Hi, this is Hot Mike. And I am Nidhi Razdan.
So there is a war going on in Ukraine which has been in the headlines all over the world but if you don’t pay attention then there is a crisis in India’s neighbourhood. From political turmoil in Pakistan to economic slowdown in Sri Lanka and now India’s northern neighbor Nepal is running out of foreign exchange reserves. It’s relentless. So what’s really going on in our neighborhood? Well, Sri Lanka first.
For weeks now, the island nation has been engulfed in anti-government protests as it faces its worst economic crisis ever. Very simply, Sri Lanka has run out of foreign exchange that would enable it to buy essential goods including food, medicines and fuel. Their economy, over the years, has been heavily dependent on imports of all these essential commodities. But the pandemic and a series of poor policy decisions have left Sri Lanka in this precarious position today.
This week, for the first time ever, protests turned violent and a protester was shot dead by police in the central city of Rambukana. This caused great outrage. This is the first time the police have used ammunition since the protest began. The protesters, led mostly by youth and students, want President Gotabaya Rajapaksa to resign, but he is refusing to step down. In many areas, power cuts have been going on for more than half a day. People stand in line for hours to get fuel. And major hospitals have run out of medicines while local politicians have warned of a starvation crisis.
Meanwhile, Pakistan has moved from one crisis to another. There was extended political turmoil due to the no-confidence motion against Prime Minister Imran Khan. And in the end, he had to go – kicking and yelling. But now Pakistan is facing energy crisis. There are massive power cuts as the country can no longer afford to buy coal or natural gas from abroad to fuel its power plants.
The problem with Pakistan is that it is heavily dependent on imported oil and gas for its power sector. The new Finance Minister Mifta Ismail has said that about 7,100 MW of electricity capacity
By 13 April it was closed due to lack of fuel. Pakistan is already struggling with its economy. Inflation is at an all-time high of 13%, fuel prices are on the rise and the country is grappling with debt. These were also the major factors that prompted the opposition to come together against Imran Khan and turn the opinion of the army against him.
The situation is so bad that this week it was reported that the prices of petrol and diesel may go up by 83 Pakistani rupees and 119 rupees per liter respectively. Their forex reserves are also at their lowest level since June 2020.
And now Nepal. Like Sri Lanka, Nepal’s economy is also heavily dependent on tourism and imports. And like Sri Lanka, Nepal is also facing forex reserves crisis. Foreign exchange reserves have been declining since July 2021. The KP Sharma Oli government fell soon after the political crisis in the country. Exports declined sharply, while tourism income was severely affected by the pandemic.
Foreign exchange reserves fell 18% to $9.6 billion from mid-July to mid-March – enough for almost six months of imports. The Nepalese government has now appealed to its citizens living abroad to deposit money in Nepalese banks. These remittances, or money earned by Nepalese citizens abroad and sent back home to their families, are vital to Nepal’s economy.
In Nepal, remittances by foreign workers, who make up about a quarter of the economy, are important for outbound payments. These fell 3% from mid-July to mid-March to $5.3 billion, compared to a 5% increase in the same period a year ago.
Nepal’s finance minister, who denies any comparison with Sri Lanka, has said that if 100,000 Nepalese citizens living abroad deposit $10,000 each in Nepalese banks, it would help the country to overcome its existing liquidity constraints. can go a long way in helping. However, forex reserves are currently expected to remain only till July this year.
The country is also dependent on imports for essential items like fuel and medicines. As the crisis deepened, Nepal’s Central Bank also banned imports of luxury goods such as cars, gold and cosmetics to preserve its foreign exchange reserves.
But soon after, the government of Nepal suspended the governor of the central bank for not doing enough to save the economy.
In both Sri Lanka and Nepal, India has the opportunity to step in and help counter China’s influence in both these countries. But in the face of high inflation and high fuel prices, India is also facing a lot of challenges at the moment.
The war in Ukraine only complicates matters for many of the world’s economies.