Institute for Development Studies (IfDS)—a leading Kathmandu-based think tank– has warned that the country may face bankruptcy within the next three months if the government’s expending continued at the current pace.
Making public findings of his latest study in Kathmandu on Thursday, executive director of IfDS, Dr Raghab D Pant, said if the government did not take any contingency measures, it may not be able to raise money even to meet the spiraling current expenditure from April-May this year.
“The fiscal situation of His Majesty’s government is very very critical. The supplementary budget issued last month has added fuel to the fire,” he added.
According to Dr Pant, problem became serious due to the over-estimation of revenue collection and under-estimation of the government expenditure in the budget of the current fiscal year.
The IfDS has projected that inflation could reach an alarming figure of 27.7 percent at the end of this fiscal year if the situation remained same.
Nepal Rastra Bank said recently that in the first four months of the current fiscal year the rate of inflation in the country stood at 8.5 percent.
Like under the Regan administration in the US during the eighties, the economic situation in Nepal at present may be described as “stagflation,” said Dr Pant—who is also the former member of National Planning Commission.
Stagflation is a situation where real income of the people continues to plummet while there is unprecedented rise in prices.
“The recent rise in price of some of the essential goods is psychological in nature,” said Dr. Pant. “It is because people want to hoard essential things fearing that conflict may escalate and there might be shortage of those things,” he explained.
According to the IfDS forecast, “The growth in per capita income will be negative or barely positive this year. National consumption will increase at a faster rate than the growth in income which will further widen the trade deficit due to import of consumption goods. The foreign exchange reserve in the current year will increase marginally or even decline indicating emerging problem in the balance of payments.”
“The receipts from remittances have been the single most important factor determining the level and direction of economic activities of the country, both at the micro and macro level. A marginal instability in this source will disturb the foundation of the economy and is expected to be more dangerous than the current political problem,” the report warned.
“The economy is getting life till date thanks to the good performance of remittance as it is contributing for the balance of payment and for the foreign exchange reserve”, the study said.
Replying to a query by Nepalnews on what should be done to address such a situation, Dr Pant said there is a need to find a political solution to the economic problems facing the country. He did not elaborate.