Govt mulls stimulus package

Kathmandu, December 15

The government is soon coming up with an economic stimulus package of Rs 100 billion, under which refinancing facility would be extended to borrowers of the productive sector at six per cent interest.

The package is being launched to give a lift to the economy, which has been badly shaken by the earthquakes of April and May and blockade on Nepal-India border points.

To roll out the package, the government is creating Economic Revival Fund through which Nepal Rastra Bank (NRB) will initially offer credit line of Rs one billion to each bank and financial institution (BFI) at one per cent interest.

BFIs will then have to extend this credit to good borrowers at an interest rate of not more than six per cent, says draft of guideline on Operation of the Economic Revival Fund. Extension of refinancing credit will be monitored by a six-member committee formed under deputy governor.

The credit extended through the Fund, the government hopes, ‘will minimise the impact of quakes and undeclared blockade on various industries and the economy’.

Nepal had recently started gearing up for higher trajectory of economic growth, booking growth rate of 5.1 per cent in fiscal year 2013-14. Then the earthquakes struck. This reduced the country’s growth rate to 3.04 per cent in fiscal 2014-15.

Now, due to trade disruptions across Nepal-India border points, which have choked supply of raw materials and other essential supplies, the country is expected to book a negative growth for the first time since 1983.

The Fund that government is setting up will extend loans strictly to the productive sector, which can generate jobs and contribute in capital formation process. Some of the productive sector enterprises that qualify for such loans are: small and medium enterprises, agricultural farms, mountaineering, trekking, rafting and travel agencies, hotels, restaurants, resorts and other recreational facilities, airlines and other tourism-related enterprises.

Also, hydroelectric plants that are under construction, hydro projects whose commercial production has remained suspended due to quakes and other problems, and any project related to production, transmission and distribution of hydroelectricity can benefit from this facility.

However, firms engaged in production of alcohol and tobacco products are barred from acquiring refinancing facility. Also, borrowers, who have acquired over Rs 50 million in credit, will be eligible to get only 20 per cent of the amount as loan under the refinancing facility.

The Fund is being created through contributions made by the government, BFIs, and development partners, says the draft guideline, adding, BFIs can factor in investment made in the Fund while calculating statutory liquidity ratio. Also, interest earnings from credit extended under refinancing facility would be deposited in the Fund.