Russia-Ukraine Conflict and its Impact on Nepal

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Photo: PTI

The Russian invasion of Ukraine has been ongoing since 24 February 2022. Even though Russia and Ukraine have been at war since 2014, Russia has now entered Ukraine for the past 5 weeks using military force. Many are killed, infrastructures destroyed and now an attack on Mariupol is ongoing.  Russia’s attack on Ukraine has shaken the whole world. More than 4 million Ukrainians who have fled are seeking refuge in neighbouring countries. The western nations have condemned and imposed sanctions retaliating against the devasting invasion of Russia on Ukraine. The embargoes and sanctions have been escalated over the past few weeks to discourage Russia from further invasion. The USA, UK and many western countries have cut off gas and oil supply from Russia, Russia’s assets are frozen, excluded from their financial systems, bans on Russian flights. Until March 24, additional sanctions by the US in collaboration with the EU and the G-7, targeting members of the parliament and additional individuals, are imposed. Yet, Putin has not budged the slightest and has shown no intentions of withdrawing his military from the Ukrainian territory. If the war is prolonged the whole world will see impacts on the global economy.

The government of Nepal has already voiced against the atrocities of Russia, even, voted in favour of the UN resolution to condemn it. India and China have stated neutrality on the matter. Then why would Nepal, a non-aligned committed nation take a side in the war? Nepal’s Foreign Minister Narayan Khadka in an interview stated that “We stand for human rights, peaceful co-existence of small nations and the UN charter,” and further elaborated, “Respecting the idea of non-alignment policy does not mean that we are associated with one particular camp.” Nepal believes in Human Rights and condemns matters that challenge international peace and security; invasion against any nation is condemned by the UN charter which Nepal has been a member of since 1955. Taking no sides would also imply the “Might is right” narrative, which a country like Nepal situated in between two emerging powers comprehends.

While the western world has seen a direct impact on the economy, Nepal still falls victim to the impact of sanctions imposed by the western world. Over the past few weeks, fuel prices have increased drastically; within the time period of 3 weeks, the prices have risen from 133rs/l to 150rs/l. This is expected to increase even more and a new list of petroleum prices has been increased to 155Rs/l on March 16 as mentioned in the press release of Nepal Oil Corporation. Moreover, on 29th March Nepal Oil Corporation has sent a proposal to the Ministry of Industry, Commerce and Supplies, proposing added public holidays on Sunday, an odd-even rule on vehicles, government reduction of customs duty on fuel to manage shortage and adverse impact of the increase in fuel prices.  Deputy Director-General of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Gokarna Awasthi said the Ukraine-Russia crisis would weaken Nepal’s economic growth and quicken inflation. Inflation has increased and is estimated to increase by two digits as for now it has increased to 5.65 but may reach 10% if the Russia-Ukraine extends a few more weeks, production costs, transportation costs will spike up where consumers will be highly impacted by it. The Central bank of Nepal through a research study on ‘The Impact of Food Inflation on Poverty in Nepal’ has predicted that the 10% rise in inflation in Nepal will push additional 100,000 people into poverty and 180,000 additional people into food poverty. This is a dire situation for Nepal to be in.

Nepal has trade and diplomatic relationship with Ukraine since 1993. As of 2020, according to the direction of trade statistics reported by the International Monetary Fund, Nepal’s export is 0.02 million and 202 million spent on imports. Hence, the direct impact on the economy by the conflict is estimated to be minimal.  Even though the import and export trade with Ukraine is not as distinct, the war has affected the rate of commodities that are exported from Ukraine and Russia. As reported in Rising Nepal Daily, “Director of Pashupati Edible Oil Industry Amit Sarda informed that loading and shipment from both the countries have been stopped now.” This will mount to the shortage in goods such as ghee and oil, making the costs of these goods increase in the market. Since the war has disrupted the global supply chain and promoted the increase in costs, it will indirectly affect the economy of Nepal as well. If the cost of merchandise persists to upsurge in the international market, Nepal has to use the foreign currency reserves to meet the import demands of the country.

Nepal during the pandemic has already suffered from severe damage to the economy and intensified poverty as many lost jobs, industries were shut down, markets were closed, borders were stringent for trade. Now was the time for Nepal to escalate its economic growth of the country. It is high time for the country to focus on internal resource management and the growth of industries and production within the country. Time and again in various ways Nepal has had to face scarcity of goods and products as during the earthquake devastation, blockades, pandemic and now Russia and Ukraine war supplementing the situation for economic loss. The cascading economy of the country throughout these events should be a great lesson for the country to seek out new possibilities to fulfil the gaps of goods and reduce the inflation rate. Alternative sources should be sought out. Oil prices are flaring up; hence, Nepal should limit its petroleum usage and shift to renewable energies. Heavy investments in the hydropower sector are needed to reach its optimum production level. Nepal being an import-based country needs to act rapidly and be perceptive in improving the home production of goods.

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