There has been a situation where innovative young people find it easier to go abroad than to start their own businesses in the country. As only established investors are able to get loans and banks and financial institutions continue to wait for them, disappointment has increased among young people who have immense potential for economic development.
What you should know
The economic situation of the country indicates the need for extensive investment from the government and the private sector. The government should increase investment and spending, and the private sector should also be encouraged to increase investment in industry and trade, increase production. Capital should be created. New employment opportunities and possibilities should be opened.
Let the demand for goods and services increase in the market. Let entrepreneurship increase. Let the cycle of reinvestment and production be built. Finally, the country's economy be dynamic and strong. This is the path that Nepal's economic sector should follow at this time. But even though interest rates have fallen to their lowest level in about 51 months, there is still a lot of loanable money (excess liquidity) accumulated in banks and financial institutions.
Although liquidity has been accumulating in banks for two and a half years, the efforts of the government and the National Bank for credit flow have not been effective. That is why the implementation of more practical and effective policies by the government is inevitable.
In Asad 2081, after the largest parties in the House of Representatives, the Congress and the UML, came to power with an agreement to 'end the existing slack in the economy and create a reliable, business-friendly environment and make economic activities dynamic,' signs of improvement were expected in the economy. With the formation of a strong government, it was believed that the possibility of stability would also increase enthusiasm for investment.
With the expansionary budget and monetary policy for the current fiscal year, the expectation that credit flow would increase and the loanable amount accumulated in banks would decrease had become even stronger. In fact, there were signs of an increase in loan demand in the early months of this fiscal year. However, during the protests on 23 and 24 Bhadra, the private sector had to bear the brunt.
Several commercial/business centers were set on fire, vandalized, and looted. After that, experts say that instead of being motivated towards investment, the psychology of ‘why invest?’ has increased. Due to the uncomfortable situation, credit expansion has also come to a standstill, which confirms the same psychology. As a result, by the end of the first quarter of the fiscal year, more than 1.12 trillion rupees have accumulated in banks and financial institutions that can be given loans.
Excess liquidity highlights the overall economic slack and distrust between different parts of the economy. Citizens do not have money in their hands. Therefore, they are not in a position to increase spending. Since demand does not increase, production is also not in a position to increase. As a result, investors have not been motivated to invest and produce. This is increasing laxity. Therefore, the government needs to adopt a strategy to put money in the hands of the citizens. For that, the government itself should increase spending.
Construction work should be prioritized. On the other hand, the crisis of confidence is also deep. In normal circumstances, when interest rates fall, the demand for loans increases. But the opposite is happening here. The lack of demand for loans even when interest rates have fallen to the lowest in about 51 months is a crisis of confidence. Because investors have become more cautious.
Not only investors, but also the general public feel that there is no guarantee of business security and returns even after taking a loan and investing. Therefore, the government should be able to provide a sense of security. Since there is no regular government and the first priority of the electoral government is only elections, it is challenging but also essential to motivate and convince investors.
About 85 percent of employment in Nepal is created by the private sector. This also shows how essential it is to increase the morale of the private sector and encourage investment. But the private sector does not increase investment on its own, the government must take the lead. Government investment should be increased, especially in areas where the private sector is not particularly interested and where returns are slow but which can contribute to capital formation and job creation.
At this time, if the government were to increase investment in large infrastructure projects, national pride projects that yield quick returns, even if it had to take out loans, it would encourage the private sector. Loan demand may also increase. But we are in a situation where capital expenditure is low. A practical strategy should be adopted to improve that.
Government policy should also be such as to increase entrepreneurship. Small enterprises and startups should be encouraged. This connects the wider society with entrepreneurship and employment. It creates a cycle of that. If entrepreneurship is encouraged in society, the number of people who are self-reliant, confident, and dare to invest also increases. But in our country, it is difficult for small entrepreneurs to get loans. The policy is taken that those with innovative thinking, technology or knowledge-based enterprises will be encouraged, but it is not practically implemented. It is very difficult to get loans without collateral of land or property.
In such a situation, it has become easier for young people with innovative ideas to go abroad than to do business in the country. As only established investors can easily get loans and banks and financial institutions have a tendency to wait for them, disappointment has increased among young people who have countless potential for economic development. Therefore, the administrative complexity of credit flow should be removed and made as easy as possible. Creating an environment that makes it easy for small farmers involved in agriculture and animal husbandry to get loans will definitely contribute to reducing liquidity.
