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Failed economy syndrome!

By Prajwal Shrestha
economy09-29-10outlookRGB201009290436411-300x227The commercial banks have stopped providing business loans as they are facing liquidity crunch.The banks have hiked the interest rates in fixed deposits to manage the liquidity ratio. There is no money in the market, whereas, the government treasury has increased by hundreds of million rupees as it has failed to spend the development budget as per its target. Even after completing six months of the current fiscal year, the government has not been able to spend 15 percent of the budget allotted for the development sectors. In the meantime, by the end of Pous, again, the government collected taxes and revenues from the tax payers. This is the main reason behind liquidity crunch the banks are facing. Our finance minister is neither an economist norhas any sound ideas about monetary economics. Such a naivety of the minister has obviously affected the monetary market. In the budget, 250 billion rupees have been allocated for development expenditures, whereas, only 15 percent of the allotted budget has been spent until now. On the other hand, in our international trade, in past six months, the trade deficit has already crossed 430 billion rupees. When we import goods, we will be paying money to the exporting country. Our economy is based on revenue received from imports. Targets have been given to the Customs offices to collect revenue from imports. Therefore, the Customs offices encourage imports, which is a negative trend of economics.
The remittance money is being invested in non-productive goods such as purchasing motorbikes, television sets, land/house in urban areas. The government has not been able to convince those people who are receiving remittance from their relatives to spend the amount in productive sectors. In this way, we are sending our money back to the foreign countries by encouraging imports and contributing for the steadily inclining trade deficit.
Domestic production and industrialization have been neglected, from which, employment opportunity has declined. Such activities have made our economy weak and the country has become economically dependent in the foreign markets.
Furthermore, inefficacy of the experts in the Nepal Rastra Bank is the reason behind the present liquidity crunch in the market. The Nepal Rastra Bank is the monitory body of the financial institutions. The Central Bank has given directives to the commercial banks to increase the celling of the paid-up capital from two billion to eight billion at once. This initiative was taken to reduce the number of the commercial banks and financial institutions through merger. But the commercial banks have given less priority for merger and they are increasing the paid-up capital from the share-holders by giving bonus shares and also by issuing right shares and further public offering (FPO). The commercial banks, to gain profit, are found investing in non-productive sectors such as land/house purchase, automobile loans. Investment in automobile sector is sending money abroad by importing automobiles. If we would have plants to manufacture/assemble automobileswithin the country, at least we could generate employment here and also we could see flourishing of many spare parts producing industries within the country. The government has not encouraged such industries to operate within the country.
As imports have dominated our exports by many folds, the government has not given attention to curb imports and to encourage establishing import substituting industries. If the government will announce heavy discount on imports of e-vehicles and establish re-charge centers for the e-vehicles in the highways, obviously, we could substitute import of petro-products ina huge way. The government has not taken such initiative. The Golcha House was producing Mustang vehicles by establishing assembling plant in Biratnagar. The House stopped the plant as the government denied to give subsidy in import of the spare parts.
Already, by looking at the monetary trend and also increasing trend of trade deficit, in the past columns also, this columnist and similarly other economists had warned of the present situation but the government and concerned authorities never became serious about the situation. As a result, the present scenario has been witnessed and if the concerned authorities still do not take the situation seriously, the country may be declared as an economically failed nation, which will lead the nation towards a failed state.

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