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Nepal pays high economic price for political instability

In the six years since the end of the 1996-2006 civil war, Nepal has witnessed five governments. But the constitution that was to usher a New Nepal is yet to see the light of day.

world Updated: Sep 06, 2012 00:09 IST
Utpal Parashar

In the six years since the end of the 1996-2006 civil war, Nepal has witnessed five governments. But the constitution that was to usher a New Nepal is yet to see the light of day.

Political instability due to continuous power struggle among the major parties has caused immense economic loss to the country listed among the least developed nations.

The latest macroeconomic report by Nepal Rastra Bank, the country’s central bank, says inflation reached a three-year high of 11.5% in mid-July. Not good news for most citizens.

And with the government hiking prices of petroleum products on Sunday, inflation is set to climb further.

Lack of adequate domestic production due to various factors including political instability and power crisis has made Nepal heavily reliant on imports of almost all kinds of goods to meet the demand.

Depreciation of the Nepali rupee, which is permanently pegged with its Indian counterpart, against US dollar in past months is one reason why imports have become more expensive and led to high inflation.

Prime Minister Baburam Bhattarai knows the importance of foreign investment and stresses signing of the Bilateral Investment Protection and Promotion Agreement with India as one of the important achievements of his one year in office.

However, confidence of investors in Nepal hasn’t yet been restored. In the past year several businesses, both set up with foreign investment and those by domestic investors, have shut shop.

The dismal manufacturing sector — due to instability, power crisis, labour problems and shoddy policies — has failed to create jobs, leading nearly 1,000 Nepalis to leave home daily and search for avenues abroad.

As per Federation of Nepalese Chambers of Commerce and Industry data, the country witnessed a drop of 30% in foreign direct investment in 2011-12 in comparison to the last fiscal.

But instead of learning lessons, political parties have again started engaging in another round of removing governments and installing new ones.

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