Chandan Sapkota’s Blog

My latest piece is about the economic costs of the Maoist-imposed strike in Nepal. Yesterday, credited to diplomatic and open public pressure, the Maoist party ‘postponed’ the discord (as if imposing strike is their property right!). My point is easy: if the celebrations continue with hits, the Nepali economy will collapse then. And here are my prior costs estimation of bandas Here. Pretty much everything is in a standstill since May 1. The UCPN-Maoist has imposed an indefinite hit to topple the national authorities. In the nation of over twenty-eight million people, few hundred of thousands of supporters, both willing and reluctant, are bused into cities, including Kathmandu, to show discontent over the ruling of the prevailing government.

This is battering the ailing overall economy hard. The political leaders need to understand that you will see no tranquility and the constitution would mean very little when there is an economic tsunami. A dysfunctional overall economy shall inflict more pain than the politics upheavals we’ve been witnessing since 1996. Without urgent remedial policies for the collapsing economy, no matter who and which party runs the government, the situation is only going to get bad. A lot of the factors behind and remedies for the collapsing economy can be traced back again to an unstable political climate and persistent strikes.

More with this in a minute. First, lets be clear about the deteriorating macroeconomic situation. The official inflation rate has been hovering around 12 percent and it is not likely to come down anytime soon if supply-side constraints persist. Trade deficit reached Rs 206.07 billion, a 62.9 percent growth against 29.5 percent growth in the first eight weeks of last fiscal 12 months. Exports declined by 8 percent while imports surged by 43.9 percent.

Meantime, remittances reached Rs. 146.93 billion, a 9.9 percent growth as compared to 58.9 percent development last season. The rapid rise in trade deficit is drawing down official reserves, which is enough to fund only 6.6 a few months of products and service imports. We used to have reserve enough to invest in nine months of imports.

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Worse, current account deficit (% of GDP) is likely to maintain the negative territory and GDP growth rate to stagnate around 4 percent for at least until 2015, according to the IMF’s estimate. On top of this, there is liquidity crunch on the market. Recently, we experienced a severe lack of domestic money. The Indian rupee is gradually becoming a popular currency option credited to lack of confidence in the Nepali rupee.

While the casing sector is bubbling, other successful industries are suffocating with too little liquidity. The central bank or investment company has recently injected net liquidity of Rs 69. 12 months 1 billion up to now this. The commercial banks are jacking up interest levels, which makes it harder for investors to withdraw money and serve interest payments.

Despite high interest, deposit growth is leaner than last year’s. The inter bank or investment company lending rate increased by 8.85 percent from 6.38 percent. This means that even banks are wary of lending to each other. Most of the factors are getting bad progressively. Much worse is yet to come, if the current political instability, strikes, bandas, and financial stalemate persist.