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Nepal’s situation will be like Sri Lanka

Nepal’s situation will be like Sri Lanka. Tourism-dependent countries have been hardest hit by the Kovid epidemic. In order to prevent infection, various restrictions are imposed in all countries, which is why the international tourism trade has collapsed. Its effects are now being felt in the bones. One of the reasons for the current crisis in Sri Lanka is the declining number of tourists during the Kovid period. This time the discussion has started about the crisis in Nepal.

Tourism like Sri Lanka is Nepal’s largest source of foreign exchange. Naturally, tourist arrivals in Nepal have declined significantly in the last two years. At the same time Nepal is an import dependent country. Nepal has to import various kinds of emergency goods including medicines and fuel. He even has to import food products. In this situation, Nepal’s foreign exchange reserves have started declining. But hopefully, Nepal does not have the burden of foreign debt like Sri Lanka.

Nepal’s situation will be like Sri Lanka

According to the Nepal Tourism Board, an average of 1.2 million tourists used to visit Nepal every year before Corona. But in 2021, only 1.5 million tourists came to that country. In other words, the number of tourists in Corona has decreased by about 6 percent. Apart from this, remittances or expatriate income sent to Nepali expatriates has decreased by 5 percent in the last seven months. The combined result is a reduction in reserves. In the last eight months, the country’s foreign exchange reserves have shrunk by about 200 million. Now they have 975 crore dollars in their hands. With this dollar the import cost of next six-seven months can be met.

Added to that is the rise in the price of oil, like a stab wound to the head. They have to struggle to meet the import cost like Sri Lanka. In this situation, last week, they restricted the import of non-essential goods like cars, cosmetics, gold, etc., as in Sri Lanka. However, importers have been allowed to import 50 luxury items subject to full bill payment before import.

Is Nepal next in line for an economic crisis after Sri Lanka?

“The situation is not good, our foreign exchange reserves are under pressure,” Narayan Prasad Pokharel, deputy governor of Nepal’s central bank, told the BBC. That is why the import of non-essential products has been restricted. “We have not banned imports, but we are discouraging imports,” he said.
Nepal’s misery has also increased due to some wrong decisions of the banking sector. During the epidemic, the ratio of bank deposits to loans was increased from 75 per cent to 90 per cent.

In other words, against every 100 Nepali rupees deposit, the loan was increased from 75 rupees to 90 rupees. This disturbs the balance of deposits and loans. On the one hand, debt continues to rise, but deposits have not increased in comparison. In this situation, banks raised interest rates to attract deposits, but there was no significant growth in deposits. In this reality, the comparison of Nepal with Sri Lanka has started.

 

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Is Nepal heading down Sri Lanka’s path?

However, analysts believe that the situation in Nepal is much better than in Sri Lanka. Foreign exchange reserves have declined, but still more than double the satisfactory minimum reserves প্রায় almost four times that of Sri Lanka. It does not have as much foreign debt as Sri Lanka.
In Sri Lanka, where inflation is 25 per cent, in Nepal it is 6 per cent.

However, analysts are concerned about the current account deficit. They say the situation could worsen if the deficit is not reduced gradually. However, they do not see a big danger right now.
If the economy becomes dependent on one or two sectors, it could be in danger at any time. But Kovid is coming to an end. The tourism sector will recover again. But if the economy is not diversified, the fate of Himalayan girl Nepal is also in jeopardy.

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