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Analraj Bhattarai
It has been 20-22 years since monetary policy was introduced in Nepal. In recent times, the general public's expectations regarding monetary policy have started to increase. It is probably only after the covid that the expectations started to rise even more.
More than the budget is expected from the monetary policy. I think that the belief that the monetary policy does not have more impact than the budget should be maintained for a few years.
We should also consider what we have brought to treat whom through monetary policy. It is now time to evaluate what we have done and what we have achieved. Financially, we have made Nepal very strong in three aspects. We were able to make a big leap in the first foreign exchange reserve, but where did its negative impact come from? We have to evaluate that too. In addition to the assessment, now if we see directly, the capacity utilization of the industries has dropped to 30 percent. Have we identified such problems in our bid to increase foreign exchange reserves? What have we gained, what have we lost? Many people lost their jobs while increasing their foreign exchange reserves. We sent some Nepalis abroad without any skills and knowledge, we are now running the country with the remittances sent from them, but we had to close the shutters of self-employment or job creation. We reduced the consumption of domestic products. The biggest requirement for production is raw material. Apart from that, another element is the loan received from banks and financial institutions. When the price of the loan increases, the price is ultimately passed on to the consumer. A bank gave 7% loan interest to businessmen, the interest rate reached 15%. In 8 percent, I consume the goods myself, I don't say I don't send them to the market, it comes to a situation where he has to send them to the market. In that situation, when trying to send it to the market, the current consumer could not afford to buy that product. The current policy has reduced the purchasing power of consumers. Are we trying to reduce the purchasing power of consumers through monetary policy?
Monetary policy has a direct impact anywhere. There is always a conflict between fiscal policy and monetary policy. If there is a financial conflict while we are moving the economy up, a solution should be found in the middle of the conflict. This is what concerns us the most. If we want to make the economy entrepreneurial, if we want to reduce imported consumption, then today we have to industrialize Nepal. If you want to go for industrialization, what is the policy according to that? What is the government's policy? What is the policy of the central bank? We need to define this first. The manufacturing sector, which once contributed 12 percent to GDP, has now shrunk to 5 percent. This means that the industrial sector could not do well by doing well in other sectors. Why couldn't you do it? Couldn't we give the basic thing for that? Our internal resources and means are no longer sufficient for what we should have thought. Economic growth is not possible without external resources and means. Productivity does not increase without cheap capital. The main part of increasing the productivity is also the interest expense. Instead of how to reduce interest expenses, sources had to be brought from outside.
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Analraj Bhattarai |
So far, we are in a controlled economy. How long will we stay in the controlled economy? It has been two years since I decided to bring money from outside. We bring money from abroad, instead of opening the way, we live in narrow policies. We will not improve the policy.
If the local resources are not enough and the bank financial institution is over-capitalized or if the capital fund of the bank is not mobilized, then where are the banks investing? Most of the bank's backing is in real estate. If you have taken more than 65 percent of the mortgage on real estate, even now the money will go to real estate and that is what will last. We cannot take a loan from any financial institution without having fixed capital. There is no problem in getting loans for big projects, but there is still a problem in getting loans for small and medium entrepreneurs. Small and medium industries have created many jobs. In Germany, 95 percent of the contribution is made by SMEs. Swiss watch parts are made at home in Switzerland. Access to credit and facilitation of work has made it easy to create entrepreneurs at home.
There are personalities from former governors to parliamentarians here, what should they think, what did we do in the practice of monetary policy in the 20th year? Rather than what policy we took to increase industrial production, we worked to shrink the industrial sector, which contributed 12 percent, to 5 percent. Now we have to go to the correction course. For that correction course, rather than monetary tight and flexible, it is necessary to create a suitable environment for Nepali people to work. We are an underdeveloped country. If you want to create jobs and increase production in underdeveloped countries, today production will not increase and jobs will not be created. It takes time for that. There is no profit today or tomorrow if you do business.
If a borrower is in trouble, the central bank imposes a provision of 12.5 percent during restructuring, in which case banks and financial institutions start debt recovery. Rather, the need for provisioning can be reduced by making a separate work out plan based on its rating, which is currently in practice in India. Why don't we do this? Now the provisioning in the banking sector is increasing and has almost doubled this year. Rather than working out a plan, why did this happen? Expectations are high from monetary policy. It is not that monetary policy cannot do it, Nepal has done many things and there is hope that it will do so.
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