The news of the ceasefire and the remnants of the war have entered the country at once. The attention of the state and the government should now be focused on preventing major damage to the economy and reducing fear in the society. For a small, import-dependent, landlocked and open economy like Nepal, ‘external crises’ often come in the form of ‘price hikes’. But their impact is not limited to price increases alone. Therefore, the crisis in daily life may deepen. Is it possible to address it or not? In this article, I will discuss this question. 

There are cracks in the world order. War and power competition have destabilized energy and food markets. Supply chains are disrupted. Sanctions and retaliatory sanctions have complicated financial transactions. Sea route and transportation risks are increasing costs. The biggest concern is the erosion of the effectiveness of the multilateral platforms, institutions and mechanisms that work to manage these crises. 

As powerful nations themselves enter into selfish conflicts and wars, coordination has decreased. The rule-based approach to resolving trade disputes is weak. In a crisis, it is becoming increasingly difficult for countries to come together and think together. In such a situation, the security that ‘rules protect’ is reduced for small countries. After that, they have to struggle to ‘preserve their status’. 

Against this backdrop, there is an environment of ‘post-Gen-G expectations’ within Nepal. Where citizens demand transparency, results, fairness and opportunities. Therefore, the challenge for the government between the shock of a war-related external crisis and high expectations within is not only economic stability, but also trust and social peace.

The first shock of an external crisis often starts from the energy market. Its impact in Nepal spreads like a ‘cost fire’. When crude oil and gas become more expensive, transportation becomes more expensive. The operating costs of the industry increase. The cost structure of everything from agricultural products to daily consumption in the city deteriorates. Since Nepal has a transport-dependent supply system, when fuel prices rise, everything including vegetables, milk, medicines, construction materials, service charges become more expensive. When the industry sees the cost of imported raw materials and energy increasing, they start reducing production. They start increasing prices. Which puts pressure on employment and income. Such ‘cost-based inflation’ reduces the real income of the common man. Its impact is deeper on the stable income class and the lower income group.

The global oil crisis of the 1970s is an example of how inflation and slowdown came together in many countries. Although the industrial structure of Nepal at that time was not the same as it is today, the reality of inflation through imported fuel and transportation costs is old. Now, with urbanization, diversification of consumption and increased import dependence, price shocks spread faster and more widely.

The second shock comes from supply chains and transportation risks. Here, the impact of the erosion of multilateral institutions and forums is more evident. When war makes sea routes unsafe, ‘freight rates’ increase, insurance premiums increase and transportation times become uncertain. Since Nepal is landlocked, it affects the cost and time of imports here. The restrictions and compliance imposed during war complicate banking payments and trade finance. Credit, insurance and settlements become expensive for small importers. When multilateral mechanisms are weak, the chances of rapid coordination or resolution of disputes in such problems are also reduced. What Nepal has learned from past experiences of supply disruptions/discomforts is that when the supply of fuel, medicine and essential goods is disrupted, not only the economy but also daily life comes to a standstill. Businesses are closed. Construction is hampered. Even hospitals and schools are affected. Today's digital age further complicates the crisis. Because rumors spread quickly and the fear of 'not getting it tomorrow' increases excessive buying. Such a psychology in itself is a crisis. And, information, monitoring and trust-building become the main test of the government's ability to control it.

In this situation, food security is the most sensitive dimension. The grain production sector, edible oil supply, and chemical fertilizer imports are affected. During a crisis, many countries ban exports citing domestic security. In Nepal, when fertilizer is slow or expensive, the risk of production decreases. When food production decreases, prices increase. When prices increase, the nutrition of poor families decreases. Food prices increase discontent in society. When the price of bread, rice or fuel increases, there is a possibility of political instability. In the era of post-Gen-G expectations, the price hike of daily necessities can quickly become a digital debate and a street agenda. In this situation, the government cannot be avoided simply by saying ‘due to the expensive global market’. Citizens ask – where was the state prepared, how much was the storage, why did the distribution go wrong, how was the black market stopped, and how was the vulnerable protected? It becomes the responsibility of the government to be able to answer these questions in a credible manner.

Tourism and service sectors are affected. As the perception of risk increases in the world, fewer passengers travel. Air tickets become more expensive when fuel is expensive. When the global economy slows down, people cut back on alternative spending. When tourism decreases in Nepal, income decreases in hotels, guides, trekking agencies, transportation, restaurants, handicrafts, local enterprises, etc. One lesson that Nepal learned from the internal conflict of 1996-2006 is that security risks reduce demand. If external wars increase regional instability, tourism revival in Nepal may be more difficult. When tourism decreases, foreign exchange earnings decrease, which is an important pillar for the economy. Remittances are also not exempt from the current uncertainty. When the global market slows down, project construction rates and investment in the destination country decrease. Employment opportunities decrease. The labor market becomes unstable. Immigration policies begin to tighten. Household consumption decreases as remittances decrease. Debt repayment capacity weakens. Credit quality risks increase in the banking system. Foreign exchange flows required to finance imports weaken. Thus, the existing uncertainty simultaneously puts pressure on everything from household budgets to the nation's foreign exchange reserves.

In an era of various wars and the erosion of multilateral mechanisms, an additional structural problem increases. That is, geo-economic fragmentation. Trade and investment can no longer be based solely on 'cheap and fast'. 'Safe and predictable' and 'politically acceptable' must also be considered. Geopolitics begins to dictate more than economics the questions of which technology a country should give to whom, who controls which raw materials, and which route is considered safe. When multilateral forums weaken, rule-based trust decreases. And, bilateral/regional bargaining increases. Where the bargaining power of small countries is limited. The Nepali private sector will ultimately have to pay the high cost. The private sector will have to bear additional expenses such as changing supply sources, setting new standards, strengthening the financial system, and paying risk premiums. In such an environment, investment stops. The private sector starts adopting a wait-and-see policy. Industrial expansion is postponed. Job creation is almost zero.

Coordination has decreased as powerful nations have entered into selfish conflicts and wars. The aspect of resolving trade disputes based on rules is weak. It has become difficult for countries to respond and think together in a crisis. In such a situation, the security that ‘rules protect’ for small countries decreases. After that, they have to struggle to ‘preserve their status’.  When this global context is linked to expectations within the country, it is necessary to change the government’s policy-making and implementation style. Nowadays, citizens demand the background, logic, process, data, and results behind decisions. They are not ready to compromise on transparency and accountability. The digital public sector immediately exposes government weaknesses. It forces the government to become more efficient. Dissatisfaction also quickly organizes. Therefore, the government should consider crisis management not only as a ‘technical problem of the economy’ but also as a ‘management of trust’. Here, the government’s economic policy comes as a key tool to influence the economy through public spending and tax rates. The essence of economic policy is for the government to initiate necessary reforms in the economy by adjusting spending and tax rates. Even if the shock of an external crisis comes at a cost, it should be able to manage the distributional impact of ‘who will be affected and how much’ through economic policy. It should be possible to divert spending towards building long-term resilience so that demand does not contract excessively.

At such times, the priority of economic policy should not be ‘for everyone’ but ‘targeted security’. Providing equal relief to everyone during cost-based inflation increases the size of the expenditure. This increases financial risk. However, if targeted assistance is provided based on needs, even limited resources can provide greater social stability. Therefore, programs that secure essential food, health, and the livelihood of low-income families should be at the center of the government’s spending policy. Its aim is not only to get the economy moving all at once, but also to prevent the crisis from destroying vulnerable groups. When citizens see that ‘the state has touched the weakest’, social acceptance of difficult decisions increases. At the same time, tax policy can also play a role in ensuring that the prices of essential goods do not rise further. For example, the tax structure can be adjusted temporarily to facilitate the supply of essential goods and raw materials. But that adjustment should be made transparent and time-limited. Tax exemptions and adjustments provide relief. But if they are carried out indefinitely, the revenue base weakens.

As tourism, remittances, or private demand weaken, the economy may experience a demand shock. In such a situation, government spending can soften the cycle of demand decline. But where to spend is decisive. Increasing production capacity in the long run is not a matter of demand alone. Long-term production is determined by capital, labor, and technology. Therefore, economic policy should be designed in such a way that it supports the economy in the short run and improves capital, labor, and technology in the long run. For example, spending focused on infrastructure to reduce energy dependence, supply facilitation, agricultural storage, and irrigation, and human capital (skills/health) increases long-term resilience. Such spending not only provides ‘today’s relief’ but also increases ‘tomorrow’s capacity’. This means that the country will be less hurt even if an external crisis recurs. On the contrary, averting the crisis by only distributing relief on consumption may calm today’s discontent, but there is a risk of returning to the same place tomorrow.

When multilateral platforms and mechanisms are weak, the crisis can be prolonged. Therefore, ‘credibility’ and ‘discipline’ are decisive in economic policy. As revenues decline and expenditures increase, the budget deficit increases. If there is no clarity about the government’s fiscal direction, uncertainty increases. Banks, the private sector, and consumers all hold back decisions out of fear of the future. Therefore, the government needs clear priorities in both taxes and spending. The government needs clarity on questions such as which spending is mandatory, which spending is deferred, which relief is targeted and for how long, and which tax rates will be adjusted, why and for how long. In the current environment, a ‘rules-based budget’ increases trust. Because citizens see the decision-making process, logic, and data. At the same time, the crackdown on black markets, cartels, and corruption in a crisis is linked to the effectiveness of economic policy. Because if spending/relief leaks, resources run out. And public trust too. In other words, economic policy is not just a budget number. Its effectiveness is tied to the discipline of governance. And, also, to the government's intentions.

In such a scenario, Nepal cannot keep diplomacy and economic management separate. When multilateral mechanisms are weak, regional/bilateral practical cooperation on issues such as transit facilitation, emergency supplies, trade finance, and market access becomes even more important. Here, the government's spending policy is also linked to diplomatic priorities. For example, improvements such as the storage/logistics infrastructure required for supply diversification or digitization and facilitation of import processes. The security of a small country is no longer just a military or political issue, but economic and supply security is part of national security. Nepal has historically survived through balanced diplomacy. Even in today's geo-economic competition, balance does not mean inaction. It means diverse partnerships and risk diversification. जसलाई आर्थिक नीतिले आवश्यक संरचना र क्षमता दिएर समर्थन गर्न सक्छ ।

अन्ततः, बाह्य संकट र बहुपक्षीय मञ्च तथा संयन्त्रहरूको क्षयीकरणको युगले नेपाली अर्थतन्त्रमा इन्धन र खाद्य मूल्यबाट सुरु भएर आपूर्ति, उत्पादन, रोजगारी, पर्यटन, रेमिट्यान्स, विदेशी मुद्रा र बजेटसम्म फैलिने बहुआयामिक दबाब सिर्जना गर्छ । र, यो दबाब पोस्ट–जेन–जी अपेक्षाको युगमा सामाजिक–राजनीतिक रूपमा अझ संवेदनशील हुन्छ । त्यसैले राज्य र सरकारको ध्यान अर्थतन्त्रलाई ठूलो हानि हुनबाट जोगाउने र समाजमा भय कम गर्ने दिशामा केन्द्रित हुनुपर्छ । यो नीतिगत बाध्यता हो । 

आर्थिक नीति, यसको मूल अर्थअनुसार, खर्च र कर दरका निर्णयमार्फत अर्थतन्त्रको व्यवहार प्रभावित गर्ने सरकारी औजार हो । र, यही औजारलाई सरकारले लक्षित राहत, आपूर्ति सुरक्षा र दीर्घकालीन प्रतिरोध क्षमता निर्माणमा प्रयोग गर्नुपर्छ । संकटको बेला सबैभन्दा कमजोरलाई जोगाउने खर्च, अत्यावश्यक आपूर्ति सहज बनाउने कर/शुल्क समायोजन र पुँजी–श्रम–प्रविधि सुधारतर्फ केन्द्रित दीर्घकालीन लगानी आवश्यक छ ।