\n<\/strong>Nepal\u2019s loose monetary policy and mandatory central bank requirement of four-fold rise in paid-up capital of commercial banks has triggered rapid credit expansion. Besides this, the private sector\u2019s low lending growth at an average 22 percent in the last two years has resulted in this scenario.<\/p>\n
A big chunk of credit continues to enter these sectors despite the central bank\u2019s attempts to curb the flow of credit to unproductive sectors through revision of loan-to-value ratio on car and real estate loans.<\/p>\n
IMF suggested that credit expansion take place in a sustainable manner. However, this could hit the country\u2019s economic growth.<\/p>\n
Nepal\u2019s Economic Performance \u201cAbove-trend growth has been supported by two successive favorable monsoon seasons, accommodative fiscal and monetary policy, a pickup in [post-earthquake] reconstruction activity, and markedly improved electricity supply,\u201d reports IMF.<\/p>\n However, expansions policies that triggered growth have also fueled imports. This has resulted in a current account deficit of 8.2 percent of GDP in 2017-18. <\/p>\n The deficit further caused the central bank foreign exchanges to shrink to USD 9.7 billion in September 2018 from USD 10.1 million in July, 2018.<\/p>\n Furthermore, the growing current account deficit also burdens the budgetary operations of the government with a fiscal deficit of more than six percent GDP in 2017-18.<\/p>\n This deficit further widened with large transfers to local governments and rise in capital spending. Following this, public debt rose to a manageable 29.7 percent of GDP.<\/p>\n \u201cThe fiscal deficit could widen further in 2018-19 with the ongoing implementation of fiscal decentralization, unless the government continues the strong revenue collection effort seen in the first two months of this fiscal year when revenues rose by 36 per cent year-on-year,\u201d states the IMF report.<\/p>\n The Way Forward \u201cEfforts should focus on strengthening key institutions and administrative capacity to boost private investment and growth,\u201d reports IMF.<\/p>\n \u201cFiscal policy should focus on higher and better-quality public investment and prudent implementation of fiscal decentralization through sustainable intergovernmental fiscal arrangements and the need to build public financial management capacity at the sub-national level,\u201d it adds.<\/p>\n IMF warns that hasty implementation of fiscal decentralization could strain government finances and weaken fiscal policy\u2019s stabilization function.<\/p>\n \u201cAt the same time, with the fiscal stance having become more expansionary than in previous years, monetary policy needs to be tightened to keep inflation and balance of payments pressures in check,\u201d says the IMF report.<\/p>\n","protected":false},"excerpt":{"rendered":" In a bid to improve Nepal\u2019s alarming credit scenario, the International Monetary Fund (IMF) directed the…<\/span><\/p>\n
\n<\/strong>In the last two years, Nepali economy has made rapid progress with the growth rate standing at eight percent in FY 2016-17 and 6.3 percent in FY 2017-18.<\/p>\n![\"Nepal](\"https:\/\/www.nepalisansar.com\/wp-content\/uploads\/2018\/11\/nepal-gdp-growth-from-2010-to-2018.png\" "\\"Nepal")
<\/p>\n
\n<\/strong>According to IMF, Nepal\u2019s near-term challenges include:<\/p>\n\n