An important indicator of Nepal's current economic situation is the excess liquidity accumulated in banks and financial institutions. An increase in liquidity in the financial system can be a positive sign, but when it cannot be converted into investment, it indicates laxity and a crisis of confidence.

Currently, this is the situation in Nepal - banks have a lot of investable funds, but they are not being used as expected. As of June 8 of the current financial year, banks and financial institutions have liquidity equal to 7 trillion 70 billion rupees.

Even before this, it seems that more than 6 billion has been passively accumulated throughout the year. Overall, this situation is a reflection of the lack of reform in the credit policy, frustration in the private sector and mistrust towards the policy-makers.

Interest rates have fallen to a 47-month low, but even that has not attracted investors. Traditionally, it is believed that loan demand will increase when interest rates decrease, but the reality is the opposite in Nepal. Even after interest rate cuts, investors remain cautious as they lack confidence in long-term policy stability. Such mistrust is not unusual when the government has not been able to continue the policy, there has been a delay in the legal and performance process and it has not been able to instill confidence in the private sector.

Nepal Rastra Bank has been withdrawing money regularly through 'Repo' as an effort to manage liquidity. Cash withdrawals have been extended for a period of 21 days weekly on Sundays and Wednesdays and money has been withdrawn for 42 and last Wednesday for 63 days.

It is clear from this that there is more liquidity available in the market but it is without destination. The National Bank had set a target of 12 percent credit expansion for the current financial year, for which a total of 6 trillion 82 billion rupees worth of loans should be disbursed. But the loans that the banks have been able to disburse by May are 2 trillion 85 billion rupees less than that target. Now it seems almost impossible to achieve that goal with only three weeks left. Such a situation raises questions about the goals of the National Bank - were the set goals realistic? Or was there a weakness in the implementation process?

Political stability and policy clarity are essential when it comes to economic mobility. However, despite the commitment made in the seven-point agreement of the Congress-UML last year, no qualitative improvement has been seen in investment flow, job creation or confidence in the private sector. One of the major events among these is 'Take and Pay'.

Although the government was forced to back down on the power purchase agreement, this incident deepened the sense of uncertainty among energy sector investors. Investors in other sectors are also confused. The IPO proposals piled up in the Securities Board are stalled due to lack of decision. Energy promoters have publicly alleged that commissions are sought through middlemen. Such events spoil the investment-friendly environment. 

Although the government has amended more than two dozen laws through ordinances, their implementation is weak. The provision of service within 7 days was welcome but in practice it did not bring the expected improvement. This is also an example that shows that policy making alone is not enough, the implementation system is the main challenge.

On the other hand, Nepal's credit policy is still confined to the old structure. In most cases it is difficult to get a loan without collateral of land or property. Innovative thinking, technology or knowledge-based enterprises find it difficult to get loans. As a result, young people with new ideas are forced to flee without getting loans. An unequal system in which only established investors can get credit hinders long-term economic justice and inclusive development.