KATHMANDU, Oct 10: Nepal’s political crisis may set back hopes of turning around the troubled economy, as donors and tourists hesitate to spend money in the kingdom, financial experts said on Thursday.

King Gyanendra on October 4 declared prime minister Sher Bahadur Deuba “incompetent” and said he would assume power until he selects an interim government.

His self-imposed deadline passed Thursday, as palace sources said he was still deciding whom to appoint.

Economists said all would depend on whether the king’s actions bring stability or more chaos to the kingdom, which has been ravaged for the past year by an increasingly violent Maoist insurgency.

If the king sets right the track of the democratic systemnd pursues a strict role of constitutional monarch, the royal action may have a positive impact on the Nepalese economy and tourism as it would assure good governance and a peaceful environment, said political analyst Parthiv Shumshere Thapa.

But if the king acts against the constitution and derails the democratic system... it may invite protests and political instability, he said.

Nepal’s gross domestic product grew by just 0.8 per cent in the fiscal year that ended July 15, far below the projected 6.0 per cent.

Tourism, the main hard currency earner in the land of Mount Everest, has plummeted since June 2001, when Gyanendra’s brother king Birendra and nine other members of the royal family were massacred by the drunken former crown prince.

Many visitors are still staying away as the Maoists, who want to topple the monarchy, clash across the kingdom with security forces.

The World Bank, the Asian Development Bank and Nepal’s chief donor Japan have all postponed fresh financial assistance until parliamentary elections that were due in November.

With Gyanendra delaying the polls, the aid appears likely to stay in limbo longer.

The World Bank, the ADB and other aid donors had agreed to grant about 100 million dollars to help Nepal’s public exchequer for development as stipulated in the budget of fiscal year 2001-2002, said Prithivi Raj Ligal, former vice chairman of the National Planning Commission.

If the democratic system in the country is threatened and peace is not restored, the aid donors may suspend the grants, added economist Pitambar Khadka.

The political crisis has also hit the National Planning Commission, which drives economic policy. The commission’s five members were appointed by the sacked prime minister and plan to resign as soon as the interim government is formed, sources close to them said.

The British Foreign Office’s minister for Asia, Mike O’Brien, is due to chair a previously scheduled donors meeting in Kathmandu on Friday. He has been meeting with political leaders and is expected to have an audience with the king.

If the king’s action affects the country’s parliamentary democracy negatively, it may have a grave impact on the foreign aid, said Mahesh Man Shrestha, an economics professor at Lalitpur Campus.—AFP