‘Policy consistency key to avert built-in economic risks’

Kathmandu, May 3

Former Finance Minister, Dr. Yuba Raj Khatiwada, said that inconsistency in policy has led the country to the present economic pressures.

"There should be policy consistency in all economic aspects since we have built-in risks in our economy," he said while speaking at a talk on 'Current economic situation of Nepal: Challenges and opportunities' organised by Nepal Youth Chamber (NYC) – a sister organisation of Nepal Chamber of Commerce (NCC) in the capital on Tuesday.

Stating that there was no harmony and cooperation among the Ministry of Finance, Ministry of Industry, Commerce and Supplies, Nepal Rastra Bank and other concerned agencies, Dr. Khatiwada said that the coordination among them in creating economic policies is the key to progress. 

According to him, the country couldn't aspire for a high growth rate because it would have created external sector pressure. Even the 7 per cent growth in 2017/18 causes stress in the domestic economy. This is the largest structural challenge for Nepali economy.

"Domestic demand-led growth has a limitation. You can see the intensity of our imports which ranges from road to agriculture and printing to interior. About 65 per cent equipment and machines for hydroelectricity project are imported," he said while maintaining that in manufacturing sector, Nepal is importing goods worth Rs. 100 and exporting finished goods of Rs. 120.

Dr. Khatiwada also said that the asset market bubble in the post-COVID scenario created demands which propelled import growth that caused pressure on Balance of Payment. "This is a policy failure. We need to move forward with analysis of this aspect," he said.

However, he maintained that the economy is gradually recovering and stressed on the promotion of exportable industries and goods that have competitive advantage.

Executive Director of the NRB, Dr. Gunakar Bhatta, said that the interest rates are coming down to the pre-pandemic level.

According to him, private sector credit to GDP ratio has reached 87 per cent which is the highest in South Asian region.

Likewise, Economist, Dr. Bishwas Gauchan stated that external sector is the most influential element to propel the economic crisis. "This crisis has the root in pre-COVID situation. A large part of the private sector loan has been mobilised to import financing. Lending practice has not supported the economic growth in the country," he said.

He said that Nepal should go for a long-term reform.

Vice-president of Nepal Chamber of Commerce (NCC), Dipak Shrestha, said that there are still many procedural hurdles for the entrepreneurs in Nepal.

He said that import restriction is not a big deal but the government has to conduct a study before imposing such a ban to know which items are actually not needed for people. We must not take the consumers in Kathmandu in account while imposing a nation-wide policy.

"NCC has always been taking lead in keeping the market price in control. Increasing price of goods does not mean that the businessmen are getting benefitted from it. The hurdles and obstructions cause increment in price," said Shrestha.

Joint Secretary of Ministry of Industry, Commerce and Supplies (MoICS), Govinda Bahadur Karki, said that most of Nepal's industrial production is based on the imported raw materials. If we tightened the import of raw materials, production and exports might also be affected, he said.  

Edible oil export is completely based on imported raw materials.

This is the opportunity for the domestic producers using domestic raw materials. "Why not exploit it? The budget of the next fiscal year 2022/23 will announce some incentives for the industries based on the local raw materials," said Karki.

He said that the Nepal Trade Integration Strategy is being reviewed and amended to support export of indigenous products.

According to him, Nepal will lose trade preferences it has been enjoying in various regions, so the ministry is preparing LDC graduation strategy to promote exports after the country's graduation to the developing status in 2026.

Sunil KC, CEO of NMB Bank Limited, said that the banks and financial institutions are discouraging unproductive sector lending.

Published in The Rising Nepal daily on 4 May 2022.