The National Bank should introduce policies to increase confidence in the market through monetary policy - Chandra Dhakal

Kathmandu: The private sector, which contributes 81 percent to the country's economy and provides employment to around 90 percent of the country, is currently going through an extreme economic recession. Due to the unimaginable decrease in demand, the industries have to reduce their production and it has directly affected the income of millions of businessmen and professionals involved in production, distribution and sales.

A study by Nepal Rastra Bank has shown that industries had to cut production by up to 60 percent. This has also had a negative impact on the revenue collected by the government. According to the estimate of the current year's gross domestic product (GDP) released by the Central Statistics Office, the growth rate of the three main sectors of the economy, production, construction and trade, is negative by more than two percent. These signs do not bode well when measuring the health of the country's economy. Even the low growth of the overall economy does not show that the private sector is in a comfortable situation.

On the other hand, due to the continuously rising interest rates, many savers have converted their savings deposits into term loans, and the loan interest rates have increased. As a result, the private sector that keeps the economy running is not in a position to invest by taking loans at the current high interest rates. Past statistics show that when interest rates are low, lending to the private sector has increased.

In the financial year 2077/78, when the interest rate was around 8 percent, such loans increased by 26 percent, but in this year 2079/80, when the interest rate reached about 13 percent, the loan utilization increased by only 3 percent. Likewise, one does not have to go far to find the past when the economic growth rate was positive when credit was extended to the private sector. I don't think there is any difference of opinion that the interest rate of loans has a positive effect on the growth of investment, expansion of business and job creation and economic growth.

At present, the industry and business are in crisis due to the laxity seen in the economy and the decrease in overall demand. Some of them need immediate help. Therefore, in such a situation, the private sector is looking towards Nepal Rastra Bank with hope and trust.

It is not otherwise to have such a special kind of hope in a special situation. With this special hope, the representative organizations of the private sector have jointly submitted suggestions to the Central Bank. The problem and the responsibility of the state to solve it has been highlighted in those suggestions.

The past decade has been very challenging and volatile for the Nepalese economy. It is clear that the international recession, disruptions in the supply chain and sharp price increases caused by the Russia-Ukraine war have pushed the economy back into recession while it is moving forward with expectations of high economic growth in the face of powerful earthquakes, embargoes and the coronavirus epidemic. In such a crisis, the central bank has played an important role in the growth and expansion of the private sector through bank rates, policy rates, interest rates and various types of monetary instruments. The private sector has also appreciated the role of the National Bank in the upliftment of sectors including tourism, which lost a large amount of business during the Covid period.

Therefore, in the current state of confusion, the National Bank should bring policies to increase confidence in the market through monetary policy. For now, the mandatory cash ratio, bank rate and policy rate should be reduced according to the market's requirements, and arrangements should be made to manage 'net liquid assets' based on risk.

As a large amount of savings account funds are converted into term deposits, it is now appropriate to arrange that the interest rate may vary according to the term of the term deposit. In addition, the rule that the interest rate difference between savings deposits and fixed deposits should be five percent should be removed. At the time of weak market sentiment and high drop in demand, due to high interest rates, there is a contraction in credit flow, so flexibility should be adopted in the 'debt equity' ratio for at least the next one year. Flexible monetary policy for credit expansion is not the only agenda of the private sector, monetary policy also needs to be flexible to keep the overall market moving.

One of the policy changes that greatly affects the public is the provision of not being able to send money to the country through remittance companies. The previous limit for sending cash internally through the remittance company was reduced from Rs.3 lakh to Rs.25,000 but now there is a rule that no amount can be sent. Lakhs of people working in the informal sector including workers, students have been affected by this.

Still, many places in rural areas do not have easy access to the Internet and even bank branches are not easily accessible. In such a situation, stopping the remittance of money through remittance companies only adds to the suffering of the lower class and remote people. Thousands of outlets of remittance companies have been closed due to the closure of this service. Therefore, on the basis of identity card, there should be an arrangement to send at least one lakh rupees internally through such companies.

According to the nature of the business, it is not practical to maintain zero arrears for at least seven consecutive days in the loan account at any one time of the financial year. It is the demand of the private sector that such arrangement should be removed. Similarly, the current system of requiring two different accounts for working capital loans is also impractical. For this type of loan, it is not possible to accurately estimate the working capital if one year's turnover is taken as the basis, so it should be calculated on the basis of the previous four financial years' turnover.

In addition, the limit of 25 percent of working capital loans should be increased when the manufacturing industry is finding it difficult to complete even two production cycles of the year. The loan criteria should be different for manufacturing industry and business and this arrangement should be applied to working capital loans as well. Provision should be made for working capital loans of a permanent nature.

In the current harsh situation, if the industry business has to be closed, the industries that have expressed their commitment to pay installments of principal and interest should be allowed to close and arrangements should be made for easy loan clearance. According to the suggestion given by the Confederation of Nepal Industry and Commerce to the Nepal Rastra Bank, arrangements should be made to give project loans to small and medium industries.

Although the private sector and experts have been demanding for a long time, we suggest that there should be no delay in implementing this system, which can play an important role in the growth of 'startups' and small and medium enterprises. The credit limit given to such enterprises should also be increased to at least five crore rupees. It has been our demand since the past that a policy should be taken to encourage the manufacturing industry through special interest rate concessions. Similarly, we are saying that the premium charged on the interest rate of the loan should also be low.

In addition, there has been a demand from the private sector that loans should be arranged again in priority areas, manufacturing, small and medium and export industries, tourism infrastructure, only cars, businesses run by women entrepreneurs. It is well known to everyone that this situation that we are talking about now, i.e. time is not normal time. Therefore, it is the wish of the private sector that Nepal Rastra Bank should pave a new way that can address the times rather than just following the tradition in such a special situation. We are of the opinion that such a timely policy can solve the complicated situation that time has created.

It is our expectation that the soft monetary policy will pave the way for the growth and expansion of the private sector and save the country's economy from falling. I think that the monetary policy currently being drafted by the Nepal Rastra Bank will come in a timely manner and be able to address and diagnose the problems that have been identified. Ramesh Lamsal

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