November 2023 Analysis: Economy & Development
The government formed a high-level dialogue council involving the private sector to find options to revive the sluggish economy. The House of Representatives Finance Committee's recent decision to proceed with the licensing process of a new stock exchange has revived the debate over the need for a new exchange and possible kickbacks influencing policy decisions. The abrupt departure of Axiata Group from Ncell, attributing it to a decline in revenue, has triggered further controversy.
Businessperson Durga Prasai organized a demonstration in Kathmandu to put pressure on the government to waive off debts owed to financial institutions by small businesses. Prasai has been actively advocating for this cause in recent months. This call for loan waivers is objectionable as it directly challenges the rule of law, which upholds the principle of contractual obligations. If granted, these waivers could have a significant impact on the financial sector, potentially destabilizing the entire banking system and the Nepalese economy as a whole. This protest was cited as one of the key reasons why the country’s economic activities have been sluggish in recent months.
The government established a high-level dialogue council, which included representatives from the private sector, to explore options for reviving the sluggish economy. The Macroeconomic and Financial Situation Report based on three months data of the current fiscal year from Nepal Rastra Bank (NRB) indicates an improvement in the external economy, but persistence of internal economic stress. The remittances inflow increased by 30 percent to Rs. 365.34 billion in the review period. However, according to the Financial Comptroller General Office (FCGO), the Nepal Government's total expenditure for the three months of 2023/24 was Rs. 280.57 billion. Government spending climbed by 0.9 percent in the review period, compared to 18.6 percent rise in the first three months of the previous fiscal year. In the review period, recurrent expenditure, capital expenditure, and finance expenditure were Rs. 213.39 billion, Rs.17.83 billion, and Rs. 49.35 billion, indicating a slow economy inside the country.
The global economic downturn triggered by the COVID-19 pandemic, along with increases in international prices and the Russia-Ukraine war, has also left its mark on Nepal's economy. These external factors have contributed to the current economic challenges that Nepal has been facing.
The House of Representatives Finance Committee instructed the government to proceed with the licensing process, reigniting a debate on the necessity of establishing a second stock exchange in Nepal. One side advocates for enhancing the flexibility of the existing Nepal Stock Exchange (NEPSE), while another section contends that a time has come to establish an entirely new stock exchange.
Amidst this ongoing debate, the current government has yet to decide on authorizing a second stock exchange. This hesitation is set against the backdrop of a previous cancellation of the licensing process even after inviting applications. In May, Prime Minister Pushpa Kamal Dahal opted to delay the process, responding to the controversy surrounding licenses allocated to specific business entities and concerns of financial kickbacks. Notably, Nepal Stock Exchange (NEPSE) employees have released a statement claiming that financial kickbacks were offered by business houses to the leadership of the Securities Board. These alleged transactions were supposedly linked to granting a license to the proposed new stock exchange. The intricacies of these accusations add a layer of complexity to the overall discussion on the potential establishment of a second stock exchange in Nepal, diminishing investor’s confidence.
showcase Nepal as an investment-friendly destination received a setback due to Axiata's departure from the Nepali market.
Timeline of Major Events
| Date | Events |
| 23 November 2023 | Durga Prasain organizes a protest in Kathmandu demanding the waiver of small loans from financial institutions |
| 25 November 2023 | The Finance Committee directs the Nepal Securities Board to proceed with the license process of a new stock exchange. |
Irrational demand for debt waiver leads to sluggish economic growth
Businessperson Durga Prasai organized a demonstration in Kathmandu to put pressure on the government to waive off debts owed to financial institutions by small businesses. Prasai has been actively advocating for this cause in recent months. This call for loan waivers is objectionable as it directly challenges the rule of law, which upholds the principle of contractual obligations. If granted, these waivers could have a significant impact on the financial sector, potentially destabilizing the entire banking system and the Nepalese economy as a whole. This protest was cited as one of the key reasons why the country’s economic activities have been sluggish in recent months.
The government established a high-level dialogue council, which included representatives from the private sector, to explore options for reviving the sluggish economy. The Macroeconomic and Financial Situation Report based on three months data of the current fiscal year from Nepal Rastra Bank (NRB) indicates an improvement in the external economy, but persistence of internal economic stress. The remittances inflow increased by 30 percent to Rs. 365.34 billion in the review period. However, according to the Financial Comptroller General Office (FCGO), the Nepal Government's total expenditure for the three months of 2023/24 was Rs. 280.57 billion. Government spending climbed by 0.9 percent in the review period, compared to 18.6 percent rise in the first three months of the previous fiscal year. In the review period, recurrent expenditure, capital expenditure, and finance expenditure were Rs. 213.39 billion, Rs.17.83 billion, and Rs. 49.35 billion, indicating a slow economy inside the country.
The global economic downturn triggered by the COVID-19 pandemic, along with increases in international prices and the Russia-Ukraine war, has also left its mark on Nepal's economy. These external factors have contributed to the current economic challenges that Nepal has been facing.
Controversies surround the new stock exchange
The House of Representatives Finance Committee instructed the government to proceed with the licensing process, reigniting a debate on the necessity of establishing a second stock exchange in Nepal. One side advocates for enhancing the flexibility of the existing Nepal Stock Exchange (NEPSE), while another section contends that a time has come to establish an entirely new stock exchange.
Amidst this ongoing debate, the current government has yet to decide on authorizing a second stock exchange. This hesitation is set against the backdrop of a previous cancellation of the licensing process even after inviting applications. In May, Prime Minister Pushpa Kamal Dahal opted to delay the process, responding to the controversy surrounding licenses allocated to specific business entities and concerns of financial kickbacks. Notably, Nepal Stock Exchange (NEPSE) employees have released a statement claiming that financial kickbacks were offered by business houses to the leadership of the Securities Board. These alleged transactions were supposedly linked to granting a license to the proposed new stock exchange. The intricacies of these accusations add a layer of complexity to the overall discussion on the potential establishment of a second stock exchange in Nepal, diminishing investor’s confidence.
Axiata exiting Nepali market
Meanwhile, Axiata Group's abrupt decision to sell its stake in Ncell, citing a revenue decline, has ignited another debate. The Nepal Telecommunication Authority issued a notice requiring Axiata to seek approval for trades and the Patan High Court issued a show cause order. This unexpected exit comes as a blow to Nepal's efforts to attract foreign direct investment, especially with an upcoming investment summit in April 2024. The government's goal toshowcase Nepal as an investment-friendly destination received a setback due to Axiata's departure from the Nepali market.
CESIF Nepal