NRB pressured to address multitude of economic problems with monetary policy

KATHMANDU: Stakeholders and experts have come together to advocate for a responsible monetary policy that effectively tackles the ongoing economic slowdown and financial sector challenges in Nepal.

The “Monetary Policy Conference 2023,” organized by the United States Agency for International Development (USAID) on Tuesday, saw participants express their concerns as the Nepal Rastra Bank (NRB) enters the final stages of drafting the Monetary Policy for 2023-24.

During the conference, several critical issues were highlighted, including financial sector instability, declining aggregate demand, exorbitant interest rates leading to high business costs, sluggish economic growth, and a significant drop in government revenue collection.

Former Finance Minister, Yubaraj Khatiwada, emphasized that the upcoming monetary policy should prioritize improving the quality of loans rather than focusing solely on the volume of credit issued by banks.

He suggested that loans primarily used for working capital and overdrafts had been channeled mainly into the real estate sector. Khatiwada stressed the importance of directing credit expansion towards productive sectors, especially small and medium enterprises, to foster overall economic growth.

The private sector has raised concerns about the high interest rates imposed by banks, labeling the NRB’s current policies for small and medium enterprises (SMEs) and large businesses as ‘unfair.’

Bhawani Rana, former president of the Federation of Nepalese Chambers of Commerce and Industry, pointed out that a significant portion of SMEs are women-operated and warned that neglecting loan restructuring for these businesses could lead to many of them shutting down.

However, Analraj Bhattarai, a banking expert at the Confederation of Nepalese Industries, disagreed, stating that the current interest rates were not excessively high.

He attributed the private sector’s panic to the falling demand, acknowledging that the Nepalese financial sector, once heavily influenced by the real estate sector’s bubbles, was now undergoing a necessary correction. Bhattarai emphasized that the monetary policy should focus more on price control as an immediate concern.

Santosh Koirala, vice-president of Nepal Bankers’ Association, highlighted that the issue arose because the NRB solely concentrated on withdrawing the facilities offered during the pandemic without considering timely revisions.

According to NRB officials, the new monetary policy is expected to be endorsed next week. The central bank is currently in the process of collecting feedback from the public for this purpose.

In a separate perspective, the Federation of Women Entrepreneurs’ Association of Nepal (FWEAN) called upon the NRB to be lenient on loans provided to women-operated small and medium enterprises.

FWEAN’s first vice-president, Shova Gyawali, requested the central bank to continue providing subsidized loans to women enterprises and suggested capping the premium rate for commercial loans to women-run businesses at one percent.

Gyawali also urged the central bank to ensure that at least five percent of the designated loan amounts for SMEs are allocated to women-operated businesses.