Talking to journalists on Friday, Hisanobu Shishido, policy cluster leader at World Bank Nepal Office, said rapid expansion of financial institutions without increase in the overall pie of the economy fueled unhealthy competitions. We have always told the central bank that liberal licensing policy was risky, he said. [break]
Briefing journalists about the outcomes of recently released Nepal Economic Update, Shishido said that the toxic combination of low capital formation and rapid increment in recurrent expenditure has emerged as a major challenge to the economy.
“Swelling wage bill of government employees along with bloating pension liabilities are some of the headwinds that Nepal will have to confront in dealing with its fiscal management,” he said.
Shishido further said the high monetary growth fueled by high remittance inflows seen in the past not only propelled inflation but also created fertile situation for real estate bubble, both of which has been the source all major economic problems of the country.
Referring to the report, he warned that the economy might have to face a major shock if it starts facing defaults in repayment of bank loans. Shishido also said the economic growth in coming years might further cool down if present slowdown seen in the construction sector lingered further.
There are possibilities of economic growth rate shrinking further if the present situation continued for some time, he added.
The report underlined its deep concern over the continuous poor business environment in the country and urged the government to pay serious attention toward improving investment-friendly environment.
As a result of unhealthy business environment, opportunity to make additional investments has been shrinking, the report stated.
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