Himalayan nation facing stiff economic challenges amid Ukraine war and pandemic
Nepal’s finance minister Janardan Sharma, left, and foreign minister Naryan Khadka speak to Nikkei Asia in Kathmandu, Nepal. (Source photos by Moyuru Baba)
MOYURU BABA, Nikkei staff writerApril 27, 2022 15:32 JST
KATHMANDU — Rivalry between China and India is key to driving economic growth in South Asian nations such as Nepal, two top ministers from the landlocked Himalayan country told Nikkei Asia in recent interviews.
The comments come as Beijing and New Delhi battle to boost their influence in the region, which has been hit hard by waves of accelerating inflation and other negative economic effects of Russia’s invasion of Ukraine and the COVID-19 pandemic.
“Healthy competition between China and India should be there” to maintain stability and economic development in South Asia, Nepal’s finance minister, Janardan Sharma, said in the interview earlier this month.
His colleague, Foreign Minister Naryan Khadka, noted that Nepal’s relationship with both of its huge neighbors stretches back centuries.
“China’s economic and technological advancement has been amazing over the last many decades, while India is also a giant economic power and its advancement is also very encouraging and very impressive,” Khadka said. “So, what we do is try to take advantage of that economic prosperity and economic growth by deepening our economic ties with both countries.”
And Nepal’s economy needs a helping hand, with inflation hitting its highest level in nearly five and a half years and foreign exchange reserves dwindling. That has largely been driven by soaring energy costs after the Ukraine war upended global markets for oil and gas.
“Nepal is an import-based country and the impact of the Ukraine-Russia war is directly laid on the country’s petroleum sector,” said the finance minister, Sharma. “We buy petroleum from these countries, so it has a direct impact on our economy.”
About 80% of Nepal is mountainous and its population of about 30 million mainly depends on farming and tourism. Its consumer price index jumped 7.14% in March, while foreign exchange reserves stood at $9.7 billion in February — marking a 17% drop over the past seven months. Local media reported the reserves have fallen to a level equivalent to seven months of imports.
Sharma added that flooding last September had been “very hard” for the agriculture sector, while tourism is only just starting to recover after the coronavirus pandemic decimated the global travel industry.Nepal’s government had initially expected its economy to grow 7% in the 2021 fiscal year, which ended in March, but Sharma said it has now cut its forecast to about 4%.
However, he remains optimistic on the country’s longer-term outlook as it pushes to build a strong self-reliant economy. “We have abundant natural resources, we have forests, land, water and biodiversity,” Sharma said. “Further, we have the population dividend. We have more youth that can work. We want to combine the resources with our labor force with the help of capital and technology [from other countries].” People below the age of 30 make up about 60% of the South Asian nation’s population.
By taking advantage of its topography, Nepal has been planning to generate electricity from hydroelectric power and sell it to India, with discussions between New Delhi and Kathmandu taking place.
Sharma said that they had high hopes of their friendly relationship with Japan, and that the latter’s capital investment and technological support combined with Nepal’s natural resources meant there were great possibilities for the development of the hydropower sector.
The finance minister also said the country needs assistance from foreign companies to help develop tourism infrastructure such as large airports.
Returning to China-India relations, Foreign Minister Khadka said that tensions along the disputed Himalayan border between the two had not directly impacted Nepal. “But, of course, there are some indirect spillover effects.”
He said Nepal had asked the two countries to continue dialogue to solve the conflict. “It is a globalized world, and also, the whole geopolitical focus has now shifted towards Asia,” Khadka said. “So, definitely whatever happens in South Asia affects international society.”
With political turmoil casting a dark shadow over neighbors Pakistan and Sri Lanka, Khadka also addressed instability in Nepal’s government.
Prime Minister K.P. Sharma Oli lost a confidence vote in May last year after coalition partner the Communist Party of Nepal (Maoist Centre) withdrew its support. Sher Bahadur Deuba, president of the Nepali Congress, became prime minister for the fifth time last July, but his political power base is unstable, with several parties involved.
Nepal’s next parliamentary election could be held in the fall of this year. “Elections are unpredictable at times. Coalitions are a strategic issue,” said Khadka.