The Nepal Rastra Bank has finally got its Governor. The central bank had been rudderless for more than a month since Maha Prasad Adhikary's tenure as Governor ended on April 6. The appointment of Dr Biswo Nath Poudel as the new governor of the country's central bank suggests that sanity has finally prevailed among the coalition partners. That it took so long for the strongest-ever government to find a competent hand to head one of the most important portfolios of the country. The delay in appointment of the Governor was evident to suggest that there was a massive tug of war between the coalition partners Nepali Congress and the CPN (UML). The delay had threatened the well-being of the coalition government headed by Prime Minister KP Sharma Oli but backed by the largest party in Parliament. Prime Minister Oli and Congress President Sher Bahadur Deuba, the two most important persons in the present day Nepal, stuck to their guns to the last minute, exposing a widening rift between the ruling partners. The run-up to the appointment of the Governor was marked by staggering high-voltage drama involving writ petitions, resignation and reconstruction of the recommendation committee headed by Deputy Prime Minister and Finance Minister Bishnu Paudel that actually never met before today.
This inordinate delay in the governor's appointment left the central bank rudderless at a time when decisions on interest rates, foreign exchange reserves, and monetary policy could not wait. The government is due to present the national budget soon. In the absence of a governor, the fiscal planning process has remained incomplete, threatening financial market stability. The opposition used the opportunity to question the government's priorities, while public faith in the government has taken a blow. The fight for control over the central bank and the delay in appointment have called into question the coalition's coherence. With Poudel's appointment, however, attention turns to what he brings to the table. His credentials include both academic and institutional experience. A doctorate in agricultural and resource economics from UC Berkeley, who led the National Planning Commission as its vice chair and acted as an advisor to the International Labour Organisation, Dr Paudel's grasp of both macroeconomic and micro-economic issues is well-established. Poudel brings exposure from board roles in commercial banking and hydropower. These experiences position him to assess the economy from theoretical knowledge and operational ground realities. It is also true that the new governor must remain aware that the nation's financial health needs attention. Inflation, capital flight, uneven credit growth, and instability in real estate-driven banking practices all need steady and strong handling.
Revised interest rate corridor system introduced
Poudel knows his priority. In his opening comments Poudel said he would accord top priority to taking Nepal off the grey list of the Financial Action Task Force, an international policy-making and standard-setting mechanism established by the G7 countries to combating money laundering and terrorist financing. Nepal's placement on the grey list tells volumes about its failure to fully implement necessary legal, policy and structural reforms to combat money laundering and terrorist financing. Of course, it will be a tough call for Poudel the Governor, but the clarity of thought and purpose is highly commendable. The Governor has challenges galore before him. He has the responsibility to steer monetary policy to keep inflation in check while ensuring that productive sectors get the credit they need. Discouraging reckless lending and speculation and strengthening the independence of the central bank should be his priorities. But whether the government uses this moment to rebuild trust within the coalition will depend on its actions, not merely verbal assurances. The appointment of Dr Poudel offers a chance for course correction. For now all eyes are cast on Governor Poudel.
