Nepal’s consumer inflation reached 8.19% in mid-September compared to 8.64% last year, latest Nepal Rastra Bank figures show.
Food and beverage inflation hit 9.74%, and non-food and service sector prices increased by 6.99% during the review period. The highest costs hit low and lower-middle-income families especially hard during Dasain.
The only saving grace is remittances from Nepali abroad, where even the official inflow figures through banks and registered exchanges have increased to record levels.
The cost of spices (especially important items at festival time) went up by a whopping 45.46%. There is a severe shortage of sugar in the market, and even when available it is 17.86% costlier than last year. Vegetable prices rose 14.51%, and the price of milk and eggs are up 12.6%. Ghee is the only commodity for which the price has declined: by 13.08%.
Read Also: <a href="https://nepalitimes.com/news/business-not-happy-with-the-imf">Business not happy with the IMF</a>, Ramesh Kumar
Prices in the entertainment and culture sub-category have also increased by 15.55%— with miscellaneous goods and services going up by 12.21%, education 9.10%, household goods 8.11%, as well as furniture and household appliances by 6.59%.
While the inflation rate remains high, wages and salaries have not kept pace. The salary and wage rate index increased 5.25% in mid-September compared to 11.68% a year ago.
The government’s expenditure was Rs131.14 billion while revenue collection amounted to Rs141.08 billion. Gross foreign exchange reserves have also increased by 3.9%, mainly due to remittances and lower imports. Remittance inflow increased by 22.1% to Rs.228.37 billion compared to a 19.8% increase in the same period last year.
Meanwhile, Nepal’s current account and balance of payments were both in surplus during the first two months of fiscal year 2023/2024. The current account shows a surplus of Rs23.5 billion compared to a deficit of Rs36.84 billion during the same period last fiscal year while the BoP had a surplus of Rs53.61 billion by mid-September against a deficit of Rs 20.81 billion during the same time last year. &nbsp;

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Bada Inflation at Bada Dasain

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2023020814028/63e39f649c7e80680e0d6fecjpeg.jpg" alt="" width="1800" height="1041"/><figcaption>Photo: RSS</figcaption></figure>Prime Minister Pushpa Kamal Dahal is busy garnering <a href="https://www.nepalitimes.com/banner/left-led-coalition-upturns-nepal-politics/">support from parties left, right and centre</a> for the 10 January vote of confidence he has to prove in the Federal Parliament. On Wednesday, he met Madhav Kumar Nepal of the Unified Socialist (US) for the first time since he broke away from the Nepali Congress (NC) led coalition.With his Maoist Centre (MC) being only the third biggest party with a mere 32 seats in Parliament, Dahal has had to give away powerful ministries: Finance to Bishnu Paudel of the UML, and Home to Rabi Lamichhane of the Rastriya Swatantra Party (RSP).And with less than a week before the confidence vote, there will be more wheeling and dealing behind the scenes. There is already talk of adding two more deputy prime ministers to specifically appease the far-right Rastriya Prajatantra Party (RPP) and Janata Samajbadi party (JSP).The Constitution sets a limit of 25 ministers in the Cabinet. But Dahal has to balance the disparate demands from members of his coalition for posts. He will exceed that limit, and for that will have to split some ministries.Read also: <a href="https://www.nepalitimes.com/banner/oli-dahal-political-deja-vu/">Oli-Dahal political déjà vu</a>, Santa Gaha MagarDahal may be prime minister, but it is <a href="https://www.nepalitimes.com/banner/oli-dahal-political-deja-vu/">UML's K P Oli who is pulling the strings</a>. As the head of a high-level political committee, Oli will essentially be running a parallel government. And given the past bad blood between Oli and Dahal, there is every possibility of them falling out, and the coalition falling apart.The UML is the second largest party with 78 seats and has shrewdly gained the upper hand by playing the long game by agreeing to give Dahal the first go at premiership while bagging plum political positions for his party in the process.The committee Oli heads is an extension of this power-sharing deal between him and Dahal. The fact that the Prime Minister is the executive head of Nepal but will now have to adhere to a committee on high-level political decisions has essentially turned Dahal into a puppet of Oli’s making.But these power games have long stopped being of interest to the people. It was in fact the very frustration with political manipulation that voted <a href="https://www.nepalitimes.com/banner/for-whom-the-bell-tolls/">independent collective RSP</a> to be the fourth largest party in the 2022 elections.Read also: <a href="https://www.nepalitimes.com/banner/for-whom-the-bell-tolls/">For whom the bell tolls</a>, Shristi KarkiBut regardless of who is in the coalition or who has an upper hand, the biggest challenge for the new government in 2023 is to save Nepal from an impending economic collapse.As of 4 January, the total expenditure of the Nepal government in the current fiscal year stands at Rs517 billion against its revenue of Rs362 billion. Nepal is unable to support the government’s spending, and herein lies the biggest problem.The additional ministries in the new government and their staff will only add to <a href="https://www.nepalitimes.com/banner/nepals-energy-policy-in-2023-and-beyond/">unnecessary expenses in security, infrastructure, salary and other administrative costs</a>. Increased ministries and staff doesn’t guarantee better service delivery either.The appointment of Bishnu Paudel of the UML as  finance minister has made businesses hopeful, but there is only so much he can do to rectify the blunder made by his Maoist predecessor, Janardan Sharma. On Wednesday, Nepal Rastra Bank, acting  a directive from Paudel and Prime Minister Dahal has revised its new guidelines pertaining to current capital loans to spur investment.Nepal’s imports decreased by 20.17% in the last five months compared to the same time period last year owing to the central bank’s ban on luxury items following rapidly declining foreign exchange reserves. This helped increase the reserves but also reduced revenue from imports, which continues to be the government’s biggest source of income.Read also:<a href="https://www.nepalitimes.com/editorial/new-year-challenge-to-new-government/"> New year challenge to new government</a>, EditorialIn the meantime, Nepal’s export in the same time period decreased by 34.61% to Rs6.7 trillion and trade deficit by 18.77%. But reduced demand for goods and services can lead to a recession. Year-on-year inflation is also high at 8.08%. In response, banks have  increased interest on loans to reach more than 15% which has discouraged businesses from investing.Moreover, leakage in revenue and lack of economic activities as well as investment in unproductive sectors continue to pose formidable challenges to Nepal’s stagnant economy which is propped by remittance money sent home by Nepalis ioverseas.Those jobs have allowed the government to get away with not providing youth with enough employment opportunities at home. But remittance is an unsustainable source, especially as Nepal needs its workforce at home for agriculture, construction and manufacturing, among others.Nepal needs to reduce its nonessential spending, stop revenue leakage in VAT and others, expedite development projects and promote industries and manufacturing at home. All of this will need to be <a href="https://www.nepalitimes.com/editorial/new-year-challenge-to-new-government/">facilitated by reformed policymaking</a>, not just directives.Instead, planners bring about ad-hoc schemes like <a href="https://www.nepalitimes.com/latest/think-twice-about-bringing-your-mobile-to-nepal/">Mobile Device Management System</a> (MDMS) benefiting select businesses, further adding to the frustration of the common people and making service delivery even more difficult.Sonia Awale

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Nepal's political economy

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022111413114/63722f869c7e80680e0c251ejpeg.jpg" alt="" width="800" height="466"/><figcaption>Nepal Rastra Bank Governor Maha Prasad Adhikari.</figcaption></figure>“We cannot allow the rich to get richer in Nepal. One corporate borrower received refinancing of Rs1.27 billion straight from state coffers, while Nepalis slid into poverty. Small businesses also suffered, but their loans are not being rescheduled.”That was none other than Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari in an unedited version of a talk show on Kantipur TV in 2020.Adhikari was sacked by Finance Minister Janardan Sharma earlier this year, and promptly reinstated by the Supreme Court. And it was scandal-ridden Sharma who had to himself resign this month.After the pandemic lockdowns hit in 2020, the NRB set in motion refinancing procedures to keep the economy afloat, disbursing Rs158 billion by mid-December last year. This was like printing new money, but there was no evidence that the cash bailouts helped prop up the economy.In his interview, Governor Adhikari was admitting that there are business entities in Nepal that are ‘too big to fail’, and that the central bank’s refinancing policy was being misused by corporates with political patronage.Read also: <a href="https://www.nepalitimes.com/banner/state-sponsored-economic-crisis-2/">State-sponsored economic crisis</a>, Ramesh KumarThe result is that instead of keeping businesses afloat during the pandemic, selective refinancing has driven up inflation, increased imports, and upped the value of private assets.Nepal’s budgets have always been populist, no matter the government of the day, but the monetary policy of central banks across the world are necessarily conservative because of the need to keep inflation in check.The role of a central bank like the NRB is to control inflation, maintain the external balance of payments, and the stability of the financial sector. But the NRB’s credit expansion policy has done the opposite by rescuing those who were never impacted by the pandemic at all.The NRB in fact massively expanded cheap loans in the past two years to jump-start the economy. This only served to increase the import and inflation. Indeed, loans of banks and financial institutions, which stood at Rs3.21 trillion in 2020, have now surpassed Rs4.7 trillion. There has been no commensurate growth in employment and manufacturing capacity.It could be that there was too much interference on NRB policy by politicians on behalf of their cronies, but at the end of the day if the central bank had taken a more restrained approach, Nepal’s trade and balance of payments deficits would not have been as high as it is now, and foreign exchange reserves would not have depleted as fast.Read also: <a href="https://www.nepalitimes.com/editorial/how-not-to-be-a-sri-lanka/" target="_blank" rel="noopener noreferrer">How not to be a Sri Lanka</a>, EditorialMoreover, a sharp rise in real estate and share prices aided by a 5% interest rate in refinancing, increased investment, availability of repo loans and permanent liquidity facilities has unfairly benefited only the top tier of Nepali businessmen, industrialists, as well as media tycoons.The credit inflow actually increased imports, as the country rebounded from the pandemic. Moreover, a study by economist Biswas Gauchan showed that a 1% increase in private sector credit increased inflation by 0.31% and imports by 0.7%.Nepal has registered an 8% annual increase in inflation over the last 40 years. The income of Nepalis may have increased, but it has been absorbed by soaring prices. This means it is the general public that is bearing the brunt even as a chosen few big businesses reap huge benefits from politically-motivated credit outlay in the guise of a pandemic rescue package.NRB officials blame the failure of their monetary policies on the fixed INR-NPR exchange rate, and say this puts Nepal at a disadvantage every time the Indian rupee weakens against the US dollar.But this alone does not absolve the central bank, which has (for whatever reason) been reluctant to adopt stricter monetary measures to control import and inflation.Read also: <a href="https://www.nepalitimes.com/opinion/how-nepal-can-avert-an-economic-crunch/">How Nepal can avert an economic crunch</a>, Kalpana KhanalEven as Nepal’s economic crisis deepens, businesses paradoxically continue to pressure banks for cheap loans so they can keep their profit margins.The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) on Sunday demanded the continuation of concessional loans extended during the pandemic. However, it is not the central bank’s job to save businessmen from a debt trap of their own making.It is much more important to save the country’s economy from shrinking forex reserves, widening trade deficit, and inflation.Governor Adhikari must know why the misuse of bank credit by those with political patronage has hurt the economy. Awareness of a problem is the first step in solving it.Read also: <a href="https://www.nepalitimes.com/here-now/economy-in-trouble-but-no-need-not-to-panic-yet/">“Economy in trouble but no need to panic yet”</a>, Nepali TimesRamesh Kumar

Central role of the Central Bank

<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022111413114/63722f129c7e80680e0c24f7jpeg.jpg" alt="" width="960" height="640"/>Urmila Kapali works as a seamstress in Kathmandu. She has seen her household expenses double in the past six months. Kapali’s son has a job, but his earnings go towards his own family. This joint family of five in Kathmandu is struggling to survive from one day to the next.Modnath Dhakal from Gorkha has been delivering newspapers door-to-door in Kathmandu for three decades. The rising cost of basic food items, combined with soaring monthly rent for his room, has become unaffordable.“How are we going to survive?” asks the 70 years old.Urmila Kapali has to borrow money daily to buy food. She says: “If this continues, I don’t know how much longer we will stay afloat.”As the world emerged from the Covid-19 pandemic, there has been a global crisis in the supply chain. Just as economies around the world were getting back to normal, Russia invaded Ukraine — setting off a chain reaction of food and fuel price inflation that has affected vulnerable countries the most.In South Asia, Sri Lanka has officially declared bankruptcy and no longer has the foreign currency to buy any more petroleum. Elsewhere, Pakistan’s foreign currency reserves have dwindled to cover only one month of imports.Read also: <a href="https://www.nepalitimes.com/here-now/ukraine-crisis-hits-nepal-economy-hard/">Ukraine crisis hits Nepal economy hard</a>, Ramesh Kumar<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022111413114/63722f149c7e80680e0c24f8jpeg.jpg" alt="" width="540" height="536">India has been relatively unscathed, but even there the inflation rate rose to 7.8%, the highest in eight years. This is directly affecting the price of goods in Nepal.Two-thirds of Nepal’s imports are from India, most of which are petroleum products. Nepal and India have a fixed exchange rate, which puts Nepal at a disadvantage every time the Indian rupee weakens against the US dollar, as it is happening now.Nepali consumers are therefore bearing the brunt of rising prices for imported goods and services. Some experts argue that Nepal’s monetary policies have been unable to rein in inflation because of the fixed INR-NPR exchange rate.Nepal used to import corn, coriander, soybean oil and sunflower oil from Ukraine. The disruption of supply of these goods, along with the shortage of wheat and the global rise in fuel prices and transportation cost, has affected Nepal’s own manufacturing sector.Nepal’s inflation rate had been increasing at an average of 4.6% for the last five years, but it nearly doubled to 8% in April. Average annual consumer prices are expected to exceed that by the end of this year.Experts predict that this year’s budget will actually make matters worse. Says economist Keshav Acharya: “This year’s expansionary budget as well as salary increases for government employees will put more pressure on the market and on consumers.”Nepal’s 15th Five-year Plan had put 18.7% of the population below poverty line, a steady decline in the past 20 years. But now, the progress of the past decades is likely to be reversed.Read also: <a href="https://www.nepalitimes.com/editorial/how-not-to-be-a-sri-lanka/" target="_blank" rel="noopener noreferrer">How not to be a Sri Lanka</a>, Editorial<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022111413114/63722f169c7e80680e0c24f9jpeg.jpg" alt="" width="535" height="536">The World Bank estimates that about 45% of Nepal's high-risk low-income groups live just above the poverty line. The rising cost of basic food and fuel once again puts them at risk of falling below.According to the Household Survey of 2017, Nepal’s poorest 10% spends more than two-thirds of the total expenditure on food, while the richest 10% only spends a quarter. A 2019 study by Min Bahadur Shrestha, former deputy chairman of the National Planning Commission, and Shashikant Chaudhary concluded that a 10% increase in the price of food will lead to a 4% increase in poverty.Inflation has also affected middle-income families, reducing the value of savings as inflation rates soar higher than bank interest rates. Costs of goods from food items and construction material have shot up. Many of Nepal’s ongoing infrastructure projects have been hit by cost overruns and breached contracts.This is not new. The cycle of high inflation has been going on for decades in Nepal, with an average of 8% increase over the last 40 years. The main reason for this is the 20% annual increase in credit to the private sector by banks and financial institutions over the past decades, which has led to a boost in imports and an increase in real estate prices rather than economic expansion and job creation. Meanwhile, profits generated by the bank's credit flows have helped to enrich the wealthiest by increasing the value of their assets.With few exceptions, inflation has overtaken monetary policy targets every year. This indicates that Nepal Rastra Bank (NRB) has failed in its responsibility to maintain price stability and curb lending to unproductive sectors.Moreover, the central bank has increased the supply of money by printing new notes, which automatically increases the cost of goods and services, and decreases the value of money.Read also: <a href="https://www.nepalitimes.com/editorial/state-sponsored-economic-crisis/">State-sponsored economic crisis</a>, Editorial<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022111413114/63722f199c7e80680e0c24fajpeg.jpg" alt="" width="1072" height="283">Although about two-thirds of Nepal's population is dependent on agriculture, farm yield is not sufficient for farmers to even feed themselves, let alone sell their produce to the market. The government’s chronic failure to import chemical fertiliser means that harvest has declined.India has begun to control its export of wheat and sugar, and is said to be moving to control rice exports next. As of April 2022, Nepal imported rice worth Rs42 billion, sugar worth Rs4.7 billion, and wheat worth Rs6.32 billion from India. So far, New Delhi has spared Nepal from grain export bans, but that could easily change and spell disaster for Nepal.Indeed, the disruption of the supply chain has raised fears of a global food crisis, with the worst case scenario being famine in parts of Africa and Asia. The Global Hunger Index 2021 ranked Nepal 76th out of 116 countries in terms of food insecurity. UNICEF figures show that even before this crisis, 43% of children under the age of five in Nepal are undernourished.Meanwhile, Biswash Gauchan, executive director of the Center for Comprehensive Development Studies, argues that further inflation is inevitable because of the deteriorating international economic situation as Russia’s war on Ukraine drags on and keeps fuel prices high.“It is normal for inflation rates to be higher in developing countries than in developed ones,” explains Siddharth Bhatt, deputy director of the NRB’s Economic Research Department. “Inflation does not have to always be detrimental if it is in the 2-4% range.”An NRB study concluded that an annual inflation rate of up to 6.5% will help boost Nepal’s economy. Numbers beyond that would be harmful, says Nara Bahadur Thapa, a former NRB executive.Read also: <a href="https://www.nepalitimes.com/here-now/economy-in-trouble-but-no-need-not-to-panic-yet/">“Economy in trouble but no need to panic yet”</a>, Nepali Times<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022111413114/63722f1a9c7e80680e0c24fbjpeg.jpg" alt="" width="960" height="640">Political intervention could help ease inflationary pressure, but Nepal’s leaders and corporates have a patronage relationship as shown by the influence of some business leaders in drafting recently sacked Finance Minister Janardan Sharma’s budget.Indeed, the ministry has paid no attention to monitoring the supply and distribution of goods, and existing protocols are ineffective to right what is wrong in the Nepali market.So far, overseas remittances have saved Nepal from going the Sri Lanka way, but with imports soaring and shrinking foreign exchange reserves the signs are not good.Economist Keshav Acharya says that the government must immediately set up adequate stocks of food grains and essential food items across all provinces.“Making these necessary arrangements can save Nepalis not only from food price inflation in the event of a shortage, but also from falling victims to black marketeers and food cartels,” says Acharya.Amul Kaji Tuladhar of the Nepal Retailers’ Association blames big producers and importers for the inflation because they have been hoarding food items. “If the government had a proper monitoring mechanism to curb speculation of wholesalers, consumers would not have suffered so much,” he says.Says Keshav Acharya: “Nepal’s poor are bearing the brunt of rising inflation, and things are spiraling out of control, all the while, the government and the opposition, are too distracted with their power games to take decisive action.”Read also: <a href="https://www.nepalitimes.com/opinion/how-nepal-can-avert-an-economic-crunch/">How Nepal can avert an economic crunch</a>, Kalpana Khanal

State-sponsored economic crisis

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221114101140/63720d7f9c7e80680e0b78cbjpeg.jpg" alt="" width="3019" height="2104"/><figcaption>Illustration: RABINDRA</figcaption></figure>On 8 March, international crude oil prices hit a record $139 per barrel due to the Ukraine crisis — nearly double the value last year.The longer the war drags on and sanctions tighten, the higher the prices are expected to go, with a domino effect on economies around the world, including Nepal.Being the world’s second largest producer of oil, Russia’s inability to export petroleum products has created a big gap in supply. Europe’s reliance on Russian gas has also made the Ukraine conflict a <a href="https://www.nepalitimes.com/here-now/ukraine-climate-and-nepal/" target="_blank" rel="noopener noreferrer">‘fossil fuel war’</a>.Nepalis are now paying Rs150 for every litre of petrol and Rs133 for diesel and kerosene at filling stations. And the graph is still going up.The state-owned Nepal Oil Corporation (NOC) is losing Rs16 for every litre of petrol and Rs12 for diesel it sells, raking up losses of Rs5 billion every month, which means further price hikes are a certainty.What’s more, Nepal is yet to be hit with the full impact of increasing oil prices internationally. The Indian Oil Corporation, which sets a new price for petroleum every 15 days, adding processing, administrative and other charges, is yet to set a new price tag to NOC. India is expected to hike fuel prices after last week’s state elections.“Frankly, we are scared to even estimate our next month’s loss,” says Sushil Bhattarai of the NOC, which has already incurred Rs28 billion in losses in the past six months against last year’s import bill of Rs132 billion.The longer <a href="https://www.nepalitimes.com/here-now/nepalis-flee-ukraine-as-russians-advance/" target="_blank" rel="noopener noreferrer">the Russo-Ukraine war</a> drags on, supply bottlenecks will remain leading to rising prices at the filling stations. At this rate, the NOC will be unable to pay its bills on its own, and will have no recourse but to further increase the price of petroleum.The government is already under pressure to manage funds for upcoming elections with limited revenue as a result of recent policies aimed at discouraging imports. The NOC is therefore unlikely to be able to dip into foreign exchange reserves to foot the bill.But the hike does not only apply to petroleum. Every hike in the price of <a href="https://www.nepalitimes.com/banner/from-a-fossil-past-to-an-electric-future/" target="_blank" rel="noopener noreferrer">fossil fuel</a> has a knock on effect on the cost of production and transportation. This means consumers have to pay more for all goods from food to gold, and everything in between.Coal, which cost $67 a tonne until a year ago is now at $400. Iron ore was priced at less than $100 per tonne last November, but is now $160 a tonne. A tonne of soybean costs $1,800, up from $1,150. Wheat prices have gone up by 45% in the past month.<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221114101140/63720d829c7e80680e0b78ccjpeg.jpg" alt="" width="1500" height="1000"><figcaption>Photo: AMIT MACHAMASI</figcaption></figure>Petroleum products make up 13% of Nepal’s total imports. Next in the list of high imports are iron and iron products and food grain. In the first six months of this fiscal year, Nepal spent about Rs58 billion on iron and iron goods, Rs77 billion on vehicles and spare parts, Rs64 billion on soybean and palm oil, Rs23 billion on gold and Rs17 billion on coal.As the price of these commodities increase in the international market, Nepal has to dig into its <a href="https://www.nepalitimes.com/latest/nepals-remittances-forex-reserves-drop/" target="_blank" rel="noopener noreferrer">foreign currency reserves</a> to pay for imports.Another notable impact of the Ukraine conflict is on currency depreciation. The exchange rate of the Nepali rupee against a US dollar dropped to a new record depreciation of Rs123.44.Although this means remittance sent by Nepalis abroad will increase in rupee terms, as will the competitiveness of Nepali goods abroad, we are unlikely to benefit because Nepal does not have much to export.Alternatively, as the value of the dollar rises, so does the Nepal’s debt burden, putting additional burden on the state exchequer.To be sure, even before <a href="https://www.nepalitimes.com/latest/trapped-in-ukraine/" target="_blank" rel="noopener noreferrer">the Russia-Ukraine war</a>, inflation was at a record high. In fact, the prices of crude oil, metals, food grains and other intermediate commodities have increased sharply in recent years.Moreover, increased demand for goods in countries that had just recovered from Covid-induced recession is leading to supply chain disruptions and a further increase in prices.The war is just adding fuel to the fire, and as result the prices of all essential goods have skyrocketed. Traders and local businesses are also using the crisis to their full benefit."Our market is not competitive as it is and weak regulation means traders set new prices indiscriminately on the pretext of the international price hike," says economist Dadhi Adhikari.For example, soybean oil, which cost Rs120 per litre last year, is now priced at Rs255. Sunflower oil is Rs280 per litre, having seen an increase of Rs40 for a litre.“Prices of most consumer goods in the past month have gone up by 15-20%. When the international market has seen price hike of 30% on average, it is sure to affect our market too,” says Subodh Kumar Gupta of the Association of Nepalese Rice, Oil &amp; Pulses Industry.This price hike also applies to <a href="https://www.nepalitimes.com/banner/are-you-sick-of-chicken/" target="_blank" rel="noopener noreferrer">poultry and eggs</a> even though Nepal is self-sufficient in both products because soybean, wheat and corn used in the feed are imported.“It cost Rs47 just to bring 1kg corn to Kathmandu this time, the highest so far, the price has doubled in a year,” says Rabin Puri of the Grain Producers' Association. Nepal has already imported maize worth over Rs12 billion in the last seven months.Even so, the real effect of the price hike in the international market is yet to be seen, warns the former president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Pashupati Murarka."The goods in the market currently are from stocks. So we are yet to experience a full-scale impact," he says, adding that the cost of construction materials like cement, iron road and plastics will also soon increase. Iron rod has already registered its highest ever price at Rs135 per kg.<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221114101140/63720d859c7e80680e0b78cdjpeg.jpg" alt="" width="881" height="537">Nepal has been experiencing moderate inflation in the past six years. It rose to 7.11% in November but came down to 5.66%. However, the NRB estimates that the inflation rate could reach double digits this year. The monetary policy for the current fiscal year had set a target of limiting the inflation rate to 6.5%.Former Executive Director of NRB, Nara Bahadur Thapa, says that there is indeed a risk of double-digit inflation. "Consumers have been hit hard again by inflation, with the poorest and most vulnerable bearing the biggest burden," he adds.On the other hand, rising prices of petroleum products and raw materials in the international market will also increase the production cost of Nepali industries. This means a higher cost of development projects, which in turn will force the government to increase the budget allocation for such projects.This worsening war also has far-reaching consequences for Nepal’s balance of payments deficit which will widen in the coming months, putting more pressure on foreign exchange reserves.In recent months, Nepal’s foreign exchange reserves have been depleting fast with <a href="https://www.nepalitimes.com/here-now/nepal-living-beyond-its-mean/" target="_blank" rel="noopener noreferrer">imports exceeding earnings</a>. Nepal has lost about 23% of its foreign exchange reserves in the last year.In January 2021, Nepal had enough foreign exchange reserves to import goods and services for 12 months and 18 days at $12.77 billion, primarily due to reduced consumption during the pandemic.But as the Covid-19 subsided and imports rose again, its <a href="https://www.nepalitimes.com/business/economic-downturn/" target="_blank" rel="noopener noreferrer">foreign exchange reserves dwindled</a> to $9.88 billion by January this year, enough to pay for only six months and 18 days worth of imports.In the same period, Nepal's balance of payments deficit stood at Rs241 billion, which is a record high. Such a sharp decline in foreign exchange for a country like Nepal, which does not have a reliable and sustainable source of hard currency earnings, spells disaster.As commodity prices rise in the international market, Nepal will also have to pay more for the same amount of goods. As of February, the import volume of petrol has increased by only 24% as compared to the same period last year, but due to the increase in the price in the international market, Nepal has to pay 110% more.Likewise, the import volume of diesel has increased by 10%, yet the cost of its import increased by 84%. While the import volume of coal decreased by 3%, the amount to be paid increased by 38%.Even though the import volume of iron and steeel products remained the same as last year, the price to be paid by Nepal has increased by one-third.Nepal has already incurred Rs1 trillion in trade deficit in the first seven months of this fiscal year. While the country spent Rs11.47 trillion in <a href="https://www.nepalitimes.com/latest/nepal-less-and-less-able-to-feed-itself/" target="_blank" rel="noopener noreferrer">importing goods</a>, it has exported products worth only Rs131 billion.In response, the NRB in recent months has been deploying various measures to discourage imports. But it is ineffective in the face of international price hikes for commodities. Even if Nepal drastically reduces imports, it will not be able to reduce the amount it is due.Another major impact of this will be felt in the <a href="https://www.nepalitimes.com/banner/nepals-precious-electricity-going-waste/" target="_blank" rel="noopener noreferrer">power sector</a>. Nepal Electricity Authority (NEA) has been importing 600MW of electricity from India. But due to the increased price of coal and supply bottleneck, India has started cutting 200MW that it has been providing to Nepal at a concessional rate. Moreover, Rs3 per unit that Nepal has been paying India has now increased to Rs7.If India further cuts power export due to an energy crisis, Nepal risks going back to electricity rationing. Although the installed capacity of Nepal's electricity generation now exceeds 2,000MW, it falls to one-third during the dry winter months when river flows is low. The rest has to be augmented with imports from India.Translated by Sonia Awale from the <a href="https://www.himalkhabar.com/news/128766">Nepali original</a> at <a href="http://himalkhabar.com/">himalkhabar.com</a>