Economic Challenges

High prices in food are posing a serious challenge to Nepal's economy, according to the report, which warned of a serious risk of stagflation, where low growth (around 3.5 percent) is combined with rising prices.

Children in poor villages of the far west of the country are at risk of malnutritionThe country also just emerged from a decade-long armed conflict (1996-2006) and the government structures are very weak, said political analysts. "Improvements in living standards are urgently needed to avoid civil unrest that may threaten the new government," explained the report.

Fuel Shortage Threat To Food Security

KATHMANDU, 28 July 2008

Nepal's acute fuel shortage is causing serious concern among local food traders about its impact on food prices. "The shortage of fuel has been affecting the cost of our transportation. We can expect further increases in food prices which could heavily affect poor families," Ravi Sharma, a local food trader, who supplies rice and other food from the Terai region (fertile plains of southern Nepal) to the hill areas of the country, told IRIN in the capital. Many food traders explained that commodity supplies had seriously deteriorated and expected the situation to worsen. Transportation costs have increased by almost 27 percent over the past six months, in turn feeding into food prices, which have risen by 20-30 percent, according to the UN World Food Programme (WFP). People are buying smaller quantities and cheaper food items. Nepal depends on fuel imports from India and sells petrol, diesel and kerosene at highly subsidised rates, at huge financial cost to the government's Nepal Oil Corporation (NOC). The cash-strapped NOC, which runs on a monthly loss of more than US$22 million, had no option but to increase fuel prices by 25 percent last month, resulting in nationwide protests.

Constituent Assembly passes the advance expenditure bill

The Constituent Assembly, Monday, unanimously, passed the advance expenditure bill presented by the government as it could not present the full-fledged budget. The passage of the bill now allows the government to carry on with routine financial activities beginning July 16 when the new fiscal year begins.

Finance minister Dr Ram Sharan Mahat had presented the advance expenditure bill to act as an interim budget of Rs 73.5 billion for the new fiscal year 2065-66, which will be replaced by a full-fledged budget to be presented by new government later.
The interim arrangement about the budget allowing the government to collect revenue and spend its resources was presented at the constituent assembly Monday. The full-fledged budget could not be presented due to delay in formation of new government.
The tax plans, and economic policies of the budget presented last year will get continuity until a complete budget is presented by the new government.
According to Minister Mahat, current fiscal year recorded 5.6 percent GDP growth – highest in the last seven years. Agriculture sector registered 5.65 percent growth while non-agriculture sector registered 5.57 percent growth.
The gross domestic saving increased to 11.5 percent, up from 9.7 percent last year. The government hopes that revenue generation by the end of this fiscal year would increase by 22 percent more than initial estimation.
Likewise, the foreign assistance has substantially increased from Rs 37.2 billion in the last fiscal year to Rs 57.6 billion in the current fiscal year. The government debt, during this period, has decreased from Rs 329 billion to 324 billion.
During the current financial year, the general expenditure of the government increased by 24 percent and the capital expenditure by 31.6 percent.
Dr Mahat also expressed hope that the new government will take into consideration the demand raised by the government employees for salary increment.
The new government, possibly led by CPN (Maoist), will adjust the expenditure made during this period while tabling the full-fledged financial bill.