The ongoing conflict in West Asia has severely affected the global economy. Despite Pakistan’s sincere efforts to end the war, peace talks between senior U.S. and Iranian leaders in Islamabad ended without any conclusion. The International Monetary Fund (IMF) has already warned of a possible global economic crisis. Nepal will not remain untouched by these developments. It is still uncertain when the US–Israel conflict involving Iran will come to an end. Even after a two-week ceasefire announced on Thursday, Israel continued heavy attacks on Lebanon, causing significant casualties.
Shortly afterward, the Strait of Hormuz was reportedly closed again, creating serious disruptions in global petroleum supply. If the Strait remains closed, it could have a major negative impact on the global economy. Nepal, which depends heavily on imported petroleum products, has already been affected by rising fuel prices.
The government had imposed high taxes on petroleum imports. Although it later reduced these taxes by 50 percent, fuel prices are still above Rs 200 per litre. Nepal is already going through a fragile economic phase and is relying on foreign loans even to meet regular government expenses. Experts and observers have long suggested exploring alternative ways to strengthen the economy, but successive governments have largely ignored these concerns and continued to depend on borrowing.
The global situation is also changing. In the past, developed countries often supported developing nations through grants and low-interest loans. Now, such support is decreasing. It may become more difficult for countries like Nepal to access affordable loans in the future.
At the same time, Nepal’s economy depends heavily on remittances. If the conflict in West Asia escalates, many Nepali workers may be forced to return home from Gulf countries, which are at the center of the crisis. This could significantly reduce remittance inflows. A prolonged conflict could also hurt Nepal’s tourism sector, further weakening the economy.
The current government, led by Balen Shah, appears strong politically, but it may soon face serious economic challenges. It will need to reduce spending in unproductive sectors and create job opportunities for young people. Restructuring state-owned enterprises and promoting domestic industries are urgent steps toward making the country more self-reliant.
Since the economic slowdown that began during the COVID-19 pandemic in 2020, Nepal’s domestic market has been struggling. Businesses are facing low demand, and economic activity remains weak. Reviving the domestic economy and restoring public confidence will be one of the biggest challenges for the government in the days ahead.
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