Nepal, like many other South Asian countries, has been severely impacted by the economic consequences of the COVID-19 pandemic. The situation has been exacerbated by the global increase in oil prices due to the conflict in Ukraine, which has further worsened Nepal’s economy as the country relies on oil imports. Tourism and remittances from citizens working abroad and in India are major contributors to Nepal’s economy, similar to Sri Lanka. While Sri Lanka has already defaulted on its international debts, Nepal has not yet done so. However, the Nepal Rastra Bank (NRB) has expressed concerns that if the economic situation doesn’t improve, the country’s foreign exchange reserves will only last until the end of the year. Former Finance Ministers of Nepal have warned that Nepal’s economy could follow a similar path as Sri Lanka’s if immediate measures are not taken to address the declining economic indicators. The current Finance Minister, Janardhan Sharma, argues that the situation in Nepal is not as dire as Sri Lanka’s and defends the country’s lower national debt compared to others in the region. Nonetheless, Nepal’s foreign currency reserves have decreased, and remittances from overseas have also fallen. The Asian Development Bank (ADB) predicts that Nepal’s current account deficit will widen in the fiscal year, and the flow of foreign grants and loans has declined. The NRB Governor was suspended for alleged leaking of sensitive information, which led to increased interest rates in an attempt to discourage unnecessary spending. The government has also imposed a ban on the import of certain goods. The political scenario in Nepal is unstable, with a coalition government facing challenges due to internal divisions and a tenuous majority in Parliament. The government’s ability to address economic issues is further hampered by this instability. Nepal’s acceptance of the Millennium Challenge Corporation (MCC) aid package from the United States faced opposition and protests initially, but ultimately, most political parties came to accept it. The U.S.’s growing presence in the region and concerns about China’s influence create complexities for Nepal’s foreign relations. The economic crisis and the need for support from the U.S. put pressure on Nepal to ratify the MCC, despite initial hesitation and opposition from some parties.
The Challenging Situation of Nepal’s Economy
