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VOL. 03, NO. 18, Feb 05 2010 (Magh 22, 2066)
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Trading Imbalances
The key to ending the current economic crisis is simple: increase exports. But this cure is easier said than done
By SANJAYA DHAKAL
It was never under any doubt that the economy of Nepal would see this day when the ballooning imports would become untenable.
For a number of years, Nepal’s trade deficit had continued to surge annually – it is said to have reached more than Rs 100 billion in the first four months of this year.
Initially, the handsome rise in the remittance income had offset the trade imbalance. But it could not and did not sustain the nosedive suffered by all other exports of the country.
Some hint of remittance growth taking southbound direction and all hell, literally, has started to break lose.
Whether it is the liquidity crunch or the fear of the Nepalese currency getting devalued vis-à-vis Indian currency, the dwindling exports lie as a fundamental problem.
No country in the world can financially survive for long when it fails to strike Balance of Payment – that fundamental aspect of a country’s economy so much like the economy of any family where expenses exceeding income cannot be sustained.
After the heydays of early and mid 1990s, the exports of Nepal like carpet, garment, pashmina have all fallen very badly.
The garment, which used to do export business worth Rs 14 billion a year, struggles to export even a billion rupees worth of goods these days.
The setback suffered by carpets and pashmina may not be as astounding but their loss is no less for country’s economy.
Even the tourism – which has the enormous potential of earning foreign currency for Nepal - has been hurtling from one crisis to another.
As such, there is no quick fix to this problem.
Increasing exports is not an overnight job. It needs investment – a lot of that in the form of foreign investment – planning and vision.
And these are the very things that are so very rare to find.
In fact, the news reports of last few weeks are enough to show that the country is heading exactly on the opposite direction than what is needed to arrest this crisis.
First, the Maoists have obstructed the big Upper Karnali hydropower project, which will have significant Indian investment once it goes into implementation. Their threats have already ruffled the feathers of the investors who are not likely to put up with further political instability.
Then, the government, under pressure from the parliament committee, took a decision on banning the export of stone, pebbles and gravels to India.
“This was a premature decision taken without appropriate investigations. This will further hurt Nepal’s trade imbalance with India,” said an economist.
According to president of Federation of Nepalese Chamber of Commerce and Industry (FNCCI) Kush Kumar Joshi, the investments totaling Rs 40 billion in the stone-crusher industry could be jeopardized by such decision.
As Joshi noted, such counter-productive decisions will further worsen the burgeoning economic crisis.
