Money Matters 1 - Year of Loss

Raju Nepal

There has been a decline in fuel prices in global market but Nepalis are forced to pay three times the international price

On April 25, 2015, Nepalis faced one of its biggest natural disasters. The 7.8 magnitude earthquake not only took thousands of lives, but also left the country shattered, with estimated financial loss of around a trillion rupees. The actual figure could be much higher. Social costs are beyond calculation. Nine months since, the financial and social losses are only mounting, largely because of government failure to reach out to earthquake victims, to provide them with relief material and help them set up reliable shelters.

Looking back to events post-quake, we can clearly see why earthquake victims are still living in tents during a harsh winter. There is no political will to reach out to victims. Embarrassingly, the government is planning to sell rice, edible oil and salt offered in grant by other countries. Members of civil society and general public have sprung into action and are doing all they can for earthquake victims. Yes, they have not reached far off places. Some may be doing it for vested interests as well. But they, unlike the government, are at least doing something.

Earthquake victims in high-altitude districts need warm clothes and blankets, which they cannot afford to buy. But the government has given them nothing. The Home Ministry has failed to reach out to them. In fact, news of deaths of earthquake victims due to severe cold have fallen on deaf ears. To add to the earthquake woes, Nepali people are suffering the inhuman Indian economic blockade, which has cost the country around Rs 350 billion till date. Likewise, black-marketing, which is the result of the blockade, has caused a loss of another Rs 150 billion. The opportunity costs of businesses haven’t been calculated. The longer the blockade, the greater will be this loss. 

Thousands of industries have been shut down due to the blockade. Most of them may never open again. This will lead to heavy backlog of bank loans in coming years. Although Nepal Rastra Bank has provided concessions to businessmen to pay their loans, it will make both banks and people weak. 

Nepal’s current GDP is around Rs 1,900 billion. The government had estimated an expenditure budget of Rs 693 billion and six percent growth for 2015/16. According to an estimate, 80 percent of GDP has been wiped out due to the blockade and earthquake. Adding budgetary and financial losses in last nine months, we have already lost an equivalent of two annual budgets. Likewise, our growth has been revised to three percent (or even less). As inflation rises and there is a decline in growth, the government has also not been able to spend its development budget. 

While the entire country is suffering from price hikes, unavailability of basic goods, lack of energy sources and basic resources, the government is actively supporting black-marketing. There has been a rapid decline in fuel prices in the global market, but Nepalis are forced to pay three times more. Businesses have shut down in these load-shedding months as they could get no fuel to operate generators. This has resulted in decline in production, consumption and supply.

Many foreign investors had withdrawn investments from Nepal and taken them to other developing countries during the 2006 political unrest. The current crisis will result in further decline in foreign investment. Due to flourishing black market, exchange rate between Indian Rupees and Nepali Rupees in grey market has reached 1.8. It will make daily goods more expensive for poor people. It could get worse, since we have no mechanism to control this. 

We may be sitting in our homes thinking about how to meet our basic needs for next few days. But the impact of blockade and earthquake on the economy will be felt for at least next 10 years.  Some of them can be speculated. There will be heavy brain drain in the next five years. About half a million people are said to have been rendered jobless due to this blockade. A number of others have relocated or are trying to relocate their businesses from Indian border to other parts of the country. 

At least half a million people enter job market in Nepal annually. This means Indian blockade has rendered one million Nepalis jobless this year alone. If there is no employment opportunity for this cohort, Nepal will witness an increase of 0.2 million unemployed people annually, apart from half a million unemployed it already has. If we cannot create jobs in Nepal we will see another million Nepalis leave to work in dangerous building sites in Gulf countries in the next two years. Nothing but Indian blockade is responsible for this.

If we could start reconstruction immediately, we could retain this cohort of jobless people at home. Business will be boosted and the economy will pick up pace. There will be a huge demand of goods and services if we could spend about Rs 700 billion set aside for reconstruction. That will take economy in positive direction. It would help if we could get few big hydro and road projects running as well. But foreign investors are already reportedly dropping hydro projects citing bureaucratic hurdles and political instability.

Published in Republica on 20th Jan 2016