While the government has been reiterating its priority towards the flexible monetary policy to address the country’s current economic problems, Nepal Rastra Bank (NRB) says the over expectation on the central bank could result in undesired outcome.
The recent report of the National Statistics Office (NSO) shows that the Nepali economy posted a pathetic performance in the current fiscal year. The country achieved an economic growth rate of a mere 0.8 percent in the first quarter (between mid-July and mid-October).
Likewise, the growth rate fell to a negative of 1.1 percent in the second quarter (between mid-October and mid-January). Furthermore, the NSO has projected that the country’s economic growth rate will be just 2.16 percent in the current fiscal year, almost four times lower than the government’s target.
Finance Minister Prakash Sharan Mahat on Sunday said the current economic problems could be resolved through the flexible monetary policy review instead of the fiscal policy. “As there is no fiscal space to address the ongoing economic problem, monetary policy should act to find an appropriate solution,” said Mahat speaking at Nepal Business Summit-2023, organized by the Confederation of Commercial Banks and Financial Institutions Nepal (CBFIN).
Instead the government bears its responsibility to take the economy into a correction path; Finance Minister Mahat seems to offload the government’s duty to the central bank alone. On one hand the government’s capital expenditure is so pathetic while on the other hand it is unable to meet its target of revenue collection. Likewise, the government has been unable to tame the exorbitant price hike, which according to the analysts, should have hit the double-digit points.
Mahat has been pressurizing the NRB to enforce the expansionary monetary policy. However, the NRB Governor Maha Prasad Adhikari said the central bank cannot assume an excess burden of responsibility beyond its working areas. “If the central bank attempts to go beyond its working ethics, the entire financial system of the country will fall into crisis,” Adhikari said.
Finance Minister Mahat infers the high interest rate for a downfall in commercial activities of the businesses. “Due to the high interest rates, the production businesses have also crippled.”
Of late, banks have started reducing interest rates with an increase in the liquidity position with them. Governor Adhikari said the NRB through the policy tools has been working to safeguard the interest rates of both the depositors and borrowers. “Some people just put forth their baseless allegation on the central bank for being apathetic towards the economic problems if their vested interests are not addressed,” he said.
Meanwhile, economist and newly elected lawmaker Swarnim Wagle said there is a need for massive policy reforms in order to address the current economic problems of the country. He added that the economic problems will be deepened provided there is no improvement in the political behavior of the political leaders and continuation of apathy to reduce institutional corruption.
“As the current economic policies cannot bring proper solutions to the existing problems, a separate policy discourse is now needed,” Wagle said.
