Nepal's economy will further deteriorate should the remittance inflow continue to plummetÂ
Banking and financial institutions (BFIs) are experiencing a massive liquidity crunch in the recent months despite the fact that they have raised interest rates on deposits. In line with Nepal Rastra Bank's instruction, 27 commercial banks, which had been offering 10.05 per cent interest per annum on fixed deposits prior to February 1, are currently offering 11.03 per cent. Interest rate on savings accounts has also gone up to 6.03 per cent. Despite these changes in the interest rates, deposit collection in the BFIs has not surged as per the expectations. As per the latest data provided by the Nepal Bankers' Association (NBA), total deposits of 27 commercial banks stood at Rs 4.313 trillion on February 25 from Rs 4.311 trillion recorded on February 11. People will find it quite difficult to run their businesses should the interest rates remain high. Increase in interest rates by the commercial banks will have direct impact on the thousands of cooperatives, which already offer more than 16 per cent. Normally, deposit collection goes up with the hike in the interest rates when the people are holding money at home rather than keeping it in the banks. Low deposit collection in the banks can also be attributed to the joblessness of middle-income people as a result of the coronavirus pandemic for the last two years.
The bankers have said that massive imports of goods coupled with the drop in remittance inflow in recent months are the major factors for the ongoing liquidity crunch in the market. Imports of essential goods, especially in the construction sector, have surged following relaxation in the COVID-19 restrictions. As a result of the liquidity crunch, the BFIs have been able to disburse loans to the tune of just Rs 10 billion, which is nominal when the sum is divided among the 27 banks. In order to ease the liquidity crisis, the central bank has injected an additional Rs 4,732 billion in the financial market in the current fiscal. The central bank has primarily focused on stabilising the external factors by managing the domestic demand.
Nepal's financial condition will further deteriorate should the remittance inflow continue to plummet, as it has been happening in the recent months. The Ministry of Finance believes that remittance inflow has been declining after Nepalis also started buying cryptocurrency through illegal channels. But the government does not have any strategy to control this illegal transaction. The country will also have to spend more foreign currency to foot the import bill on petroleum products whose prices have already gone up to US$ 100 mark per barrel of crude oil in the international market as a result of the war in Ukraine and disruption of their supply in the oil producing regions. Should Nepal Oli Corporation spend most of the hard-earned foreign currency in importing fossil fuels, the country's balance of payments will be in the negative, and it will not be able to purchase other goods necessary to run the economy. It is, therefore, imperative that the government slash the heavy tax imposed on petroleum products so that people can afford to purchase them. The government should also strictly impose a ban on the import of non-essential and other luxury goods until the financial health improves for the better.
Cow centre
It is not uncommon to see cows and bulls sitting on the middle of a busy road in this part of the world and obstructing traffic. It's been ages since Kathmandu Municipality has tried to find a solution to the problem, but to no avail. Now Kathmandu Metropolitan City and Dakshinkali Municipality have chalked out a joint scheme to operate a stray cattle management centre. Let us keep our fingers crossed that this will finally sweep the stray cattle from the streets of the capital. The centre to be housed in Dakshinkali will rescue, shelter, feed and provide veterinary services to cattle abandoned in the streets of the capital.
While municipalities are responsible for taking care of all stray animals under their domain, their burden would have lessened had the owners of the abandoned cattle also shown some responsibility.
Once unproductive, the farmers abandon such cows and bulls in the streets, compelling them to forage for grass and vegetables in the parks and open spaces or markets. It is going to cost KMC some money to manage the centre at Dakshinkali. Instead of looking to the KMC for funds, if the centre can convert all the cow dung into compost fertiliser and sell it, it should meet its operating cost.
A version of this article appears in the print on March 3, 2022, of The Himalayan Times.