Seven months after taking office, as of October 27, the government has failed to revive the economy. The market is experiencing a serious slowdown. Despite historically low interest rates, demand for bank loans remains weak, forcing the central bank to absorb excess liquidity. The stock market remains sluggish, the real estate sector is in crisis, and investors and industrialists complain about the absence of a favourable investment climate. Despite the government’s call for foreign direct investment (FDI), the response remains disappointing.
Remittances sent by Nepali youths working abroad are largely financing imports of vehicles and luxury goods rather than productive investment. The government lacks a clear vision for import substitution. Instead of offering incentives and facilities to domestic investors, it is imposing taxes across sectors. Air passengers and electricity consumers are burdened with VAT. In effect, the government appears to be generating revenue by squeezing domestic consumers. A country’s economic strength should be reflected in the growth of domestic production and excise revenue, but the government remains heavily dependent on customs duties from imports.
Finance Minister Swarnim Wagle, an advocate of the free-market economy, appears to have overlooked the realities of Nepali society and its economic structure. Nepal needs good governance, financial transparency and a mixed economy, not an unquestioning application of Adam Smith’s principles of demand and supply. The vegetable market illustrates this reality: multiple layers of middlemen exploit both farmers and consumers. Government intervention is therefore necessary. State-owned enterprises and public-private partnerships (PPPs) are essential to developing industries and creating employment. Since Nepal has a small domestic market and faces potential trade barriers in India, private investors are reluctant to take risks. One practical approach would be to establish public limited companies, offering shares to local people, including small savers, to mobilise domestic capital.
The real estate crisis has also immobilised capital, as many people have invested their savings in land, traditionally considered a safe asset. Without reviving this sector, economic activity will remain sluggish, further exposing banks to financial risks. An immediate and carefully designed rescue initiative is therefore necessary. Reviving real estate activity could help restore capital mobilisation and stimulate the wider economy.
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