Rs 200bn sits idle due to Tarai protests

Kathmandu, December 3

Over Rs 200 billion that could be immediately used to rebuild infrastructure damaged by earthquakes and construct hydropower plants, roads or bridges has been sitting idle, as protests in the Tarai and blockade on Nepal-India border points have brought infrastructure development activities to a halt.

The government currently has a treasury surplus of around Rs 91 billion. Another Rs 113.35 billion is in the

possession of Nepal Rastra Bank (NRB), which has been mopping up funds from the banking sector to manage

the situation of excess liquidity. And banking sector is currently sitting on top of excess liquidity of around Rs 35 billion.

A huge chunk of funds mopped up by NRB and excess liquidity present in the banking sector cannot be converted into loans for the private sector because banks have to use that money to maintain statutory liquidity ratio and liquidity-deposit ratio.

But this money could have been borrowed by the government by issuing bonds, which could have served twin purpose of managing the problem of excess liquidity and pooling financial resources required to kick-start reconstruction works and build other necessary physical infrastructure.

Instead, NRB is using money market instruments to absorb excess liquidity. This, on the one hand, is adding financial burden on NRB because it has to pay interest on those funds, and, on the other, preventing use of funds in productive sectors because funds mopped up using money market instruments cannot be invested anywhere and sits idle in the central bank’s coffers.

“We are losing a big opportunity here because of the current crisis,” said Min Bahadur Shrestha, chief of Public Debt Management Department at NRB.

Earlier, Jay Ram Lamichhane, former president of the Federation of Contractors’ Association of Nepal had told The Himalayan Times that 99 per cent of construction works have come to a standstill because of shortage of petroleum products triggered by protests in the Tarai and blockade at Nepal-India border points.

“Without fuel, we cannot produce or transport construction materials, such as sand, stones, bricks and cement. This has created short-supply of these products. Also, fuel shortage has prevented us from operating construction equipment,” he had said.

Because of these problems and delay in formation of the National Authority for Reconstruction — which was supposed to oversee all reconstruction activities — the government has not been able to make proper use of capital budget allocated for this fiscal year.

The government has allocated a capital budget of Rs 208.88 billion for this fiscal year, which began in mid-July. But as of Wednesday, only Rs 9.74 billion, or 4.67 per cent of the total capital budget, was spent. As a result, the government’s treasury surplus has been continuously going up.

While the money is sitting idle in national coffers, crucial physical infrastructure required to give a lift to the flagging economy is lacking in the country.

“So, government spending has to pick up. Otherwise, it will badly affect the economy and stall job creation process,” said Shrestha.