Two-thirds of investment in Nepal is from the private sector. That is driven by one-third of government investment. On the other hand, the private sector creates about 85 percent of employment in Nepal.
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The amount of credit available in banks and financial institutions (excess liquidity), which has been increasing since two and a half years ago, has reached an even higher point. As of 23 Mangsir, such amount in banks and financial institutions has reached 1.122 trillion. This clearly sends a message - the investment environment in the country is not improving.
The economy is slowing down because the private sector has not been able to feel that a reliable environment is available for investment. All aspects such as investment, production, capital formation, employment, demand for goods and services are slowing down.
The efforts of the government and the National Bank to improve this situation for the past two and a half years have not been effective. Because there is a high level of distrust between different parts of the economy. However, there is no alternative to making efforts to create a positive environment. The government should make maximum efforts to address the concerns of the private sector and reassure them.
In the first five months of the current fiscal year, banks and financial institutions have collected deposits of Rs 239 billion and disbursed loans of only Rs 75 billion. Normally, when interest rates are high, loan flow is less than deposit collection. Because, the desire to get high interest rates encourages the common man to save in banks.
On the other hand, high interest rates discourage people from taking loans. However, the situation is exactly the opposite now. Interest rates have fallen to their lowest point in history. However, it is clear that our problems are not ordinary and cannot be treated in an ordinary way due to the increase in deposit collection.
Remittances are also setting records month after month. In the month of Asoj alone, the highest ever remittance of Rs. 201.22 billion was received. That may have also contributed positively to deposit collection. People have also developed a mentality of thinking that it is safer to save in banks even if they only get a lower interest rate than consuming/spending or starting a business. In addition, the government has not been able to increase capital expenditure.
It has not been able to encourage the private sector by increasing investment in large infrastructure. It has not been able to create an atmosphere that puts money in the hands of the people and encourages them to spend. When people do not spend, demand does not increase in the market. When demand does not increase, there is no situation where production can be increased. When production is not increased, the private sector is not ready for additional investment.
The reason for the lack of demand for credit at this time is also due to the specific circumstances. There are some main factors that discourage investment in Nepal. First, there is political and policy instability. Investors are hesitant, especially due to political instability. Because, there is a situation where it is impossible to predict the life of the government.
Every prime minister says that the government he leads will last for a long time. But in reality, such claims have not been reflected. Along with the government, policy changes also occur. The approach to the private sector also varies from government to government. Let's look at the current time, a government has been formed for the purpose of holding elections after the Gen-G movement. This government itself is for 6 months, and there is uncertainty about the government that will come after it. Therefore, it is natural to think that why should anyone take a loan and invest now, but rather see the situation after 6 months.
Second, the feeling of insecurity is high. For a long time, industries have not been able to find a positive environment in the country. Industrialists were also affected by the long conflict. They were also affected by load shedding, bandh, strikes and donation terror.
At a time when employment opportunities were few, the purchasing power of the people was also low, and almost no industry was able to flourish. The situation had improved somewhat in the last decade. But there was no room for complacency. During the protests on the 24th, entrepreneurs and industrialists were also targeted.
This has not only increased trade and business, but also increased personal insecurity. The question of why to invest here has arisen. Therefore, the situation cannot improve significantly until the government and political parties can give a satisfactory answer to the private sector.
The government itself must also increase its spending capacity. The situation has been going on for a long time where the budget for capital expenditure is already low and even that is not being spent. On the other hand, the government should increase investment in large infrastructure projects such as national pride projects. It should be spent. If the government can increase investment in projects that can make a positive contribution to capital formation and job creation, the morale of the private sector will also increase.
Two-thirds of investment in Nepal is from the private sector. It will be motivated by one-third of the government's investment. On the other hand, the private sector creates about 85 percent of jobs in Nepal. This also makes it clear how important it is to encourage the private sector to invest. But this work cannot be done by just talking. It must be realized through political stability, policy stability, and security guarantees.
