Kathmandu. Although the money has been piling up in banks in recent months, the lack of mobilization in the industrial sector has made the stakeholders worried.
Due to the slowdown in the economy, loans have not been mobilized from banks. Experts say that this is affecting all sectors. Banks and financial institutions have accumulated more than enough money.
Interest rates are historically low, and foreign exchange reserves are historically in reserves. However, experts say that despite all these favorable signs, the economy does not seem to be moving. Economists and experts have been raising serious questions in various forums and debates on this issue in recent days: “Why did production not increase despite having money?”
They believe that although there is plenty of liquidity in the banking system, the money has not reached the productive sectors such as industry, agriculture, energy and infrastructure. Savings have been rising in recent months, but the pace of investment has slowed. Experts say that due to this imbalance, jobs have not been created and overall economic activity is weak.
According to experts, while the external sector is strong, the domestic economy is under pressure. Import control, increase in remittances and strong foreign exchange reserves are positive, but they have not been able to contribute to increase production and exports. This has provided temporary stability to the economy, but there has been no sustainable recovery.
Deposit mobilization of banks and financial institutions increased by 3.1 percent while credit to the private sector increased by 1.2 percent. On a year-on-year basis, the growth rate of deposits was 13.4 percent and that of private sector credit was 6.9 percent. This shows that credit growth has been much slower than deposit growth. Meanwhile, interest rates are also falling. As of mid-November, the weighted average interest rate of commercial banks stood at 7.38 percent.
Experts say that as interest rates continue to fall in recent months, there are other risks. Excessively low interest rates can reduce the attractiveness of savers and increase the likelihood of capital draining. Therefore, the debate is intensifying to focus the available financial resources on long-term and rewarding infrastructure projects.
Another major question being raised in the forums is related to fiscal policy. The analysis states that although the monetary policy is flexible, the morale of the private sector has not been boosted due to poor quality of government expenditure and ineffective capital expenditure. There is a growing perception that the economy cannot be mobilized simply by lowering interest rates or increasing liquidity.
Foreign investment has also not been able to come in as expected due to weak infrastructure development. Experts have been complaining that investment has been stuck due to weak structural preparation, institutional capacity and implementation aspect despite the policy announcement.
The challenge today is not a shortage of money, but a lack of trust, policy and capacity to link money with production. Economists say that the money in the bank can become the engine of the economy only if this gap can be bridged.
