New government heads into a polycrisis

Nepalis impatient for a government that delivers are hopeful about a new youth-leadership that takes office this weekend. But the leaders will face a major challenge from Day 1.

Even at the best of times, it would have been difficult for prime minister Balendra Shah and his RSP ministers to solve Nepal’s problems, but fallout from the West Asia war will make that task much harder.

All the mainstays of Nepal’s economy are already being impacted: overseas remittances, its petroleum import bill, and tourism has suffered a direct hit right at the start of spring arrivals.

Nepal is somewhat cushioned because India has managed petroleum supply disruptions following US desanctioning of Russian crude to its refineries. Diesel, petrol, aviation fuel and LPG make up 26% of Nepal’s imports, all of it through India.

Nepal Oil Corporation announced another hike in petroleum products this week. LPG cylinders are being sold half-full, and there is talk of an odd-even ban on ICE vehicles.

Despite all this, Nepalis seem to have a false sense of complacency, amidst high expectations of the ability of the new government to solve the country’s polycrises.

Perhaps Nepalis had a rehearsal of a fuel shortage during the 2015 Blockade, when they improvised. The country is also better placed this time to cushion the fuel shock because of the increase in EVs and more electrification of household cooking.

“The increase in electric vehicles provides some relief, but it is not enough,” energy economist Dipak Gyawali told Nepali Times earlier this month. “Most critical services still run on diesel, and they cannot be replaced overnight.”

Nepal is second only to Norway in global EV adoption in both private vehicles as well as intercity microbus services. But if the war escalates fuel shortages would affect the general population. Almost 80% of registered private vehicles in Nepal are two-wheelers.

Aviation is suffering a double whammy: an increase in the price of aviation turbine fuel worldwide, and the cancellation of flights through Doha, Dubai and Kuwait — the main entry point for tourists to Nepal.

Nepal was just reaching pre-Covid arrival figures in February when the conflict started. But March has seen only 64,000 international visitors so far — half the February figure.

PLANNING AHEAD

Travel trade specialist Raj Gyawali posted on LinkedIn: ‘Chinese arrivals were up 30.6% in a single month. If Nepal pivots hard toward Chinese tourism right now — incentives, fast-track visas, trade missions to operators — the autumn season might be salvageable.’

‘But the window to act is weeks, not months,’ he adds. But so far, it seems like it is business as usual as the country waits for a new government to take charge.

There is the even larger challenge of repatriating and reintegrating some of the 2 million Nepalis in the West Asia war zone who may want to return for safety, or because they are laid off.

Half the $11 billion Nepal officially received last year came from West Asia, and it increased by 40% just in the last seven months. A sharp drop in remittances due to the collapse of Gulf economies will have a multiplier impact on Nepal’s economy, adding to the vicious cycle of joblessness and outmigration.

The RSP manifesto pledged to create 1.2 million jobs across IT, construction, tourism, agriculture, manufacturing and service sectors in the next five years so Nepalis would not have to migrate. That would have been a challenge even without a war in the Gulf.

Other Asian countries that have migrant workers in West Asia have already been hit hard. The Philippines declared a national energy emergency this week and government offices moved to a four-day work week.

Burma has imposed odd-even rules for private vehicles, Vietnam has reduced domestic flights, and people have been encouraged to work from home.