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US Ambassador to Nepal Dean R Thompson paid a courtesy call on Prime Minister Sher Bahadur Deuba at the latter’s official residence in Baluwatar on Tuesday. During the meeting, the duo discussed contemporary political issues, Parliamentary Party election and possible power sharing among other issues. The United States, India and China have been expressing concern over the possible power sharing in Nepal. The ambassadors of those countries are closely monitoring the latest political situation of Nepal.

Deepak Malhotra is the Chairman of IMS Group, a business group with diversified interests in various sectors including technology, e-commerce, automobile, real estate, healthcare, and financial services, among others. Malhotra is also the President of the Mobile Phone Importers Association as well as Vice President of the Nepal Chamber of Commerce. ApEx caught up with Malhotra to talk about the current economic slowdown, the impacts of higher interest rates on business operations and problems surrounding the business sector. Excerpts: Many businesspersons say that the current economic slowdown is the deepest in their living memory. How severe is the crisis for the private sector? The policies of the government and the central bank created the current crisis. The exorbitantly high borrowing rates, unnecessary tightening of working capital loans and the credit-to-deposit (CD) ratio of banks, among others, have impacted businesses very much. The current borrowing rates have made doing business unsustainable. We are facing double problems; there is a sharp decline in market demand for goods and services, whereas BFIs have been pressurizing us to pay the loans and interests. We have repeatedly urged the Ministry of Finance and the Nepal Rastra Bank to bail out the crisis-hit businesses. But, they have turned a deaf ear to our demands. While many businessmen complain of BFIs charging high-interest rates, the same individuals are also the promoters of many banks. In this situation, is it fair for them to complain against the policies of banks and the central bank?  This is a valid issue. There are businesspersons on the board of many banks. Ideally, there should have been a separation of bankers and businessmen in the banking system. Banks have not reduced the premium on interest rates despite repeated requests from private sector organizations. The influential businessmen who should have been vocal against the interest rates issue have chosen to remain silent during this crisis. I think it is because their personal interests are playing a role in this context. My point is, business community members need to raise a united voice. As the President of the Mobile Phones Importers' Association, how do you see the policies of the government affecting the mobile handset business? As the official importer of Samsung mobile phones, IMS used to import mobile phones worth Rs 10 billion annually. Until four years back, mobile importers used to get a 40 percent VAT rebate on the import of handsets. This has made mobile phones cheaper in the market as well as helped to check illegal imports. The abolishment of the VAT rebate in the federal budget of FY2019/20 has already hit our business. In addition, the government also imposed excise duty on handset imports. Making the matter worse, the government enforced import restrictions on mobiles above $300 from April this year. The sudden imposition of import restrictions has hit mobile businesses very hard. While we were left with no mobile phones to sell, we were not in a position to reduce our expenses. Mobile importers and dealers operate on a relatively thin sales margin; there is only a five percent gross profit in the mobile business. People may not believe it but the mobile phone business has now turned into a loss-making venture. The ineffective implementation of the management device management system (MDMS) as well as a surge in illegal imports also posed serious issues to the domestic mobile phone business. What do you think are the factors hindering the effective implementation of MDMS?  We have been regularly asking the authorities to implement the MDMS effectively. The problem came when there was a discussion about identifying the legality of mobile phones. Neither mobile phone importers nor the government had any issue with the Nepalis working abroad bringing phones for their personal use. But the issue here is, a few traders have been using migrant workers to import mobile phones illegally. It is estimated that around 100,000 such illegal phones have already arrived in the Nepali market. Once the Nepal Telecommunication Authority (NTA) implements the MDMS system effectively, such phones will not be activated. What do you suggest for Nepalis who buy phones abroad to use them in Nepal? People should not buy mobile phones in foreign markets to use such handsets here. It is because genuine mobile phones can be brought from the Nepali market at affordable prices. Customers will also get an official warranty/guarantee and a few high-end handset models available in the market even come with insurance coverages. As the government has recently lifted the ban on mobile phone imports, when Nepali market see new models of Samsung phones? With the lifting of import restrictions, we have started the process of opening a Letter of Credit (LC). IMS will introduce flagship models of Samsung mobile in the Nepali market in months or two. We have not been able to launch the Samsung Galaxy Z Fold 4 in the market due to import restrictions. Along with Fold 4, the Galaxy S22 series phones will also be reintroduced to the market. How much time do you think it will take for the Nepali mobile phone business to rebound? Not only mobile phones, but the market of every product/sector has weakened over the last couple of months. With the lifting of import restrictions, we will now start importing mobile phones. But, we are not sure whether there will be buyers. If the government works to improve the business environment and resolve all our problems, then only the mobile phone market can bounce back.

Despite some improvement in Mangshir, the liquidity situation in the banking sector is expected to remain tighter until around mid-January. While the deposits of commercial banks surged by Rs 58 billion in Mangshir (mid-November to mid-December), lending has remained sluggish as banks disbursed only Rs 2 billion in loans last month. Bankers and economists attribute multiple reasons for this situation. A large number of taxpayers will pay taxes by withdrawing money from the banks as the government gets the first installment of income taxes in mid-January in line with the Income Tax Act. With the government running in a fiscal deficit with revenue insufficient even to meet the recurrent expenditure, it is expected to continue the internal borrowing which will mount further pressure on liquidity. The banks are also required to repay the refinance to the Nepal Rastra Bank (NRB). The outstanding amount of refinancing provided by NRB remained at Rs 102.60 billion in mid-November 2022, according to the central bank. The provision under which the banks can count 80 percent of reserves funds of the local government as deposits, is also expiring in mid-January. “Over Rs 40 billion is expected to go out from the banking system to pay the tax to the government,” said Sunil KC, CEO of NMB Bank, adding that the government is expected to absorb an additional Rs 30 billion through internal borrowing. When the financial resources go into the government treasury, it takes time to bring those resources from the government treasury. “It is because the government is weak at spending, particularly the capital budget,” said another banker. "Our only hope is that government spending may accelerate relatively because its existing revenue collection has not been able to make up recurrent expenditure too. If not for capital expenditure, money to be observed by the government can come up to spend for administrative works.” The banking system has faced a prolonged liquidity crunch, particularly from the second quarter of the last fiscal year, due to massive lending for imports in the early months of the last fiscal year. Due to a mismatch between lending and deposit collection, the banking system faced a shortage of loanable funds. With deposits not growing as expected, the system faced a prolonged liquidity crunch. However, a senior Nepal Rastra Bank official said the liquidity crunch has eased to some extent as deposits surged since mid-October while lending grew only marginally. Since mid-Oct, deposits in the banking system grew by around Rs 80 billion while lending grew by just around Rs 2.5 billion till mid-December, according to NRB. A senior NRB official said that this has helped to reduce the credit-to-deposit ratio of commercial banks to around 86 percent down from over 90 percent in the early days of the current fiscal. One contributing factor for improved deposits is also that commercial banks could count 80 percent of the reserve funds of the local governments as deposits. Likewise, inflows of remittances have increased in recent months along with the rise in the outflow of Nepali migrant workers contributing to deposit growth. Remittance inflows increased 20.4 percent to Rs 378.04 billion in the first four months of the current fiscal year against a decrease of 7.0 percent in the same period of the previous year, according to NRB. In January this year, the central bank allowed the commercial banks to count 80 percent of reserves funds of the local government as deposits, up from 50 percent earlier. Though the provision was first arranged till the end of the last fiscal year, it was extended till mid-January considering the continued liquidity crunch in the banking system. Amid the scenario of the tighter liquidity situation, the banks are unlikely to lend to the private sector borrowers in significant amounts even though the government lifted import restrictions on vehicles, liquors, and expensive mobile sets in mid-December. According to a banker, the ongoing liquidity crunch and high borrowing rates will discourage imports despite the lifting of import restrictions. “Because of high inflation and interest rates, demand in the market has slumped,” said the official.

The Nepal Stock Exchange (NEPSE) gained 14. 22 points to close at 1, 873. 11 points on Tuesday. Similarly, the sensitive index plunged by 2.68 points to close at 366. 65 points. Meanwhile, a total of 3,022,052 unit shares of 257 companies were traded for Rs 93 billion. Meanwhile, Adhikhola Laghubitta Bittiya Sanstha Limited and Srijhansil Laghubitta Bittiya Sanstha Limited were the top gainers today, with their price surging by 10. 00 percent. Sunrise Bluechip Fund was the top loser as its price fell by 4.67 percent. At the end of the day, total market capitalization stood at Rs 2. 70 trillion.

Nepali Congress President Sher Bahadur Deuba and party General Secretary Gagan Thapa have filed their nominations for the Parliamentary Party leader. Senior leader Ram Chandra Paudel proposed Deuba’s nomination and Vice-President Purana Bahadur Khadka seconded the proposal. Similarly, Shekhar Koirala proposed Thapa’s nomination and Dhanraj Gurung and Bishwo Prakash Sharma seconded the proposal. The election to choose the Parliamentary Party leader will be held on Wednesday. The voting will begin at 8 am and end at 10 am tomorrow at the party’s Parliamentary Party office in Singhadurbar.      

Nepali Congress leader Shekhar Koirala said that he proposed Gagan Thapa as the candidate of the Parliamentary Party as per the wishes of the young generation. During a meeting held on Tuesday, Koirala said that he proposed Thapa as the candidate of the Parliamentary Party leader as he is in favor of generational transformation. Leader Koirala made it clear that Thapa is his candidate. “Gagan is dynamic. Youths also want him to be the Parliamentary Party leader. I proposed him as the candidate of the Parliamentary Party leader as I am in favor of party transformation,” he said. NC central member Ajay Babu Shivakoti said that the meeting has decided to field General Secretary Thapa as the candidate of the Parliamentary Party leader. Meanwhile, party President Sher Bahadur Deuba is preparing filed candidacy for the post of Parliamentary Party leader from the establishment faction.  

The price of gold has dropped by Rs 100 per tola in the domestic market on Tuesday. According to the Federation of Nepal Gold and Silver Dealers’ Association, the yellow bullion is being traded at Rs 100, 400 per tola today. It was traded at Rs 100, 500 per tola on Monday. Meanwhile, tejabi gold is being traded at Rs 99, 900 per tola today. Similarly, the price of silver has dropped by Rs 5 and is being traded at Rs 1, 375 per tola.

Nepal and Bangladesh enjoy cordial and multi-faceted ties. The two countries formally entered the bilateral relationship in 1972, and over the years they have cooperated in many areas. Currently, they are working to expand their ties with a key focus on connectivity, trade, and energy, among other areas. In this context, Kamal Dev Bhattarai of ApEx talks to the Ambassador of Bangladesh to Nepal, Salahuddin Noman Chowdhury. How do you evaluate the current state of the Nepal-Bangladesh relationship? I think the relationship is most cordial. We have great warmth, confidence, and appreciation for each other at leadership and the people-to-people level. Perhaps more than our shared history and civilizational linkages, the similarities in our socio-economic and geopolitical realities have drawn us closer. On most issues, we have a common position. What are the key areas of cooperation between the two countries? The key areas in which our relationship developed over the years are trade, investment, connectivity, tourism as well as cultural and educational cooperation. For decades, Nepal has been the most favorite foreign destination for Bangladeshi travelers. Our attraction is not only for the majestic Himalayas, but also for the warmth and hospitality of Nepali people. In Bangladesh, too, we are developing our tourism sector. Our endeavor will now be to attract Nepali tourists to Bangladeshi tea gardens, mangrove forests, sea-beaches and archaeological sites. Education sector cooperation is one of the main pillars of our relationship. Many Nepali students are currently studying in Bangladeshi medical colleges. I firmly believe that such cooperation in the public and private sector will have a long-lasting impact in strengthening our bonds. However, the warmth in our relationship could not be translated into meaningful trade between the two countries. Being smaller economies with resource constraints and lower level of social development, I think, our initial efforts for industrialization and service sector development were geared toward creating market access in western countries. Our economies were also not ready to complement each other at that stage. Now that we are on strong footings of specializations, we see a lot of opportunities for trade amongst ourselves in coming years. Realizing this, we are currently engaged in negotiations for a preferential trade agreement between our two countries. If that materializes, our trade volume will increase significantly. What are the recent initiatives that have been taken to enhance connectivity between the two countries? Last year, we signed a document to facilitate movement of goods through the Rohanpur-Singhabad railway route, along the Bangladesh-India border. This is the second such route for transporting Nepali goods overseas through Bangladesh. We have declared long ago that we will welcome passage of Nepalese cargo through our seaports as a mark of our commitment to regionalism and abiding friendship to the people of Nepal. We are now working under a sub-regional framework called BBIN for goods transport. In future, we also want to connect two more airports to establish seamless connectivity. Using the same platform, we are currently engaged in discussions to import electricity from Nepal to Bangladesh through India. The ultimate goal is to have a dedicated line for transmission of electricity. Could you please shed some light on high-level exchanges between the two countries? We have had exchange of visits at the highest political levels in recent years. Our prime minister came to Nepal twice in her present tenure to attend SAARC and BIMSTEC summits. Our president also visited Nepal in 2019. Last year, Nepali President Bidya Devi Bhandari visited Bangladesh to attend the birth centenary of our father of the nation and the golden jubilee celebrations of our independence. Ministerial visits also take place quite frequently. The future of SAARC is uncertain at the moment. What are your suggestions for the revival of this regional body? There is an overall uncertainty in our situation. We are all facing natural and manmade calamities like environmental degradation, pandemics, wars, recessions, etc. In such a difficult scenario, when doors of cooperation are being shut because of increasing nationalism, we have no option but to work in unison in all multilateral and regional platforms. Unfortunately, some of the prospective platforms, like SAARC, could not function as expected due to political reasons. I think we should de-link politics from trade and development. Only through dialogue can we solve our problems. What are the future prospects of Nepal-Bangladesh relations? Energy cooperation is a very prospective area. Bangladesh is energy hungry while Nepal will soon become energy surplus. That is a perfect scenario for complementing each other’s needs. We are also engaged in discussions on Bangladesh’s possible investment in hydropower projects in Nepal. Also in the area of water sector cooperation, we are willing to work together for a basin-wide management of our water resources for mitigation of floods, augmentation of flow in lean season, and exploiting potentials for generation of hydropower. Agriculture is another area of cooperation, as we have a huge potential to strengthen our food security. We may also have joint ventures in areas of IT, garments and pharmaceuticals in special economic zones that we are building in our countries. Lastly, if we can establish smooth connectivity for movement of goods as well as passengers, our relations will further strengthen and people will enjoy its direct benefits. What do you like most about Nepal? I am enjoying my stay in Nepal thoroughly. Nepal has a very rich cultural heritage. Different communities speak different languages and live in peace, which is exemplary for the world. Moreover, Nepal has a very educated and enlightened civil society, who have emotional attachment for art, culture, literature and their unique architecture. Again, the people of Nepal are most cordial, warm and hospitable toward foreigners. So, not only me, all the foreigners live here very comfortably and happily. I consider myself very lucky to be posted to this beautiful country with beautiful, enlightened, warm and friendly people.