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Nepal Rastra Bank (NRB) is to issue repo worth Rs 50 billion for managing the liquidity in bank and financial institutions. The Central Bank is issuing the repo for liquidity management as a large amount of money would go out from the banking system in the form of revenue upon payment of the first installment of the income tax on January 14. NRB is auctioning the repo today. The repo is being issued for a total 45 days. The Category A, B and C banks and financial institutions can participate in the bidding process. The repo will mature on February 12, according to the NRB.  

The government and the Asian Development Bank (ADB) on Tuesday signed a concessional loan agreement amounting to $200m (equivalent to Rs 26.51bn) for supporting the first five years of the School Education Sector Plan (2022–2030) and a Grant Agreement of USD 12 million to implement the Strengthening Systems to Protect and Uplift Women Project. The Ministry of Finance in a press statement said that the project will benefit survivors of gender-based violence (GBV) across Madhesh, Lumbini, and Sudurpaschchim provinces through the establishment of long-term rehabilitation centers, development of survivor-friendly facilities for the women, children and senior citizen service centers within selected district and area police offices and strengthening of survivor-friendly services in these provinces. The project will also build a new national long-term rehabilitation center in Bhaktapur. Joint Secretary of MoF, Ishwori Prasad Aryal, and Saugata Dasgupta, ADB Officer-in-Charge for Nepal signed the agreement papers. The proposed assistance will support the implementation of the government’s School Education Sector Plan in a sector-wide approach supported by eight development partners, including ADB under the Joint Financing Arrangement. “The program will enhance learning provisions for basic and secondary schools; strengthen teaching and learning skills in schools; accelerate the recovery from learning losses caused by the Covid-19 pandemic; and improve the capacity of local governments in education planning, monitoring and reporting,” reads the statement. Speaking on the occasion, Aryal said that Nepal has achieved significant progress in terms of improving access to education in the past decades. "However, much more needs to be done to further improve equity of access and the quality of education," he mentioned. According to him, the program will be crucial to operationalize Nepal’s holistic approach to improving overall learning outcomes. “This agreement is a key part of ADB’s overall efforts to help Nepal accelerate reforms and transform the country’s education system to develop human capital, reduce social inequity, and attain sustainable growth. The plan is designed towards eliminating inequities in access and participation in school education, and improving quality and resilience of school education,” the statement quoted Dasgupta as saying.

The National Planning Commission (NPC) has reduced the role of the Ministry of Forest and Environment in determining whether specific projects fall under the national priority project. As per the new Standard on Determining National Priority Projects 2022, NPC will be responsible for determining whether specific projects recommended by the provincial governments and local governments are national priority projects. A project that has its detailed project report (DPR) prepared, has secured a guarantee of resource availability and falls under the scope of the national priority as per the existing periodic plan, can be categorized as a national priority project. Likewise, additional criteria such as completion of environmental impact assessment (EIA) or initial environmental examination (IEE) and secretary-level decisions of categorizing the project as a national priority should also be fulfilled. A national priority development project receives approval to use the forest area and such a project can also conduct mining, process, and sell the mining materials. Both government and private sector projects can be categorized as national priority projects as per the set of standards. The NPC is the recommending body in the case of projects which has been categorized as National Priority Projects-1 or National Priority Projects-2 by the Medium Term Expenditure Framework, a three-yearly expenditure projection, and the Annual Development Program of the government. But NPC is responsible for determining the priority of local and provincial governments as national priority projects. As per the earlier standards, the NPC had little role in determining whether certain projects should be categorized as national priority projects. A senior NPC official said that the new set of standards has cut down the process of determining whether a certain project was a national priority. “It has reduced the compulsion of taking the file to an additional ministry,” the official said. In case of projects determined as a national priority by the Medium Term Expenditure Framework and the Annual Development Program, the NPC is responsible for notifying the line ministries about it only. And then, the ministries concerned should recommend that those projects are national priority projects to the Ministry of Forest and Environment which will do a needful to facilitate the development of such projects. For the prioritized projects of the provincial governments, the provincial cabinet and Office of the Chief Minister and Council of Ministers should decide and recommend for categorization as a national priority. A member of the NPC looks after it and makes necessary recommendations. Then, the planning body will determine whether the recommended project is a national priority project. As per the earlier provision, the provincial government should have recommended to the Prime Minister’s Office (PMO) and the PMO would recommend to the Ministry of Forest and Environment for treating certain projects as national priority ones. Similarly, in case of the projects designated as 'local-level priority projects, the assembly meeting of the local governments should recommend to the Ministry of Federal Affairs and General Administration, and based on the further recommendation of the ministry, the NPC will decide on the matter. Under the previous arrangement, the federal affairs ministry used to recommend to the forest ministry for treating such projects as national priority ones. Likewise, regarding projects with a cost of over Rs 100 million to be operated by the NGOs or the community for social development, the decision of the local-level rural municipality executive is required. This should be forwarded to the federal affairs ministry and based on the recommendation of the ministry, the NPC will determine whether to enlist recommended projects as national priority ones. An industry categorized under the national priority list will get approval from the forest ministry to use the forest area based on the recommendation of the Ministry of Industry, Commerce and Supplies.

In a much-needed respite to the banks and financial institutions (BFIs) stricken by a deeper liquidity crunch, the government has allowed banks to consider the majority of reserves funds of local government as bank deposits till the end of the current fiscal year. In December last year, the government decided to allow the commercial banks to count up to 80 percent of the reserve funds of the local governments deposited in commercial banks as deposits till the end of the last fiscal year 2021/22. Earlier, only 50 percent of such funds could be counted as deposits. In September this year, the deadline for counting such funds as deposits was extended further till mid-January 2023. The measure helped commercial banks to keep their credit-to-deposit (CD) ratio to the regulatory limit of 90 percent. With the banking sector continuing to face a shortage of loanable funds which resulted in surging interest rates in recent months, the government decided to extend the deadline further till the end of the current fiscal year. “The Ministry of Finance made such a decision early this week,” a senior official of Nepal Rastra Bank said. “This is expected to help the banks from getting their liquidity further.” The monetary arrangement, which allows banks to consider the reserve funds of the local governments as deposits, has helped banks to count the funds of local governments of over Rs 100bn as liquidity, according to the central bank. The non-extension of the deadline would have caused havoc in the liquidity position of banks by the middle of January next year when people are likely to withdraw a large chunk of money from the banks and financial institutions to pay the first installment of income tax. As per the Income Tax Act, taxpayers are required to pay income tax in three installments in January, April, and July. As a result of the excessive lending in the early months of last fiscal year, the banking sector faced a liquidity crunch as deposits could not grow in proportion to the lending. According to the central bank, there has been some improvement in liquidity in the last few months as the CD ratio has come down to around 86 percent. BFIs have hardly issued new loans while there has been a marked improvement in deposit collection due to an increased inflow of remittances as well as increasing government spending. NRB data show that nearly Rs 100bn has been collected by banks as deposits since the start of the second quarter of this fiscal year while the banks and financial institutions have lent around just Rs 3bn. “The latest trend of deposit and lending has helped to bridge the gap created by higher lending and lower deposit collection in the past,” the NRB official said. The liquidity is expected to be eased relatively in the second half of the current fiscal year provided the remittance inflows continue to increase and government spending also picks up. The government’s capital spending also usually increases in the second half of the fiscal year which will help bring cash into the banking system easing the liquidity crunch. As of December 26, capital expenditure is just over 10 percent, according to the Financial Comptroller General Office. “As development activities will pick up in the second half of fiscal, there will be a rise in capital expenditure which will help improve the liquidity situation of the banking sector,” the NRB official said.