Addressing economic woesWe must reinvent our economy to escape the throes of an unstable environment.
Almost two years into the pandemic, there seems to be no sign of it stopping. The resurgent nature and the ever-mutating virus seem to come back stronger and more resilient, wreaking havoc amongst the people. Just as things look to improve, a new variant sends the entire world scurrying for cover. The constant lockdowns have decimated economies in every corner of the world, especially those that rely heavily on the service sector. And it is no exception for Nepal; mainly reliant on tourism, the industry has been grappling to come to terms with the effects of the pandemic since 2020, with most of the businesses now reinventing themselves to cater to the domestic market.
It is fair to assume that 2020 was a watershed in all our lives. It changed the way we worked, how we interacted, and our habits and customs, virtually everything. And for Nepal, it exposed our weaknesses, particularly sectors we took for granted. It told the fact we never sought to reinvent ourselves. Over the years, we have become heavily reliant on tourism and remittances and a consumer-based economy dependant on imports. So whatever foreign exchange the country had amassed rapidly depleted with no substantial income being earned over the last two years.
Of late, financial institutions are experiencing what is being referred to as a liquidity crisis. Banks and financial institutions have run out of money to lend. The arbitrary increase in share prices attracted far more people than expected out to make a quick buck from the bullish trend in the market. While banks and financial institutions were quick to exit the bubble, naive investors were caught unawares when a tweak to refinancing loans depositing shares as collateral was all it took to burst the bubble. With large sums of money now trapped in the share market and no other substantial sums being earned through tourism or any inflow from remittances, the financial institutions are in a fix. They have resorted to providing aggressive interest rates to attract people to deposit money.
The government has no other option now but to reinvent ways to earn money and provide employment to the masses rather than seeking an easy way out to export labour to third countries. It could start seeking to prioritise investments in generating production and emphasising export. Focusing on agriculture could be a good start, and paying particular heed to value addition. If we are now exporting apples, value addition can be created by processing them into juice; separate businesses for cleaning and packaging can spring up to complement the main business, just like how the garment industry in Bangladesh, a particularly labour-intensive business, has managed to attract investments to establish the textile industry, a capital-intensive business. Such is the nature of a symbiotic relationship.
Another worrying aspect is the import of high-value goods. The import of vehicles, in particular, has been relentless. If Nepal Rastra Bank is serious in its endeavours to control the depletion of foreign exchange reserves, then perhaps it needs to look at the provision of credit from banks to enable buyers to buy vehicles. Ironically, a recent statement showing interest in reducing imports did not go well with the Ministry of Finance and the Ministry of Industry, Commerce and Supplies. With cost-push inflation biting in, primarily through the rising costs of imports, the authorities seem oblivious to the disastrous consequences it will have over time. Necessity is the mother of invention—and never has it been so urgent to reinvent our economy to escape the throes of an unstable environment.