Assaulted daily by news of politicians getting away with larceny, convicted criminals being freed, impunity and then the tragic news of 10 students brutally killed by Hamas in Israel, the mood ahead of Dasain this year is subdued.
Adding to the woes are everyday economic worries about inflation, low purchasing power, a slump in retail trading. Street front shops are shuttered, and have to-let signs.
But at the macro-economic level, things are looking rosy, with Finance Minister Prakash Sharan Mahat trying to raise spirits this week by declaring that the death of Nepal's economy was exaggerated.
The World Bank has projected that the economy will grow by 3.9% this fiscal year, and by 5% in fiscal 2025.
Removing import restrictions, loosening monetary policy, surging remittances, and the locomotive of India’s economic growth together appear to be pulling Nepal’s wagons along.
But the Bank also warned of risks: an erratic monsoon that could harm agriculture, a new spike in commodity prices due to India’s food export ban. Higher inflation could keep policy rates elevated, increase domestic debt servicing costs, and drag growth.
The Asian Development Bank (ADB) projected Nepal’s economic growth at a slightly higher 4.3% for fiscal 2024, up from 1.9% in 2023. But both projections are far short of the government’s 6% growth target, and behind India, Bangladesh and Bhutan.
The overall scenario does not look precarious because of bulging forex reserves driven by last year’s import restrictions and remittances.
From suffering daily electricity rationing Nepal is now exploring exports, the IT sector is booming, e-commerce has taken off, and agriculture is going from subsistence to commercial.
However, all this could have happened much more rapidly with better policy implementation. Money Nepalis abroad send home is not being invested in productive sectors.
“Nepal needs $7-8 billion in investment per year. Capital formation is low, so we have to get more FDI. The scale of projects that need to come up has to be larger so that it can drive legislative and institutional reforms,” says Sujeev Shakya of Beed Management. “Only then can we create jobs, accelerate the economy and stem migration.”
Nepal’s economy has been stagnant in recent years, with high inflation, fiscal imbalance, inadequate investment, low domestic production, deteriorating bank asset quality, and mass out-migration. Export continues to lag further behind burgeoning imports.
Nepal’s economy is still reeling from long-Covid complications, but many of the underlying problems are structural, and lack of strategic thinking.
The economy did reap the peace dividend in the 2006-2016 decade after the peace agreement: fiscal management was in good shape, public debt was decreasing, the external sector was robust, and resources for expanding credit was adequate.
Investment in infrastructure at that time could have boosted growth and created jobs, but the private sector opted for quick returns on real estate, stock market speculation and trade. Politicians also never followed through on grand speeches about attracting and retaining foreign investors.
Coalition politics, bureaucratic inefficiency and counterintuitive policies remain major hurdles. The private sector shielded by insular policies do not want the status quo to change, even though there has been no major economic reform legislation for four long years.
One does not need a Nobel Prize in Economics to figure out what to do: move on the next set of macro-fiscal reforms, create a genuine investment friendly environment, and curb the rampant rent-seeking mindset.
Often accused of being a compulsive optimist, Shakya maintains that although the road is serpentine, Nepal is moving in the right direction. “Nepalis are resilient,” he notes.
“We overcame war, earthquake, blockade and Covid. We are generally happy with what we have, but what Nepal needs is forward-thinking policies and transformative reforms to actually drive the economy forward.”
Sahina Shrestha is a journalist interested in digital storytelling, product management, and audience development and engagement. She covers culture, heritage, and social justice. She has a Masters in Journalism from New York University.