Haphazard loan mobilisation cause of current crisis

 Kathmandu, Dec. 13

Finance Minister Dr. Prakash Sharan Mahat has said that the current crisis and low confidence in private sector businesses are the results of haphazard loan mobilisation for which both the lenders and debtors are responsible.

"The loan obtained by the private sector went significantly up at a time when there were  problems in making investments. On top of that, investments were parked in real estate and stock market," he said while interacting with journalists at the Ministry of Finance (MoF) on the current economic situation of the country on Wednesday afternoon.

Stock market and real estate are considered less productive areas for investment as they do not significantly contribute to capital formation and economic growth.

FM Dr. Mahat said that the crash in these two markets caused a liquidity crisis and other problems. "The government is working to reinstall the much-needed confidence in the market," he said, indicating that the recent steps taken by the Nepal Rastra Bank through the quarterly review of the Monetary Policy of the current Fiscal Year 2023/24.

The central bank has announced lowering the bank rate and policy rate, allowing businesses to restructure the loans, and reduce the risk weightage for margin lending and real estate loan.

The Finance Minister expressed confidence that there would be enough liquidity in the market for investment and with more business activities and growing demand, it would be more dynamic.

According to him, the government has adopted a policy to promote import substitution industries. Stating that government expenditure is a small component for economic growth, FM Dr. Mahat said that capital expenditure had witnessed improvements compared to the previous year although it's below expectation.

As per the statistics published by the Financial Comptroller General Office, the government has spent 11.37 per cent of the annual allocation of the development budget of Rs. 302.07 billion as the fifth month of the current fiscal is nearing its end.

Capital expenditure during the same period in the last Fiscal Year 2022/23 was 8.53 per cent of Rs. 380.3 billion development budget.

FM Dr. Mahat also said that a massive investment made in towers and less important infrastructure in the past years had also soaked a huge amount of budget but yielded less return.

In the past, Fiscal discipline was not maintained while borrowing, he said.

"So, projects not delivering benefits and serving the public won't be taken ahead with foreign loans. Meanwhile, the country will negotiate to obtain grants on minimisation, mitigation and adaptation programmes for climate change," he said while maintaining that donors are positive about it.

Likewise, the government was also planning to conclude the tendering of development projects by mid-November but the current working culture created hindrances.

Responding to the questions on the delay in paying the concessional loans to farmers and clearing the insurance money against the COVID-19 insurance, he said, "I accept that the government couldn't address all the liabilities created in the past several years. But gradually, they will be cleared."

According to him, some claims made against COVID-19 insurance were exaggerated and the MoF has asked to clean the statistics.

Meanwhile, he also said that Nepal couldn't benefit from the provisions of the South Asia Free Trade Areas (SAFTA), the country should rethink about it. "Since SAARC is not functioning, why are we following the provisions of SAFTA?" he asked and stated that he would like to propose for the scrapping of the SAFTA.

FM Dr. Mahat said that the economic and budgetary system reform programmes started by the government will be further expanded.

Immediate relief and temporary accommodation will be provided to those affected by the earthquake and emphasis will be placed on the rapid restructuring of the destroyed structures and the creation of employment opportunities for the youth in the country to achieve the expected economic growth rate.

The government is set to organise an investment summit in April 2024 and before it, some policy and legal reforms related to investment will be carried forward, according to FM Dr. Mahat.

"A favourable environment for investment will be created by formulating and implementing policies and laws linked to economic reform in the long term. The government will adopt a policy to attract domestic and foreign investment keeping in mind the abundant potential of hydropower development, tourism, commercialisation of agriculture, information technology sector," he said. 

Published in The Rising Nepal daily on 14 December 2023.