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    Nepal Staring at Imminent Double-Digit Inflation

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    Nepal Staring at Imminent Double-Digit Inflation

    Inflation has taken over Nepali life and is hitting a major segment of lower-income families for whom basic necessities are becoming unaffordable. It is feared that a third of the population could slip into extreme poverty.

    Nepal’s currency is losing its purchasing power and everything has become expensive.

    Everything – from food to fuel to education, transportation, and services.

    The price of sunflower oil doubled from Rs. 175 a year ago to Rs. 350 per litre at the end of June 2022. The retail price of soybean in a Kathmandu provision store has risen to Rs. 320 – a 100 per cent hike in a matter of a year. Likewise, the price of pulses went up by 30.76 per cent to touch Rs. 170 in the year ending June 2022.

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    Petrol price jumped 23 per cent to Rs. 179 per litre, diesel by 27 per cent to Rs. 163 per litre and LPG gas by 15.75 per cent to Rs. 1,800 per cylinder in a matter of just four months.

    Yet, to help bring money to the government’s fast depleting coffers, the Nepal Oil Corporation stubbornly retained high fuel prices up, even though the Indian Oil Corporation had reduced the price a week ago.

    In addition to the prices of food and fuel, the country’s central bank, the Nepal Rastra Bank (NRB) reported that transport fares rose by 25.79 per cent, and education became 11.64 per cent more expensive while housing and domestic equipment saw a price rise of 8.21 per cent.

    On Wednesday, the NRB issued a circular announcing that Nepali citizen travelling abroad can carry no more than US$ 200.

    By late evening, the corridors of power were rife with talk of Nepal going the Sri Lankan way.

    Pandemic and war

    In mid-June 2022, the NRB revealed an alarming, sharp rise of inflation to 8.56 per cent on a year-on-year basis, possibly set to overtake 2015-16’s record of 9.9 per cent.

    “If this skyrocketing inflation is not tamed quickly, it will lead to double-digit inflation soon. That can, according to reports, leave millions of people with no alternative but to trade off the existing living standard soon,” local media quoted an unnamed official of the central bank saying.

    Min Bahadur Shrestha, NRB’s former executive director and vice-Chairman of the country’s National Planning Commission is of the view that the government must take immediate measures to tame inflation, else, he warns, a large section of the population that has been pulled out of poverty will slip back into a situation of severe poverty.

    NRB’s spokesperson, Dr. Gunakar Bhatta, blames the crisis in Ukraine for the rise in fuel prices, which together with the disruption of the supply chain due to the COVID-19 pandemic has caused the inflation.

    The inflation is also due to the depleting foreign exchange reserves and the fall of the Nepali rupee. It is yet to be seen how the central bank balances inflation and growth. If inflation gets further intensified, economists fear, two third of the population could slip into a situation of severe austerity.

    The multidimensional Poverty Index (MPI) report revealed that Nepal successfully reduced multidimensional poverty from 30.1 per cent in 2014 to 17.4 per cent in 2019. But all the hard work done to make this possible could be undone if inflation touches, and possibly crosses, the double-digit figure. In effect, it could push back into absolute poverty those clubbed as the 30 per cent poor in 2014.

    Inequality

    World Bank’s report ‘Nepal Development Update Post Pandemic Nepal Charting a Resilient Recovery and Future Growth Directions’ on the post-pandemic scenario had warned of the possibility of 31.2 per cent of the population living close to the poverty line (earning between USD 1.90 to USD 3.20 a day) slipping into extreme poverty.

    Consider this: The informal business accounts for over half of all business and it is the source of employment for the large bulk of labourers. Within this group, urban informal sector workers and self-employed households in urban areas are more vulnerable, the World Bank report said.

    More people will succumb to Inflation and fall into poverty as economic life has been turned back by at least a decade because of the COVID-19 pandemic. Economists are now pulling out and wiping the dust off Oxfam’s 2019 report Fighting Inequality in Nepal – a report they were not wanting to be seen as endorsing publically in 2019.

    Alongside acute inequality, the national ‘Economic Survey’ report pointed to 708,000 enlisted for an opportunity to obtain employment under the Prime Minister Employment Program by the end of mid-March 2022 – that has hardly happened and the figure is no more than 10 per cent, officials say. Last year, around 24 per cent of some 752,000 enlisted young people had got employment under this scheme.

    Nepal is hugely dependent on imports. The country even imports onion, potato, and food grains from India which itself is presently reeling under inflation – the wholesale prices in India have hovered above the 10 per cent mark for 14 months in a row.

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