"We urgently need the budget"

From The Nepali Press
"We urgently need the budget"
Interview with Rastra Bank governor, Yubaraj Khatiwada Rajdhani, 21 September

FROM ISSUE #521 (24 SEPT 2010 - 30 SEPT 2010) | TABLE OF CONTENTS

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Rajdhani: Is Nepal's economy in complete disarray?
Yubaraj Khatiwada: Given the country's transition and political turmoil, current economic indicators are actually not so disappointing, but we are losing the base for economic development. We have an economic growth rate of 3.5 per cent, which is not bad. The inflation has reduced to 10 per cent from 13 per cent, which is normal in South Asia. There is fiscal depletion, which has hampered development activities. There is a problem with exports, which has contracted by 10 per cent this fiscal year, but imports have increased 33 per cent. If remittance fails to balance the difference between imports and exports, then it will be problematic.

How is the delayed budget affecting the economy?
Development activities have stagnated. The government has not been able to bring in new policies and programs. It has not reviewed revenue policies either. It has done nothing for trade balance and policies to stabilise domestic financial activities. Because of this, the financial sector is affected. The private sector prefers to wait out this impasse. As a whole, the delayed budget has affected the economic growth rate and development entirely. There should not be any further delay in presenting the budget.

Why does the banking sector look slack?
We capped the credit flow in specific sectors when banks had already invested 95 per cent of their deposits. However, there has been a significant improvement in credit flow and deposit. Now that things have improved, banks can start lending again.

What of the balance of payment situation?
The balance of payment is still negative. Foreign currency reserves in July/August this year is the same as it was last year. We were expecting growth, but it did not happen.

Is the liquidity crunch over?
There is enough liquidity in banks right now. Some banks are in a better position to sell their debentures for returns. Since July, they have not used repo for cash. But the banks should be careful while revising interest rates so that depositors are not hurt.

Has Nepal failed in implementing provisions against laundering black money?
Nepal is in a political transition. There are underground political actors and armed groups due to instability. illegal trade, open border and a fixed peg with the Indian rupee are some of the other factors contributing to a slack in provisions.