The number of blacklisted individuals has surged notably in Nepal. Banks and financial institutions (BFIs) have been struggling to recover their bad debts. According to the Credit Information Bureau of the central bank, a total of 37,523 individuals were blacklisted in the first eight months of the current fiscal year – up from 33,276 during the period from mid-April 2023 to mid-April 2024. Loan defaults have been increasing rapidly over the past seven years. As of now, well over 110,000 individuals remain blacklisted by the country’s financial system. Citing the economic slowdown, industrialists and businessmen have failed to pay both the interest and principal on their loans within the stipulated time. As a result, the non-performing loans of commercial banks alone have reached around five percent. Non-banking assets have also grown by 79.89 percent to Rs 35.82 billion.
The irony is that economists and politicians want us to believe the economy is in good shape. The actual situation on the ground tells a different story. Inflation remains as high as ever. Banks have huge deposits, but potential investors are unwilling to borrow or invest, and there is widespread fear of capital flight. The continued economic slowdown has led to a decline in government revenue. The largely import-dependent economy is in bad shape. Otherwise, banks would not have witnessed an alarming rise in loan defaults. Businesses and individuals who took loans mostly before and during the pre-pandemic economic boom now find themselves unable to repay their debts. With the increase in loan defaults, the number of blacklisted individuals in Nepal’s banking system has surged significantly. Blacklisting restricts individuals and businesses from acquiring further loans or engaging in financial transactions. The COVID-19 pandemic left an indelible mark on global economies. By 2022, however, most nations set themselves on the path to recovery. Nepal’s economy, on the other hand, stands still and struggles to regain momentum. Five years down the road, financial distress continues. Key economic indicators suggest a steady decline. A marginal decrease in imports and a similar increase in exports will not help. We need exponential growth.
Enhancing Development Planning in Nepal
The economy relies heavily on remittances, tourism, and agriculture, all of which have suffered massive disruptions since the pandemic. Remittances nosedived as migrant workers faced job losses and reduced incomes in the Gulf and other countries, while lockdowns and international travel restrictions led to a sharp decline in tourist arrivals. Likewise, the agriculture sector suffers from various issues, such as the timely availability of seeds and fertilizer, and a lack of irrigation facilities, among others. Small and medium-scale enterprises suffer from a lack of financial assistance, including tax incentives and skill development programs. Many SMEs have closed their doors. The industrial sector suffers from limited access to markets. A severe shortage of electricity continues to hamper production. Unemployment is rising, and thousands of youth are crossing the border southward in search of seasonal employment opportunities in India. Others borrow high-interest loans from local moneylenders and/or cooperatives and head for the Gulf countries or Malaysia as semi- or unskilled laborers. This crisis, if left unchecked, is bound to have more serious long-term repercussions on the country’s financial stability and overall economic growth. Addressing these challenges requires a multi-pronged approach involving government intervention, banking sector reforms, and strategic economic policies to rebuild financial confidence and ensure sustainable growth. The central bank must take urgent steps to address the issues facing borrowers. Offering loan restructuring options to borrowers facing financial difficulties, for example, could definitely help prevent widespread defaults while parallel programs aimed at economic recovery are formulated.