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Maoist insurgency hits Nepalese ailing economy gravely

Bhuwan Thapaliya - 1/22/2006

Stagflation, deflation and recession have been much on the minds and mouths of economists of late, but many fear that the Nepalese economy may be on the brink of collapse, as the economic costs of people having died, people having displaced from their homes, and people who have been handicapped during the decade old Maoist insurgency has eroded the potential output of the economy, according to the Asian Development Bank (ADB) chief economic experts.

Concerns about Nepal are understandable, and this has forced the Asian Development Bank to candidly state that the 10- year long Maoist insurgency has slowed Nepal’s ailing economy.

“If the conflict continues, there will be a lot more social and economic losses. Many more lives will be lost and many more people will be denied the opportunity to improve their livelihood,” according to Nepal’s ADB country director, Mr. Sultan Hafeez Rahman.

“Given that this conflict is persisting, and that there are chances it might actually deteriorate, Nepal could lose significantly more than two percentage points of gross domestic product (GDP) per annum,” Rahman added.

Meanwhile, observers claim that the economic condition of Nepal is horrible. Both its economic policies and performance have been out of steps, as the increase in insurgency has been a driving force behind the series of slumps engulfing the Nepalese economy.

As per the analysis of the experts, a further loosening of insurgency would be more than merely unnecessary: it would be risky. It could trigger further chaos in the Nepalese economy, as the 31 per cent of its population, who are living below the absolute poverty line, with an average income of just less than $ 300 per year, cannot afford the ever-growing burden of the insurgency at this critical juncture of the Nepalese socio- economic volatility.

However further the insurgency goes, the nearer comes the economic slump in Nepal. But the question is: How long will the nightmare last?

From now on, the nature of the race changes, as the world is studying Nepalese economy with broad parameters, as exemplified further by an ADB report, which focused most importantly on the drop in development spending in Nepal as a way of measuring economic decline.

The report concluded that in a high conflict situation, Nepal could see a gross domestic product growth loss of 10.3 percentage points over the next five years. Considering this fact, we are compelled to ask: How, then, might Nepal come out from this slump.

Next menace, though remittances from overseas Nepalese workers have been a lifeline for the country but the millions of dollars sent home by Nepal’s estimated 1.2 million migrant workers every year couldn’t match the conflict related loss. That’s the problem confronting the Nepalese economy and if there are lessons from this awful experience, they are worth learning.

Times are tough but the solution is simple, according to Rahman. A credible peace dialogue would restore investor confidence and boost markets and over a time horizon of maybe 15 years, Nepal can do as well in per capital terms as any South Asian country.

His point seems optimistic, but behind all the waffle is a genuine impasse, which has stalled the peace process for years. Peace brokers has been working feverishly on a fudge, as they have often done in the past, but this time their task could be far more difficult after the Maoists latest return to the bloodbath after the government’s lackluster response to their unilateral 4 months old ceasefire.