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.