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Nepal may be bankrupt by June: Economist
A leading economist of Nepal says the Govt's revenue and expenditure and economic situation point to an alarming situation.
Despite King Gyanendra's assurance that he has checked corruption, introduced good governance and initiated financial reforms, a leading economist has warned of Nepal's impending bankruptcy.
Raghab Dhoj Pant, executive director of the Institute for Development Studies here, says an analysis of the government's revenue and expenditure, the current economic situation, the expected negative impact of the supplementary budget on government revenue and the new structure of custom duties point to an alarming situation.
"The government will be financially bankrupt by the end of May or beginning of June," Pant concludes in his recently released report, "The Economy and the State: Can It Survive?"
There is severe discrepancy in the figures projected by the government and the institute.
The budget projects revenues of Nepali Rs 81.82 billion (about $1.1 billion) and expenditure of Nepali Rs 89.65 billion (about $1.2 billion) while Pant estimates the first to be Nepali Rs 76.56 billion (about $1.08 billion) and the latter at Nepali Rs 92.05 billion about ($1.3 billion).
Besides making rosy budgetary provisions without considering the cuts in foreign assistance, Pant says the financial mess is also due to the royalist government's ad-hoc decision making and the desire to change budgetary provisions, including tax rate, to make it compatible with its business interest.
With the World Bank and the International Monetary Fund deciding not to release additional resources under the Poverty Reduction Growth Facility, the government has no independent resources at its disposal, the economist points out.
"Financial and economic problems now appear more serious than the political problem," the study says.
It warns that it would be a "crime against the nation" if the government tried to solve the problem by borrowing from the central bank, the Nepal Rastra Bank, by issuing an ordinance, as it has been wont to do during Gyanendra's rule.
Pant predicts the per capita income will be negative or barely positive, stoking poverty especially in the rural areas and driving more and more young people to migrate to other countries to look for employment, bringing further capital flight in its wake.
Though the government has been trying to project the economy as well-managed, Pant says it is an open secret that remittances sent by thousands of Nepalese working abroad are helping the poor in meeting their needs.
"It is not civilised national behaviour to remain satisfied from the migration of young people from the country and run the economy based largely on the remittances sent by them," Pant says.
In the first four months of the current fiscal year, Nepal was hit by "stagflation": prices increased at an annual rate of about 28 percent against 2.7 per cent last year while there was low or even negative growth in real income.
By October 2005, Nepal's forex reserves were Nepali Rs 134 billion out of which Indian currency reserves amounted to just Nepali Rs 7 billion, reflecting the deteriorating trade balance with India.
With the government trying to maintain free convertibility of Nepalese currency to Indian currency and vice-versa, the Nepal Rastra Bank has to import Indian currency from India to fund domestic needs.
With national consumption increasing more than incomes, pant says imports and, consequently, the trade deficit will rise, creating further deterioration in the balance of payments position with India.
"It will not be possible to maintain exchange rate with Indian currency without the assistance of India," Pant says.
Once the economy explodes, Pant warns, there would be total anarchy.
"At that time, neither the government nor the political parties will be able to relax and remain unconcerned as of now. The national identity itself will be at stake," the study concludes.
