“WWe can’t let the rich get rich in Nepal. A corporate borrower received Rs. 1.27 billion refinance directly from state coffers as Nepalese fell into poverty. Small businesses have also suffered, but their loans are not being rescheduled. »

It was none other than Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari in an unedited version of a talk show on Kantipur TV in 2020.

Adhikari was sacked by Finance Minister Janardan Sharma earlier this year, and quickly reinstated by the Supreme Court. And it was the scandal-ridden Sharma who had to step down this month.

After the pandemic lockdowns in 2020, the NRB put in place refinancing procedures to keep the economy afloat, disbursing Rs 158 billion in mid-December last year. It was like printing new money, but there was no evidence that cash bailouts helped support the economy.

In his interview, Governor Adhikari admitted that there are business entities in Nepal that are “too big to fail” and that the central bank’s refinancing policy was being misused by sponsored companies. Politics.

Also Read: State Sponsored Economic Crisis, Ramesh Kumar

The result is that instead of keeping businesses afloat during the pandemic, selective refinancing has raised inflation, increased imports, and increased the value of private assets.

Nepal’s budgets have always been populist, regardless of the government in power, but the monetary policy of central banks around the world is necessarily conservative due to the need to control inflation.

The role of a central bank like the NRB is to control inflation, maintain the external balance of payments and the stability of the financial sector. But the NRB’s credit expansion policy did the opposite by saving those who were never affected by the pandemic.

The NRB has actually massively increased cheap loans over the past couple of years to kick-start the economy. This only served to increase the national debt. Indeed, loans from banks and financial institutions, which amounted to Rs32.13 trillion in 2020, have now exceeded Rs47 trillion. There has been no commensurate growth in employment and manufacturing capacity.

There may have been too much interference in NRB policy from politicians on behalf of their cronies, but ultimately, if the central bank had taken a more moderate approach, trade deficits and Nepal’s balance of payments would not have been so large. high as it is today, and foreign exchange reserves would not have been depleted so quickly.

Read also: How not to be a Sri Lankan, Editorial

In addition, a sharp rise in property and equity prices, aided by a 5% interest rate for refinancing, increased investment, the availability of repo loans and permanent liquidity facilities, do not has unfairly taken advantage only at the highest level of Nepali businessmen, industrialists and media moguls. .

The influx of credit actually increased imports, as the country recovered from the pandemic. Moreover, a study by economist Biswas Gauchan showed that a 1% increase in credit to the private sector increased inflation by 0.31% and imports by 0.7%.

Nepal has recorded an 8% annual increase in inflation over the past 40 years. Nepalese incomes may have increased, but they have been eaten up by soaring prices. That means the general public bears the brunt, even if a select few big corporations reap huge benefits from politically motivated credit spending under the guise of a pandemic bailout.

NRB officials blame the failure of their monetary policies on the fixed INR-NPR exchange rate, and say it puts Nepal at a disadvantage whenever the Indian rupee weakens against the US dollar.

But that’s not enough to absolve the central bank, which (for whatever reason) has been reluctant to adopt tighter monetary measures to control debt and inflation.

Also read: How Nepal can avoid an economic crisis, Kalpana Khanal

Even as Nepal’s economic crisis deepens, corporations ironically continue to pressure banks for cheap loans so they can maintain profit margins.

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) called on Sunday for the continuation of concessional loans granted during the pandemic. However, it is not the job of the central bank to save businessmen from a debt trap of their own making.

It is much more important to save the country’s economy from dwindling foreign exchange reserves, widening trade deficit and inflation.

Governor Adhikari needs to know why the misuse of bank credit by political supporters has hurt the economy. Awareness of a problem is the first step to solving it.

Also read: “Economy in trouble but no need to panic yet”, Nepali Times

Ramesh Kumar