Liquidity crisis shadows Nepal

Kathmandu, May 1:

Crippled by the recent 19-day long strike called by the seven party alliance and inept economic management, a liquidity crisis is looming large in Nepal. The government is facing a cash-crunch of over three billion rupees at the close of this month, revealed a source at the Nepal Rastra Bank (NRB). Various sources of revenue have gone dry in recent days leading to the paucity of cash in the national treasury.

Keshav Acharya, chief at the Research Department of NRB, commenting on Nepal’s liquidity crisis said, “It is likely that the nation may face liquidity crisis soon.” The new government must work on a war-footing to mobilise national revenues to keep the economy afloat, Acharya suggested.

During the strike, revenue generating sources across the country such as customs points came to a complete halt that has hit the national treasury hard, commented Acharya. Other officials at NRB, on conditions of anonymity, disclosed that current cash reserve at the national treasury stands at seven billion rupees only. Of this seven billion rupees, Rs 3.37 billion cannot be used as it belongs to District Development Committees (DDC).

Further worrying is the fact that the government needs Rs 3.40 billion for payment of salary to its employees every month which indicates the seriousness of the problem. For over 20 days, especially during curfews and the general strike, taxpayers did not pay taxes which has primarily created the revenue crisis, according to government officials.

Rameshwore Khanal, joint secretary at the ministry of finance (MoF) also hinted at the possibility of a ‘liquidity crisis’ in Nepal. Khanal informed that the government’s revenue collection growth stands at 0.1 per cent only and the national treasury is feeling a real squeeze. The marginal revenue growth is bound to worsen the fiscal crisis, he opined. He also expressed concerns that even the GDP growth stands at less than two per cent.

Khanal termed Nepal’s the current economic outlook as ‘not so optimistic’. However, he expressed hopes that the new government might think of ways and take concrete measures to overcome the economic impasse. The one positive aspect of the economy is the gradual return of confidence on the back of positive flow of responses from donors.

According to the MoF, the government had targets to collect Rs 82 billion revenue during this fiscal year. However, only Rs 46 billion has so far been collected. Senior MoF officials said, the government is likely to suffer a shortfall of close to Rs 20 billion even if the current trend of revenue growth improves in the current fiscal year which ends in less than two months.