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Thu, April 25, 2024

Sustained crisis & its consequences on business

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How are Businesses Responding And Adapting?

A prolonged crisis, such as that facing Nepal, requires a strategic change in leadership vision and action. From the earthquake to the embargo and then the Covid 19 pandemic to the Russia-Ukraine war and the ensuing instabilities, Nepal has seen it all. And all this in the wake of a people’s war that crossed a decade. Today many economies around the world are challenged by surging inflation, debt tightening, climate emergency, human migration, changing geopolitics, and decelerating growth rates. 

Crisis situation demands crisis response but what does prolonged crisis demand such that the country is undergoing and which has seen thousands of young people leave Nepal in search of livelihoods? Add to this, an unstable government, corruption of huge scales in governance, in law, and in business.  

The world output growth is projected to decelerate from an estimated 3% in 2023, marking one of the lowest growth rates in recent decades, according to the United Nations World Economic Situation and Prospects (WESP) 2023.

Future recession and uncertain economic conditions are guaranteed. While global growth is forecast to moderately pick up to 2.7% in 2024, can smaller economies sustain the heat of tightening global financial conditions and debt vulnerabilities? Over 85% of central banks worldwide have tightened monetary policy and raised interest rates in quick succession since late 2021 to tame inflationary pressures and avoid a recession. But global inflation reached a multi-decade high of about 9% in 2022 and is projected to ease but remain elevated at 6.5% in 2023.

In Nepal, growth rate is in the red. Mining, quarrying and construction industries are struggling. The economy has been shaken by the real estate and stock market crash and credit crunch. Sales have slowed down and business, in general, is down by 10% to 60% based on the nature of business. Industrial production has reduced to 30%. The private sector, which contributes 81% of the GDP and accounts for 85% of the jobs, is struggling to stay open and pay salaries. The situation is so precarious that even teachers' and government employees’ pension payments have been put on hold. Both the social security benefit payment and debt servicing are behind schedule. The federal government reduced the equalisation subsidies to the provincial and local governments by 50% as a result of this situation. And things could be grimmer unless the monitoring authorities think fast and well while executing policies and reforms. 

In this edition of Business 360, we spoke to different sector experts on how they comprehend the situation, the impact on their business and industry and what are they doing to ease the challenges. Answers have been mildly edited for clarity. 

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Sahil Shrestha 

CEO, Cimex Inc