'Not monetary but fiscal policy has problems'

Kathmandu, Dec 24: Experts have argued that monetary policy alone is not sufficient to address the problems such as low capital spending, rising trade deficit and weak institutional capacity that restrict economy from being dynamic. Reform in fiscal policy, effective government spending and concrete reform programmes are imperative to realize expected results, they stressed.

At an interaction organized by the Nepal Rastra Bank (NRB) on 'Economic and Financial Status and Monetary Policy' in the federal capital on Wednesday, Governor Prof Dr Bishwonath Paudel said trade deficit was a vital issue across the globe. The development trajectory of Nepal has faced a run-in with structural weakness. "The journey of economy should be forwarded from agriculture to industry and then to service. But, Nepal leapt directly to service from agriculture resulting in critical problems," he said, reminding that implementation of the construction of infrastructures was depressing owing to structural fragility.

He further underlined that the development works must ensure good results irrespective whosoever the investors and contractors are. "Money is not utilized. It is left idle- all piled up in banks. We need results in development works," Dr Paudel reiterated.

Associate Professor at Tribhuvan University, Ramesh Chandra Paudel, argued dismal economic growth and rising trade loss are pressing challenges at present. "Although the country saw recurring political movements and changes, economic change failed to gain a pace," he expressed worry, wondering, "Why was the national economy in a back burner while politics changed frequently?"

Fiscal policy has more problems than in monetary policy, Paudel added. "Monetary part is gradually improving, but the fiscal side saw no improvement. Neither capital flight is stopped nor the foreign direct investment was on rise," he blamed.

He suggested prioritizing institutional capacity building as part of second economic reform. Multiple rates on VAT are also necessary, Paudel recommended.

Former Vice Chairman of the National Planning Commission, Prithvi Raj Ligal, said rising bad debt and reluctance of banks to float loan are worrying indicators. Even the private sector is not willing to take loans, he added. "At a time when capital formation is weak, economic growth can not be projected over 3.5 percent," Ligal asserted.

He suggested the government that it reviewed the exchange rate with India. "Trading rather than production is prioritized due to Nepal's stable exchange rate with India. Private sector is concentrating more in trade than in industry," Ligal explained.

Moreover, Prof Dr Govind Nepal said fiscal policy reform should be focused because the monetary policy has delivered better.

In view of economist Dr Kalpana Khanal, slow market demand reflects listless economy. She, however, suggested smooth coordination between the fiscal and monetary policies.

At the programme, Executive Director at NRB, Dr Ramsharan Kharel, viewed despite stable economy, the growth was very slow.