KATHMANDU: The Nepal government is becoming increasingly liberal in its approach to operating alternative financial instruments, addressing the issue from the budget to monetary policy. As public resources alone cannot meet development needs, and available private resources are also insufficient, the government is now focusing on alternative financial tools to bridge this gap. While such instruments have been long prevalent in developed economies, their discussion at a policy level in Nepal has gained momentum only in recent years.
Policy Changes and Incentives
To facilitate the operation of instruments such as private investment funds, policies are being gradually implemented. The budget and monetary policy for the current year have provided incentives to encourage private equity (PE) and venture capital (VC). Through the Economic Act, amendments to the Income Tax Act ensure that investments aimed at enhancing a company’s capacity are not subject to ownership transfer tax. This provision, previously controversial, has been retained with additional clarifications.
Encouraging Private Equity and Venture Capital
PE and VC firms had long complained about the difficulty of investing in companies due to the ownership transfer tax. The recent government amendments now provide relief for such investments. Furthermore, the monetary policy has ensured that PE and VC firms will not be penalized if a company they have invested in is blacklisted for failing to repay loans.
Companies seeking to grow capital and expand capacity within a specified period had demanded changes to the legal provision making them liable for unlimited liability. This change is crucial for the effective operation of alternative financial instruments. The Securities Board has arranged for licensing fund management, while the Industrial Enterprise Act provides incentives for investment companies to register in Nepal. The Department of Industry has also made special arrangements for these companies.
Fund Managers’ Perspective
Fund managers indicate that while current initiatives are positive, they are not sufficient. The necessary capital for development cannot be provided solely through public and traditional financial sources, making the use of alternative financial instruments essential. As Nepal’s economic development continues to progress, these alternative instruments are becoming increasingly important.
Economic Development and Market Trends
The economic forecast for Nepal remains optimistic, bolstered by these proactive government measures. The focus on economic development, business growth, and market trends positions Nepal favorably in the global market. The Nepal stock market is showing promise, with increased investor confidence reflected in recent activity. Strategic investment opportunities are emerging across various sectors, including the thriving digital economy.
Addressing the Challenges
Despite these positive developments, challenges remain. The Nepal banking sector continues to navigate complexities in corporate finance and business loans. The agriculture sector, another cornerstone of the economy, is adapting to new economic policies aimed at enhancing productivity and market trends.
The government’s liberal approach towards operating alternative financial instruments marks a significant step in Nepal’s economic strategy. With continued focus on strategic investment, business innovation, and supportive economic policies, Nepal is poised for sustained growth. These initiatives ensure that Nepal remains an attractive destination for global investors and entrepreneurs, further solidifying its position in the global economic landscape.