There is almost no disagreement that bloating consumption fueled by remittances is the one of our major problems today. Nearly everyone agrees, albeit in different tones, that some mechanism must be put in place to limit imports of certain commodities that have contributed most in inflating trade deficits.
The central bank has already taken a number of steps to curb imports mainly by chocking flow of credits to certain commodities. The impact of such policy measures has also been encouraging – the most notable is the narrowing down of the gap between the inflow and outflow of foreign currency. This now reflects in the shrinking Balance of Payments (BoP) deficit, which has gone down to Rs 17 billion from Rs 23 billion in mid-March. However, curbing imports to limit trade deficit through the means of credit control is a short-term cure. What we have maintained repeatedly is that the country at this time needs a concrete policy to boost domestic production not only to substitute imports but also to lay the groundwork for possible exports. Studies have shown that we can be self-reliant in major agro-products in the medium-term if appropriate polices are adopted.
We hope that the upcoming monetary policy will take steps to boost bank finances to the agricultural sector that has long dried up. It is amazing that only 3 percent of the banking loans have gone to the agriculture sector, which provides livelihood to two-third of the population and contributes one-third to the national economy.
Illiquid market continues to be a major problem in the country. As a result, both lending and deposit interest rates have increased sharply. It is good that deposit rate has increased, providing some relief to the depositors. However, rapid rise in lending rates have starting discouraging investors. We hope that the monetary policy would adopt policies to ease out shortage of liquidity.
Measures promoting mergers and acquisitions of financial institutions have been long due. In the absence of this, the market has started showing unhealthy competition among over 200 financial institutions. We expect a concrete policy announcement to encourage those institutions opting for mergers and acquisition. This is essential to discourage imprudent practices and strengthen depositors’ confidence in the banking system.
However, the policies adopted by NRB alone are insufficient to deal with some of the problems that we have discussed. Nepal’s US$15 billion economy is unlikely to make breakthrough as long as they are not supplemented by a full-fledged budget, which seems unlikely in the immediate future.
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