Former Nepal Rastra Bank Executive Warns Middle East Crisis Poses Direct Threat to Nepal's Economy

Former Executive Director of Nepal Rastra Bank, Gunakar Bhatta, stated that the crisis unfolding in the Middle Eastern countries will directly impact the nation's economy.

Speaking at an event organized by the Economic Journalists Association of Nepal (SEJON) in the capital on Friday, he noted that the conflict is causing a rise in crude oil prices, which will have a direct effect on the Nepali economy.

According to him, if the conflict persists for a long time, risks will increase not only for Nepal but globally. International studies show that if the price of one barrel of oil increases by 10% due to war, inflation rises by 0.4%. Viewed that way, the International Monetary Fund (IMF) has indicated that economic growth will decrease by 0.15%.

He further stated that if the conflict lasts long, there is a danger of oil prices increasing by up to 25%. Currently, due to the war, hoarding tendencies for gas are being observed in countries including India and Nepal. He warned that this could gradually lead to shortages.

Bhatta mentioned that as people rush to stock up on everything from food to gas due to the war, businesses might also engage in creating artificial shortages of these commodities. According to him, rising inflation disproportionately affects the lower class. He warned of the danger of increased poverty and income inequality immediately following price hikes.

Bhatta pointed out that the ongoing global wars are also affecting Nepal's economic growth rate.

He said, "There is a risk that economic growth will be affected. We are talking about starting reconstruction work. There was a period when petroleum prices were low in the market for a long time, but that situation will no longer remain. It will be difficult to move forward with reconstruction work now. Supplying raw materials easily is not simple. Therefore, construction work may be affected. When general economic activities are affected, the country's economic growth is also affected. In the coming days, transportation, wholesale, and retail activities, which contribute significantly to our economy, will start to be affected. The tourism sector also appears to be impacted by the war. Imports and exports may also be affected."

According to him, since half of the fertilizer imported into Nepal comes from the Middle East, its disruption will affect agricultural production. He stated that if agriculture, tourism, and daily economic activities are affected, the economy could face a major crisis.

Bhatta also warned of a potential decline in remittances coming into the country due to the conflict. He noted that 40% of Nepali workers are employed in Middle Eastern countries alone. If they are affected, remittances will decrease, posing a risk of decline in foreign exchange reserves in the coming days.

He suggested that a weakening of foreign exchange reserves could lead to donor agencies hesitating to provide assistance in the future.

His view is that if foreign employment is affected by the war, managing the workers remaining in Nepal could become a major challenge.