Fueling Nepal’s economic crisis

Prime Minister Sher Bahadur Deuba was forced to sack Janardan Sharma this week, but only after his finance minister became a political liability because of sinking neck-deep in scandals.

Instead of trying to resolve Nepal’s growing economic crisis, Sharma inducted yes-men with no finance background into the ministry, and ousted the Rastra Bank governor for blocking a money-laundering scam. He then involved an unauthorised ‘expert’ at a late-night budget drafting meeting to change tax rates, and later alleged deleted CCTV footage implicating him.

Much of the credit for exposing Janardan Sharma goes to Nepal’s mainstream media which investigated his wrongdoings, as well as exposing corporate houses including the Chaudhary Group, Shanker Group, Saurabh Group and Jagadamba that stood to benefit directly from Sharma’s tax rebates.

Deuba coddled his finance minister till the end despite growing criticism from within his Nepali Congress, as well as pressure from Sharma’s Maoist Centre party. All this meant that the prime minister and his finance minister took their eyes off the ball as Nepal’s economy started going into free-fall.

This week Sri Lanka declared it did not have cash to import any more fuel, and officially declared bankruptcy. Nepal’s officials have said the country is not in the same debt trap, but there are many indications that the crisis is deepening.

The clearest yet was Nepal Oil Corporation (NOC) asking the government this week to implement 10 austerity measures to reduce petroleum consumption, including by reimposing the two-day weekend, odd-even traffic rule, quota at filling stations, discouraging vehicle use, car pooling, and a ban on import of petrol and diesel vehicles.

Illustration: RABINDRA

Last week, the government reduced the tax on petroleum imports to reduce petroleum prices, but the NOC warned of “dire consequences” because it was running out of money.

“Reducing gas prices by reducing taxes was absolutely of no use in the long run. They could have instead used tax money to promote and invest in sustainable measures,” says climate negotiator Manjeet Dhakal.

He adds: “By reducing the tax the government is essentially abusing democracy by claiming to reduce the burden to the people in the guise of improving its chances in elections.”

It is because of such short-sightedness that Nepal’s economy was in trouble long before Covid and Ukraine. The banking sector had a liquidity crisis because it had over-extended loans to real estate speculators. Stagnant overseas remittance, falling exports and a jump in imports had led to a growing trade deficit, and depleted foreign exchange reserves.

However, some experts still believe that Nepal’s macroeconomic picture is sound, a healthy monsoon so far could mean a good rice harvest, and the INR-NPR peg cushions Nepal from the worst impact of the global crisis.

They also say the fuel crisis provides Nepal with the perfect opportunity to accelerate the shift away from fossil fuels in transport, industry and households. Nepal needs to wean itself off petroleum not just to reduce its per capita carbon footprint, but to cut consumption of fossil fuels which now make up 20% of the total import bill.

In the last nine months, Nepal spent Rs218 billion importing petroleum products, which is 82% higher compared to the same period last year. This is nearly 20% of the country’s total imports, and is worth nearly double the income from all exports.

Switching to electric public transport and battery vehicles to reduce the petroleum import bill by just 10% would save the county at least Rs21 billion a year.

However, from July-December 2021, Bagmati Province alone saw the registration of 81,227 new vehicles, 75,573 of which were motorcycles and scooters. If they had been electric two-wheelers, fuel costs would have been reduced.

“At this rate, we maybe fast approaching the fate of Sri Lanka and the only way ahead is maximising the use of domestically generated electricity primarily in the transport sector,” says Bhushan Tuladhar, board member of Sajha Yatayat which is starting electric buses in Kathmandu starting this week.

“We have policies in place, but crucial details are missing such as how to incentivise electric buses, dedicated charging stations and coordinated management of public transport,” Tuladhar adds.

Electric mass transit has long been identified as a cost-effective solution, and the government needs to facilitate loans for electric buses which are about five times more expensive than diesel ones, or subsidise them so that the private sector can invest in them.

Industry experts are reworking Nepal’s Nationally Determined Contribution target submitted to the UNFCCC (Framework Convention on Climate Change) in 2021 with a particular focus on electric public transport.

Photo: AMIT MACHAMASI/NEPALI TIMES

They have proposed an increase in sales of electric public transport to 60% by 2030, reduction in custom and excise duties for electric buses, grants and soft loans to procure them, and ensuring at least three provinces operate electric public transport by 2025.

The other low-hanging fruit is a shift from LPG to electricity in households and restaurants, but transmission lines and distribution need to be upgraded so the grid can handle the load.

In the Tarai, electric rickshaws are becoming popular, and municipal biodegradable garbage and crop residue can all be turned into compost to reduce imports of chemical fertiliser.

All of this will also help Nepal meet its global climate targets set at Glasgow during the COP26 last year to achieve net-zero by 2040, and 45% forest cover by 2030.

Nepal therefore needs to do its bit to reduce its petroleum imports to save both the economy and ecology. But that needs political will, which is sorely lacking during this election year.

Says Bhushan Tuladhar: “If we don’t act even now, it will be too late. We need to work on energy, economy and environment simultaneously by involving both the government and the private sector.”

Read more: Sky high fuel price hits Nepal’s tourism, airlines, Nepali Times