Half empty

While releasing the review of 2011/12 monetary policy on Friday, Nepal Rastra Bank (NRB) blew the same trumpet that Ministry of Finance did a week ago: the economy would grow at the rate of the forecasted 5 percent while the balance of payment surplus (Rs 40 billion) too would beat expectations (Rs 5 billion). These are good indicators, no doubt. What is worrying though is that while publicizing these figures, the central bank did not bother to take into consideration even the basic concerns of the people.



For instance, how will this growth and BoP surplus help common folks? The answer depends on the opportunities created by the growth and its capacity to permeate to the grassroots level. So is the projected growth as inclusive and broad-based as government promises?



Sadly, facts and figures that the central bank has chosen to keep close to its chest suggest that will not be the case. NRB has admitted it would fail to contain inflation at 7 percent, as promised (the revised target is 8 percent). While arguing that increased production would eventually lead to price drop, it has cautioned the farmers who are anticipating strong gains from bumper paddy and agro productions that they will be cheated yet again.



Though the service sector will continue to grow strongly, the outlook for the manufacturing sector—that employs semi- and un-skilled people en masse—will continue to be dismal. Public spending is still low and worse, the flow of credit to the private sector, which helps create jobs and maintain economic sustainability, has dropped to half the level of the previous year.



Still three out of every four Nepalis are deprived of formal financial services, as central bank’s drive to financial inclusion has not worked. And the adverse impact of bursting of the real estate bubble—postponed for now through relaxations of earlier corrective measures—still looms large. Given such a situation, the general public wants to know in clear terms: What are the real problems that caused NRB to miss most of its targets? Such a review and introspection would help NRB tackle those impediments more effectively. Sadly, the central bank has failed to do so, and limited the crucial policy review process to a mere ritual.



Equally importantly, how sustainable are the elevated growth target and rise in BoP? Frankly, we doubt their sustainability. The good outlook at present owes more to fortune than vital policy reforms. For instance, Nepal achieved a record growth in cereal production last year, not because of expansion of irrigation facilities or enhanced supplies of agricultural inputs, but because of good monsoon.



Similar is the story of remittance growth. Hence, we urge the central bank to urgently push through the much-needed reforms, rather than sitting on progress on unsustainable indicators.

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