic crisis in Nepal can be a new death machine because of the severe hardship and suffering it has caused. People have lost their jobs, homes, and savings, and many have been unable to get the basic cash flow they need. The crisis has also led to an increase in crime, violence, and suicide.
The economic crisis in Nepal is a result of delayed liquidity injection, widened current account deficit, delayed loan repayment, and delays in payment to workers on domestic projects. The global economic slowdown has led to a drastic fall in foreign investment and cutbacks in growth projects.
The conditions in Nepal are getting worse but where is the cash going and who has the money?
The answer is simple but also sophisticated firstly, everything was normal until there was a hit by COVID-19 where the real game starts with a slow poison for cash flow. In the following period, the condition was manageable the imports were less, the foreign currency reserve was stronger and remittance was increased as hundi was inactive. But no one sensed the post-effects of COVID – 19.
Because of the cash inflow of remittance due to banking channels (BFIs) banks and financial institutions were giving loans and credit facilities to anyone who was seeking the service just until when NRB changed the CCD to CD ratio all game changed. Many BFIs were above the limit of the CD ratio NRB has declared and stopped the credit facility and started collecting the deposits.
Now at the time, the interest rates are at the peak in the global market and the same goes for Nepal. Some Banks are offering up to 15.13 % pa. Due to the percentage war in interest made by BFIs some people who had little money have done FDs and money has gone to banking channels due to them but the banking sector till today isn’t capable to offer loans and credits to people till today.
The stock market, one of the biggest factors in the economy is on a bearish trend. Traders and investors are losing confidence in the market. People have held their money and they are in a condition where they don’t want to sell the shares they have also, they don’t want to buy the shares as nobody knows when will the market rise again.
Many people have invested in the real estate sector in Nepal. BFIs and people were attracted to land-based collateral for every sort of loan because lands prices appreciate by about (24% to 30%) and interest rates in bank loans are much lower due to which people took more loans claiming for their business, keeping the land as collateral and reinvesting in land for making fast profits. But currently, the landowners are not allowed to divide the huge land into small pieces (Kitta Kat). So, land mafias and dalals are also trapped in the liquidity crunch.
Nepal is an import-based economy and about 73% of the product you use daily are imported. In the present context, NRB has complexed the process and banned many products to import in Nepal except the product required for basic needs. The ban on imports has also affected the manufacturing business indirectly. Due to this cash flow has been halted.
As the Nepal economy has been suffering from the economic crisis and liquidity crunch, the people of Nepal are worried about their future. This is affecting the food, fuel, and medicines supply for many in Nepal.
Will you call it a “DEATH MACHINE”?
-Manish Koirala
themanishkoirala@gmail.com
