CNIYEF Hosts a Discussion Session With Governor Maha Prasad Adhikari on the Topics of Liquidity, Interest Rates & Recession

An exclusive "Questionnaire program with governor of Nepal Rastra Bank- Maha Prasad Adhikari" on the subject of Liquidity, Interest Rates, Recession” was held on April 4, 2023, and was organized by Confederation of Nepalese Industries Young Entrepreneurs Forum - CNIYEF, a platform designated to bring young minds together to network, learn and collaborate. During the event, Governor Adhikari outlined the main issues affecting Nepal's economic development.

Economic Growth

The economic growth in the current fiscal year fell short of many forecasts, including the NRB's. The borderline is the government edict from April 26, 2022, which forbade the import of certain items because they were deemed to be luxury goods. As a result, many private sectors, the biggest component of the economic pie, had to shut down which was already suffering from the aftermath of pandemic-led slowdown.

In this respect, Governor emphasized that pent-up demand and people's continued spending despite rising inflation have led to a boom in the contact-intensive sector, such as hospitality. Therefore, NRB may not be overly concerned about growth at the time and instead will concentrate on reducing economic price pressure. He stated his resolve to combat these outside pressures and maintain global reserves. To maintain macroeconomic equilibrium, further monetary tightening and a responsible FY2024 budget will be required. Adhikari also emphasized that the IMF had actually forecast economic expansion for the fiscal years 2023–2024. The IMF forecasts a slight acceleration of worldwide growth to 3.1% in 2024.

Interest Rates and Fiscal deficit

As a part of its contractionary policy, NRB had increased the bank rate, the statutory liquidity ratio (SLR), and the cash reserve ratio (CRR). Increases in such ratios restrict the ability of the banks to supply money into markets, exerting pressure on the interest rates. In this regard, the governor has emphasized that as the liquidity crisis has started to subside a little, banks have been progressively lowering interest rates. The interest rates are declining gradually as the base rate has come to 11 percent, the average loan interest rate is at 13 percent and the average deposit interest rate is around 9 percent.

Nepal, however, has consistently fallen short of its capital spending targets. This time, only about 22.15% of the capital spending has been used in the first eight months of the fiscal year.

Nepal’s key economic indicators have improved and are no longer adding to the fiscal deficit. The inflation too, is being estimated to remain on the higher side. The monetary policy had targeted to keep inflation within 7 percent. But it is still above that target,” Adhikari said. “It is expected that inflation will be between 7-8 percent until mid-July and the external sector almost got derailed in the last fiscal year and we have since come out of it,” Adhikari said.

Remittances

A recent rise in remittance inflows has given Nepal some cushion. Remittance earnings have increased by 27.5%, which has assisted in stabilizing the foreign sector. More than Rs 100 billion in remittance are sent to Nepal each month.

"We anticipate that the remittances will increase as the number of migrant workers increases," Adhikari said.

About CNIYEF:

This strategic initiative was taken by CNI to bring together young business leaders so as to groom them to be the next generation of business leaders for Nepal. The main objective of this Forum is to help its members realize their full potential, so that young entrepreneurs can contribute fresh, effective ideas and feedback for the future of Nepal’s businesses. CNI recognized the need to cultivate a core group of Young Entrepreneurs and CEO’s aged 40 and below to be the next generation of business leaders to steer Nepal ahead in the local and international arena.

CNIYEF helps in moulding and grooming young leaders at an early age, which becomes an entry point for them to foray into a larger business platform - CNI. One of the major objectives of CNIYEF is to help influence external policies of the government at the macroeconomic and financial level. It helps in getting the youth aligned with this.

For more details visit - https://cniyef.org/