Country capable to cure economic problems: PM Prachanda

Kathmandu, May 7

Prime Minister Pushpa Kamal Dahal Prachanda said that the economy has experienced some problems and challenges but the country is capable of finding long-term solutions to those anomalies.

"We have the ability to face and solve the problems and challenges with our own strength. For that, strong and close cooperation and mutual support is necessary between the government, private sector and responsible agencies," he said while addressing Nepal Business Summit 2023 jointly organised by the Ministry of Industry, Commerce and Supplies (MoICS), Confederation of Banks and Financial Institutions, Nepal (CBFIN) and Nepal Business Institute in the Capital on Sunday.

PM Prachanda sought meaningful and inclusive participation of private sector in economic and development affairs of the state and accorded high priority to agriculture.

According to him, there is a lot of potential to achieve good and lasting success through small investment and entrepreneurship in agriculture. Agriculture in Nepal employs about 60 per cent population and contributes about a third to the gross domestic product. He also maintained that this priority would be reflected in the upcoming policy and programmes, and annual budget of the government.

"By prioritizing agriculture, tourism, hydropower and entrepreneurship, the government is serious about increasing domestic production, increasing exports, encouraging the economic activities, as well as improving the macroeconomic indicators," said PM Prachanda.

He underscored the need to increase domestic production, substitute imports and increase exports in order to achieve economic independence and sustained economic growth.

The government and the entire private sector including banks and financial institutions are working together to increase production, create employment opportunities, expand investment, and develop entrepreneurship, he said.

According to PM Prachanda, efforts are being made to create favourable environment for the private sector business and public development. He also said that Nepal needs to make some bold steps in reforming the legal provisions, revamping the bureaucracy and facilitating the process to attract more foreign direct investment.

PM Prachanda also expressed his interest to invite competent foreign universities and educational institutes to Nepal.

Speaking at the same event, Finance Minister, Dr. Prakash Sharan Mahat, said that the economy that was in recession should be made viable through a flexible monetary policy.

According to him, the economic slowdown was the result of excessive credit mobilisation during the COVID-19 pandemic and failure to mobilise capital through fiscal policy.

"That is why the economy is in recession. Today's problem can be solved by means of monetary policy rather than fiscal policy. Now we don't have fiscal space. Fiscal space should also be increased. However, now the economy can be regulated through the monetary tools," said FM Dr. Mahat.

According to him, officials of the Nepal Rastra Bank have committed to adopt a flexible policy through the review of monetary policy by the end of this month. If the central bank adopts a flexible monetary policy, the interest rate will drop.

"Since there is no condition to mobilize capital through fiscal space, we should adopt a flexible monetary policy and increase economic activity through monetary instruments,'' Minister Dr. Mahat said.

Stating that the revenues would be increased in the coming months, he maintained that a massive increase would not be possible within one year as desired. Revenue will increase based on the dynamics of the economy.

''The revenue will increase only if investment starts coming in, industry and business witness growth, jobs are created, and income starts increasing. It takes some time for the revenue to increase," he said. He also expressed serious concerns about the pathetic status of capital spending.

Dr. Mahat vowed to work to implement the budget from the very first day of the next fiscal that will start from mid-July. "By ending the tradition of unnecessary spending, we will increase the effectiveness of capital expenditure," he said.

Dr. Swarnim Wagle, lawmaker and former vice-chairman of the National Planning Commission (NPC), said that the size of budget should be realistic and a 5-year roadmap for resource generation and mobilisation should be developed in order to map out the requirements and allocations.

"The gap between the revenue and public expenditure should be the first agenda to be addressed by the budget and policies. Likewise, growing trade imbalance is another area demanding serious concern," he said.

Likewise, Nona Deprez, Ambassador of the European Union Delegation to Nepal, expressed her hope that the Government of Nepal would follow green, inclusive and resilient development approach in its policy and practice.

Stating that there is a hope to attract more foreign investment in Small and Medium Enterprises (SMEs) in Nepal, she informed that the Europe-Nepal Business Forum which is starting from Monday would help to find more investment and business from the EU.

Oamar Saleem, Advisor to Asia Pacific Vice President of IFC of the World Bank Group, said that the stakeholders including the government should find new approaches for SME financing for their growth and increasing contributions to job creation. He also maintained that there is a need to finance supply chain development with technological interventions in the required areas.

According to him, IFC is working with the Nepal Rastra Bank and Ministry of Finance to improve the environment for SMEs here.

President of CBFIN, Pawan Kumar Golyan, said that the private sector was troubled by the increased bank interest rates and supply side constraints and called for appropriate steps to improve the situation. 

 Published in The Rising Nepal daily on 8 May 2023.