Institute for Development Studies (IfDS), a leading Kathmandu-based think tank has warned that the economic situation of the country is in abnormal and uncertain position due to the government’s passivity to take timely efforts of reform.

Speaking at a press conference on Monday, executive director of IfDS, Dr. Raghab Dhoj Pant said that the economic crisis emerged in the country due to over estimation of revenue and under estimation of general expenditure neglecting the ground reality of the country.

He also said that the economic situation of the country reached to the position of “stagflation,” a situation where real income of the people continues to plummet while there is unprecedented rise in prices and fiscal policies did not work.

The IfDS, which in its previous report on February 2 warned that the country may face bankruptcy within the next three months if the government’s expending continued at the current pace, in its second report said, “After the publication of our report on February 2, a new wave of interest was shown by all on the state of Nepalese economy. But no improvements have been noticed yet in the overall performances of the economy. Instead, a number of new policies and programs initiated by the government in the recent past have helped the economy to deteriorate further.”

The report further predicted the high risk of capital flight of the country if the NRB did not change the existing interest rate as per the interest rate of India due to existing policy of fixed exchange rate and full convertibility.

“The problem is expected to increase further due to possible increase in the deposit rate offered by the commercial banks of India which will further widen the interest rate disparity between Nepal and India,” the report added.

The report further said that the government could not achieve the estimated revenue of Rs. 81.82 billion and added that the revenue of the government in the current fiscal year will be lower by Rs. 8 to 11 billion than the original estimates. The regular expenditure is not expected to decline from the original estimates.

“Viewed from this angle, His Majesty’s Government will have difficulty not only to meet regular expenditure but also to pay back its both foreign and domestic loans. Available information suggests that His Majesty’s Government needs an additional Rs. 6.20 billion to meet its regular expenditure and to pay the mature loans,” the report adds.

According to Dr. Pant though the remittance received from foreign employment is giving life to the ailing economy of the country, it is not sustainable source for economic growth, adding, “Job creation in the country is necessary to contribute to both crisis resolution and national development.” The report said that 104,000 youths migrated to countries other than India which will have serious social and economic impact to the country.

The report further said that as the central bank, NRB is free to determine only the exchange rate of the Nepalese currency vis-à-vis the Indian currency, adding, “If Nepal wants full independence in the area of price determination, balance of payments and interest rate, it should follow a flexible exchange rate policy with respect to the Indian currency as well.”

The report expressed serious concern over growing inflation rate of the country and rapped the government for not taking effective measures to check inflation. “The government has not yet adopted any anti-inflation measures. It seems the government is not serious about cutting down financial expenditure to avoid bankruptcy in coming May/June as projected by IfDS; nor is the policy makers and officials clear about what the word ‘bankruptcy’ actually means,” the report adds.

“In order to improve the situation, it is indeed necessary to resolve the complex political crisis facing the country,” the report said, adding, “But in the name of the political conflict, the indifference of policy makers to the need for effective measures to deal with the economic crisis or the misuse of fiscal and monetary policies and programmes are worsening both economic and political problems.”

Pant further said that the economic crisis emerged in the country as all the government following the restoration of democracy neglected the economic issues and focused on political issues.

He also warned that it would not be easier to improve economic situation of the country, even if the political situation was improved.