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The acute shortage of liquidity, rising interest rates, and the slowdown in demand have hit the industries in Koshi Province badly in the first half of the current fiscal year. As industries grapple with multiple issues, their capacity utilization dropped by 8.3 percentage points in the first half of the fiscal year (FY) 2022/23. The average capacity utilization of industries in Koshi Province stood at 40.6 percent in the first half of FY 2022/23 compared to 48.9 percent during the same period of the last fiscal, states a new report of Nepal Rastra Bank (NRB). The decline in the capacity utilization of bricks, vegetable ghee, animal feed, cement, raw leather, synthetic fabrics, plastics goods, and iron rod production industries led to a decline in the average capacity utilization of the industries in Koshi Province. According to the NRB report titled “Provincial Economic Activities Report-Koshi Province,” industries producing bricks, vegetable ghee, soybean oil, and raw leather have experienced a decline in their capacity utilization in this fiscal. The NRB report says capacity utilization of the processed tea industry was highest at 85.4 percent while that of the bricks and vegetable ghee industries was the lowest at zero percent and 5.1 percent respectively. The capacity utilization of noodles increased by 80.7 percent, mustard oil by 79.9 percent, jute products by 74.5 percent, yarns by 65.7 percent, biscuits by 58.9 percent, and synthetic fibers by 58.1 percent. The central bank report shows the production of the sugar industry in Koshi Province surged by a whopping 190.7 percent and the rice industry by 68.4 percent. The production of the paper industry grew by 64.4 percent, the readymade garment industry by 26.5 percent, the GI wire industry by 20.2 percent, and the yarn industry by 11.6 percent. However, the production of the brick industry and soybean oil industry plunged by 100 percent and 89 percent respectively during the first half of FY 2022/23. Similarly, the animal feed industry and cement industry saw their production going down by 43.7  percent and 36.7 percent respectively. “The production of bricks has decreased mainly due to a delay in the supply of coal and a slowdown in market demand,” says the report. On the other hand, soybean industries’ capacity utilization suffered this year as soybean export to India slumped massively. With industries operating below capacity, the bank and financial institutions’ (BFIs) loan disbursement to them grew marginally in the first half of FY 2022/23. The BFIs’ loan disbursement to industries surged by 5.5 percent to Rs 127bn. The BFIs’ loan to the industrial sector had stood at Rs 121bn during the first half of FY 2021/22. The BFIs’ loans to the electricity and gas sector surged by 226.6 percent, the metal sector by 7.2 percent, and the agriculture sector by five percent. Of the total loans disbursed by the BFIs in Koshi Province, the share of the non-food-producing sector is the highest. The BFIs disbursed Rs 63.36bn (49.6 percent of total industrial loans) to the non-food-producing sector. The agriculture sector was the second highest recipient of industrial loans with the BFIs disbursing Rs 39.87bn in loans.

Chinese billionaire Jack Ma arrived in Kathmandu on Tuesday. The Chinese business magnate came to Kathmandu on a chartered plane from Bangladesh. It has not been revealed who Jack, also the founder of Chinese e-commerce giant Alibaba Group, will meet in Nepal. Apart from Alibaba, he has also been operating the Jack Ma Foundation. He has been highlighting the problems of the rural areas through this foundation.    

The government has said construction of the Budhigandaki Hydropower Project will start within this fiscal year. Prime Minister Pushpa Kamal Dahal on Monday said that preparations are being made to lay the foundation stone of the Budhigandaki Hydropower Project within Ashad (mid-June to mid-July). Inaugurating the new building of Adarsh Multiple Campus in Gajuri, Dhading, Prime Minister Dahal said the establishment of the project office and the foundation laying will be done within this month. “I have already instructed the Nepal Electricity Authority to make arrangements for establishing a project office and laying the foundation stone of the project within a week,” he said. Budhi Gandaki is a ready-to-go project as its detailed project report (DPR) has already been prepared. Compensation distribution to the residents of the project-affected areas for the acquired land has also reached close to completion, according to the officials of the company. The mega project which envisages ensuring energy security for Nepal for the next decades has been in limbo due to uncertainty over the modality of its development. The project will be Nepal’s largest reservoir-type hydropower project and its development has been estimated at $2.6bn. The project area is situated at the boundary between the districts of Gorkha and Dhading. For the government, generating resources and closing the project's budget gap will be a difficult undertaking. Of late, the government has been mulling to hand over the development of the Budhigandaki Hydropower Project to the Nepal Electricity Authority (NEA). In April this year, a task force was formed to finalize the share structure of Budhi Gandaki Jalbidhyut Public Limited. The task force led by NEA Deputy Executive Director Pradeep Kumar Thike was assigned to revise the share structure of Budhi Gandaki Jalbidhyut Public Limited to give a majority stake in the company to the government-owned power utility. Later in May, the NEA board decided to give the responsibility of the CEO of Budhi Gandaki Jalbidhyut Public Limited to Thike. The government in the last fiscal year decided to build the reservoir-type project on its own and established Budhi Gandaki Jalbidhyut Public Limited for the development of the 12,00MW project. As of now, the authorized capital of Budhi Gandaki company is Rs 20bn. The Energy Ministry has a 50 percent stake in the company while the Finance Ministry and NEA have 30 percent and 20 percent stakes, respectively. According to NEA, it has the technical expertise on developing big projects but it wants a majority stake in the newly established company. As developing storage-type projects is quite expensive compared to the run of the river-type projects, a viability gap funding is likely to be required from the government to develop this project, according to NEA. The project which has been touted as important to ensuring Nepal's energy security as it is expected to help the country to be self-reliant even during the dry season has been in limbo for a long time due to uncertainty over the modality of its development. Earlier, Budhigandaki fell victim to policy inconsistency despite facing hardly any problem in land acquisition and completion of DPR. In 2017, the then government, also led by Dahal, awarded a contract to build the project without competitive bidding to China Gezhouba Group Corporation under the engineering, procurement, construction, and financing (EPCF) modality. The Sher Bahadur Deuba-led administration in November 2017 overturned the earlier government’s decision. A high-level team led by Swarnim Wagle, former vice-chair of the National Planning Commission, was then established. The committee suggested that the project could also be developed using domestic resources. Again, in September 2018, the government led by KP Sharma Oli decided in favor of the Chinese company, reversing the decision of the Deuba-led government. In April of last year, the Deuba-led government once more decided to terminate the license granted to the Chinese company since it was not making any progress on the project. The report prepared by the committee headed by Wagle in 2017 suggested that the government should develop the project on its own by providing viability gap funding, covering around one-third of the project development cost. As per its report, the government could cover the cost of land acquisition and resettlement of displaced families which could total as high as Rs 94bn. A significant chunk of resources can be generated from government institutions. An infrastructure tax being imposed on imported fuel could be an important source of revenue that can be used to develop the project. According to the Wagle report, public enterprises such as Nepal Electricity Authority, Employees Provident Fund, Nepal Telecom, Rastriya Beema Sansthan, Hydroelectric Investment and Development Company, Upper Tamakoshi Hydropower Company, Chilime Hydropower Company, along with Nepal Army, Nepal Police, and the general public could be tapped for the project.

The growth rate of private sector credit in Nepal is higher in comparison to other South Asian countries. A new report by Nepal Rastra Bank shows the average year-on-year growth rate of private sector credit in the last six years in Nepal is around 21 percent while the credit growth of India is 9 percent and that of Bangladesh and Pakistan is 13 percent. The report titled “Private Sector Credit Growth and Its Impact Upon Real Sectors in Nepalese Economy” says the growth rate of credit in Nepal was higher than its neighboring countries almost all the time, even during the period of the Covid-19 pandemic. According to the report, the growth rate of private sector credit is highly volatile in Nepal followed by Pakistan, whereas it is more or less volatile in India and Bangladesh. The report says most of the loan is collateralized by fixed assets, especially real estate. About 87 percent of the banks and financial institutions’ (BFIs) outstanding loan is backed by the asset guarantee, and the rest of 12.6 percent is backed by other collateral. Of the total credit, 75 percent of the credit is collateralized by fixed assets, and 12 percent is collateralized by current assets. As of July 2022, the highest portion of the credit is occupied by term loans; accounting for 25.4 percent followed by demand and other working capital loans with 21.5 percent. Overdraft loans and other products are also holding a significant portion of total credit having 15.4 percent and 11.9 percent respectively. “The top-most four types of credit products occupy about three-fourths share of the total outstanding loan,” says the report. More than one-fourth of the total credit portfolio falls under non-specific purpose loans (overdraft and other products). The credit portfolio of term loans and demand & working capital loans shows a quiet reversal pattern before and after the Covid-19 pandemic with a significant rise in term loans. In order to mitigate the potential damage during the Covid-19 pandemic, the NRB encouraged businesses to borrow, increased the limit of borrowing from the same collateral, and rescheduled and restructured their loans. As a result, term loans increased significantly. Since the last decade, the credit to the private sector has shifted its dynamism, and the credit to corporations has exceeded the credit to households. Since 2010, the credit to corporations is higher than the households. The gap has widened especially after 2018. This coincided with the implementation of federal structure in Nepal, and the policy of NRB to expand financial access through the establishment of at least a branch at each level. As of July 2022, almost two-thirds of the outstanding credit has been used by corporations.