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    Nepal: Economic Prosperity vs. Rising Debt and Inflation

    Civil societyDemocracyNepal: Economic Prosperity vs. Rising Debt and Inflation
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    Nepal: Economic Prosperity vs. Rising Debt and Inflation

    To navigate these challenges, experts recommend comprehensive economic reforms, including increased domestic production, enhanced market monitoring, and policies to mitigate the impact of inflation on the poor.

    Nepalese Home Minister Ramesh Lekhak on Sunday reiterated the government’s commitment to achieving economic prosperity, even as the nation faces mounting public debt and spiralling food inflation that is leaving citizens grappling with higher living costs.

    Speaking at a press conference organised by the Nepal Press Union, Lekhak underscored the incumbent coalition government’s priorities, which include economic growth, good governance, and lasting peace. “The coalition of Nepali Congress and CPN (UML) aims to ensure political stability and durable peace while accelerating the mission for development and prosperity,” he said.

    However, these optimistic aspirations are set against the backdrop of a worrying economic scenario. Nepal’s public debt has surpassed Rs 2,536 billion as of mid-January in the current fiscal year, accounting for 44.46 per cent of the Gross Domestic Product (GDP), according to the Public Debt Management Office.

    Public Debt on the Rise

    At the start of the fiscal year on July 16, Nepal’s public debt was Rs 2,434.90 billion. Within six months, it increased by Rs 102.03 billion, reaching Rs 2,536.13 billion by January 15. The government’s borrowing target for the year was Rs 547 billion, but halfway through the fiscal year, only Rs 240.80 billion (43.89 per cent) of this target has been achieved.

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    Breaking down the debt, foreign loans make up 51.31 per cent of the total at Rs 1,301.41 billion (22.81 per cent of GDP). Internal debt contributes 48.68 per cent or Rs 1,234.71 billion (21.64 per cent of GDP). By mid-January, the government had raised Rs 181.50 billion in internal debt, achieving 54.86 per cent of its annual goal, while external borrowing stood at Rs 59.30 billion, just 27.20 per cent of the target.

    The government allocated Rs 402.85 billion in the current fiscal year to service principal and interest payments on the public debt. By mid-January, Rs 182.40 billion (3.20 per cent of GDP) had already been spent.

    Food Prices Surge Amid Economic Woes

    Adding to the country’s economic challenges, food prices have risen sharply. According to a report by Nepal Rastra Bank, food inflation reached 9.99 per cent in mid-December, with vegetable prices skyrocketing by 43.05 per cent compared to the same time last fiscal year. Overall consumer price inflation climbed to 6.05 per cent from 4.95 per cent a year ago.

    Flash floods in late September severely disrupted supply chains, particularly in Kathmandu and surrounding areas, exacerbating food price inflation. The price of pulses and legumes rose by 10.66 per cent, cereal grains and their products by 9.7 per cent, and ghee and oil by 9.39 per cent during the first five months of the fiscal year.

    Economist Nara Bahadur Thapa attributes the rising food prices to climate change, low agricultural output, and frequent export bans imposed by India on staples like rice, wheat, onions, and sugar. “Nepal’s dependence on imports, coupled with a strong US dollar, fuels inflation,” he explained. The dollar’s exchange rate hit Rs 138.49 last week, further intensifying the cost of imports, including petroleum products and chemical fertilisers.

    Impacts on Nepali Households

    The rising food inflation is disproportionately affecting the poor, especially urban dwellers reliant on daily wages. “Inflation erodes purchasing power, leaving many struggling to meet basic needs,” Thapa noted. Farmers, ironically, are not benefitting from the price surge due to inefficiencies in the supply chain.

    With vegetable inflation exceeding 40 per cent, consumers face the brunt of soaring costs, while weak market monitoring and governance exacerbate the issue. Economist Puskar Bajracharya warned that inflation could climb further if political instability and rumors of government changes persist. “The lack of focus on economic policies is a bad sign for growth,” he said.

    Inflation is not evenly distributed across the country. Koshi Province recorded the highest inflation rate at 7.36 per cent, followed by Madhesh (6.77 per cent) and Sudurpashchim (6.66 per cent). Meanwhile, urban areas saw a 5.89 per cent rise in inflation compared to 6.52 per cent in rural regions. Non-food items and services also registered significant increases, with the price index of miscellaneous goods and services rising by 7.98 per cent and alcoholic drinks by 7.01 per cent.

    Balancing Aspirations and Reality

    While Home Minister Lekhak expressed confidence in the government’s longevity and its ability to address development challenges, economists remain skeptical about its ability to balance lofty aspirations with the pressing economic realities. Rising public debt, inflation, and a slowing economy have created a precarious environment for the government.

    Lekhak highlighted initiatives such as building a bridge over the Mahakali River and a dry port in Dodhara Chandani to boost economic activity. However, economists argue that such projects alone cannot offset the broader challenges of inflation, poverty, and declining investment.

    To navigate these challenges, experts recommend comprehensive economic reforms, including increased domestic production, enhanced market monitoring, and policies to mitigate the impact of inflation on the poor. Additionally, the government needs to address structural issues in agriculture and supply chains to stabilise food prices.

    “If inflation continues unchecked, it could erode trust in the government and destabilise the economy further,” warned Bajracharya. “Nepal’s policymakers must act decisively to steer the country toward sustainable growth.” As the government prepares to convene the winter session of parliament, the focus will be on translating economic aspirations into actionable policies. Whether these measures can address the mounting economic pressures remains to be seen.

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