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The monetary policy for the current fiscal (2023/24) has garnered contrasting reactions from different groups. While some have supported the policy’s intention to mitigate risk associated with stock and real estate lending, others have raised concerns over the absence of an explicit economic growth target, signaling Nepal Rastra Bank (NRB)’s shift in priorities. In the last fiscal, economic activities faced significant challenges due to a dearth of investable capital in banks, rather than high interest rates. During the period from Dec 2021 to Dec 2022, banks experienced a shortage of investable funds, leading to a contraction in loan provision and a subsequent slowdown in economic activities. The confluence of these factors placed entrepreneurs in a precarious situation, further exacerbating the economic dilemma.

Since Jan 2022, the available investable amount in banks has shown an upward trend. However, a certain degree of ambiguity persisted among banks regarding the inclusion of debentures in local-level deposits. Despite this, the demand for loans failed to escalate amid the dormant economic landscape. Consequently, loans were not extended by banks during this period.

The existing scenario suggests that banks still possess an untapped reserve of around seven percent, approximately Rs 4bn, available for investment. This amount is expected to suffice the loan demand for the next 6-7 months. Additionally, auxiliary resources from remittances and debt recovery further augment the investable capital pool. In light of these developments, the Nepal Rastra Bank (NRB) has astutely introduced a flexible monetary policy for the current fiscal, entailing a reduction in the policy rate from seven percent to 6.5 percent. This strategic move aims to ameliorate loan interest rates, as already evidenced by banks’ recent reductions.

Anticipated decrease in interest rates is likely to spur a surge in loan demand, consequently reducing operational costs for businesses. With a relatively low CD ratio, banks can source affordable funds from the NRB and invest them at favorable interest rates into loans, thereby fostering increased economic activities. As a result, entrepreneurs are poised to be more enticed to avail themselves of loans. Meeting the demand of entrepreneurs, interest rate reduction appears to be a key factor facilitated by the current monetary policy, ensuring economic continuity. Additionally, the increment of the real estate loan limit from Rs 15m to Rs 20m is likely to stimulate systematic real estate business and encourage small investors in share loans, both of which contribute positively to overall economic activities.

Furthermore, the monetary policy explicitly addresses the demands regarding working capital loan guidance, as of 2022. While these loans have not been a major issue previously, the NRB acknowledges the necessity of revising guidelines to tackle pertinent problems associated with such loans, ultimately contributing to sustained economic activities.

The introduction of the “Stressed Loan Resolution Framework” to facilitate debt restructuring for borrowers facing challenges due to natural disasters or special circumstances serves as a welcome measure. Effectively utilized, this framework can aid the recovery of affected industries and bolster overall economic viability. However, it is crucial for banks to exercise discretion and refrain from haphazardly rescheduling and restructuring loans, as such practices could engender future complications. Responsible and targeted use of this facility is advisable.

In alignment with government policies aimed at revitalizing the economy, the Nepal Rastra Bank has formulated a monetary policy to complement the budgetary initiatives. The policy focuses on promoting loans to productive sectors, continuing the provision of loans up to two crore rupees for businesses operating in Nepal, and instilling optimism in the prospects of the economy.

In a positive stride, the monitoring of major borrowers has been prioritized, seeking to prevent disproportionate allocation of bank funds and address any inquiries or doubts surrounding their utilization. NRB’s vigilance over large borrowers and the prospects of introducing a policy to extend loans to companies and businessmen with 49 percent public shares are potential measures to bridge the wealth disparity gap.

Additionally, amendments to the Banking Offenses Act are proposed to deter chaotic activities observed in the banking sector recently. Such actions are expected to ensure that perpetrators are held accountable for their actions, thereby promoting a more secure financial environment. Moreover, NRB's collaboration with relevant agencies in combating money laundering and ensuring a safer borrowing environment bodes well for the development of the financial sector.

An encouraging development is NRB’s commitment to supporting the supervision and regulation of savings and credit cooperatives. The establishment of a separate regulatory body, backed by the government and the NRB, is crucial to address the prevailing issues in the cooperative sector, furthering its stability and efficacy.

Business communities anticipate caution in expectations, emphasizing that cheaper interest rates are necessary to foster a conducive business environment, but effective implementation of existing policies is equally crucial. The market’s significant message is that relying solely on monetary policy may not be wise in the future. Instead, policy decisions should consider the broader economy rather than just market demand. To meet political and market expectations, certain flexible elements have been integrated, especially in providing support to the real estate and stock market sectors.

It appears that the NRB aims to strike a cautious balance, considering the improved liquidity situation. Stakeholders may need to adopt a more cautious approach, as no radical shift in policy regimes is expected. The NRB may revisit and revise its actions if the need arises.

The author is Deputy Director at Nepal Rastra Bank. Views expressed herein are personal

The entrenched issue of political fragmentation and instability in Nepal are two deep-rooted problems. Over the years, the country has witnessed the emergence of several political parties, many of which have divergent ideologies and national objectives. Due to the difficulty in forming stable, efficient governments as a result of this fragmentation, coalition politics and frequent changes in the political leadership have hampered the creation and implementation of long-term policies.

Political parties have also failed to adequately address the nation’s socio economic problems, such as poverty, unemployment, and infrastructure deficiencies. Because the political system has failed to address these critical concerns, social discontent, and dissatisfaction have grown, which has weakened support for major parties and increased the need for alternative political options.

Leadership questions

Any political party can face serious leadership challenges with an adverse effect on their performance. The characteristics and behaviors of the party’s senior leaders frequently play a role in leadership issues in the context of political parties. The ability of a leader to effectively articulate the concerned party’s vision, objectives, and policies to party members and the general public can be impeded by a lack of strong communication skills. At the same time, a lack of vision among leaders makes it difficult to establish strategic priorities and make wise choices, which undermines the party unity and a sense of direction. A party’s capacity to put on a united face and successfully rule can be undermined by internal rivalries, leadership conflicts, and a lack of cooperation among party members. Certain parties may occasionally be ruled by political dynasties, in which positions of power are passed down within families. This could impede the formation of new, competent leaders and help explain why there is a dearth of creativity and diversity.

Corruption and governance challenges

Nepal has long struggled with issues of corruption and poor governance, which have hampered the nation’s growth and political stability. The several types of corruption include low-level bribery, elites’ embezzlement, and nepotism. Public faith in political institutions is damaged by widespread corruption. A major issue in Nepal has been a lack of accountability in governance. When corruption and the abuse of authority are frequently left unchecked, a culture of impunity takes root. The ineffectiveness, excessive paperwork, and opaqueness of Nepal's bureaucracy have been criticized. Administrative procedures that are too onerous might make it easier for corruption to flourish and delay timely implementation of plans and initiatives. Political parties stifle public institutions’ independence and objectivity by influencing administrative decisions. Political meddling in governmental affairs can result in bias, compromise merit-based hiring decisions, and jeopardize public services. When it comes to delivering justice on time and handling cases of corruption, Nepal's court has experienced difficulties. This could deter people from bringing up corruption and seeking judicial redress, continuing the cycle of impunity.

Institutional feebleness

Political parties in Nepal have had a lot of difficulties due to institutional inadequacies. These flaws affect a number of political institutions, including the legislature, the judiciary, the electoral system, and other governmental organizations. Weak institutions may make it more difficult for political parties and their leaders to be effectively checked and balanced. This may lead to a concentration of power in a small number of people, opening the door for possible abuse of power and compromising democratic ideals.

Daron Acemoglu and James A. Robinson’s book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” makes the argument that institutions are vital in determining a country's success or failure. The laws, customs, and groups that make up a society’s political, economic, and social interactions are referred to as institutions. When a strong elite controls the government, they frequently create extractive institutions in order to preserve their privilege and stifle opposition to their rule. In the case of Nepal, leaders’ poor judgment and shortsightedness in constructing extractive institutions caused the failure of the nation’s overall development.

The public’s trust in institutions has been further eroded because political parties are taking advantage of this circumstance to advance their agendas without being held responsible for their activities. Because of institutional flaws, Nepal has frequently changed governments and coalitions. Weak institutions make it difficult to establish stable governments, which leads to frequent changes in leadership and the direction of policy, which is having an impact on the development and progress of the nation. Because some groups may feel excluded from or underrepresented in the political process, weak institutions can increase ethnic and regional tensions. Political parties in Nepal are taking advantage of these splits to win quick supporters, thus solidifying social and political divides.

In “Fixing Failed States: A Framework for Rebuilding a Fractured World,” another intriguing book by Ashraf Ghani and Clare Lockhart, the authors argue that states fail because they lack a flexible framework that can map what voters want and create the means for change. Leaders must also be prepared to make difficult choices in order to address the underlying causes of state failure and be dedicated to prioritizing national interests over personal or factional interests. But we observe in the context of Nepal that leaders are driven to satisfy their objectives through institutional manipulation. Recent instances of manipulation can be seen in the Lalita Niwas controversy, gold smuggling and the episode involving the phony Bhutanese refugee.

External influence

An important feature of Nepal’s political environment has been the involvement of outside parties. Due to its geographic location and historical ties to its neighbors, Nepal is vulnerable to outside interests. India and China have attempted to impose their will on Nepal’s politics and policy choices, frequently resulting in diplomatic wranglings and conflicting interests. Nepal has received support and foreign aid from a number of nations and international agencies. Although financial help is essential for humanitarian relief and development programs, it can also lead to a degree of economic dependency, which may have an impact on policy decisions. To advance their objectives in Nepal, external actors may ally themselves with particular political parties or leaders. These coalitions and political dynamics may be impacted by these alliances, which may result in changes in the balance of power and the direction of policy.

Nepal’s internal politics may reflect India and China’s geopolitical competition. It's possible for these two nations to try to acquire leverage by backing various political groups or adopting various positions on crucial topics, complicating Nepal’s international relations. The involvement of external entities in Nepal’s infrastructure and connectivity projects may have effects on the country’s economy and geopolitics. The country’s economic development and regional connectivity, for instance, may be influenced by projects supported by China’s Belt and Road Initiative or India’s connectivity initiatives. Particularly in relation to cross-border security challenges, external actors may have an impact on Nepal’s security dynamics. External participation in Nepal’s security matters may have an impact on regional stability.

Economic and social challenges

Nepal is dealing with a number of social and economic issues that may affect its growth and people’s well-being. The country has a high rate of poverty, especially in the countryside. Widespread unemployment and underemployment, particularly among young people, are caused by a lack of employment opportunities and limited economic alternatives. For the nation, overcoming poverty and establishing stable livelihoods remain major obstacles. A majority of people in Nepal depend on agriculture for their livelihood. However, the expansion and sustainability of the business are hampered by low productivity, conventional farming methods, and vulnerability to climate change. All across the nation, access to high-quality education and healthcare is still unequal. There are discrepancies in educational and health outcomes because many rural communities lack adequate schools and healthcare services.

Numerous Nepali residents go for employment overseas for want of economic prospects at home. Remittances support the economy, but they can also cause social problems like family dissolution and reliance on outside income sources. Gender discrepancies still exist in Nepal’s political representation, job, and educational opportunities. Girls and women frequently experience societal prejudice as well as restricted access to opportunities and resources. Nepal is also prone to natural calamities like landslides, floods, and earthquakes. Strong disaster management and climate resilience initiatives are required because these calamities represent considerable hazards to infrastructure, property, and human life.

The solution

Political parties must deal with these fundamental problems and seek to create a stable and accountable political system that can successfully address the nation’s difficulties and meet the goals so as to restore public trust and confidence. They must accord top priority to leadership development and foster an environment of accountability and openness in order to overcome leadership challenges. Effective leaders, who can inspire confidence, put forth a compelling vision, and rally party members around shared objectives can be molded by building a collaborative environment, encouraging open communication, and supporting leadership development programs. Ultimately, for the parties to succeed and successfully advance the interests of the people they represent, strong and effective leadership is crucial. Prioritizing equitable economic growth, infrastructural development, bettering access to healthcare and education, and enhancing climate resilience are all necessary in Nepal. Building a more wealthy and equitable society in Nepal also requires advancing gender equality, social inclusion, and political stability.

The author is a doctoral fellow of IR in China

Although International Relations (IR) is taught at Tribhuvan University as a social science discipline, one’s attempt to identify the ingredients of ‘social’ and ‘science’ in the prescribed syllabus of IR may become a futile struggle. Scanning the syllabus, one may notice a perceptible dearth of topics, concepts, approaches, and methods for enquiring, understanding, and interpreting the role of wider social interactions in a country’s foreign policy choices.

The syllabus was introduced in 2013 and revised after receiving ‘expert opinions’ in 2017. Still, misreading and misrepresenting IR only as the study of state power further repudiates the role that social units have in the production, accumulation, and reproduction of power. While IR fundamentally claims to study the relations between the state and non-state actors, the Nepali IR has principally failed to identify and inculcate the larger social aspects of such relations that help measure power as social production.

Firstly, teaching IR in Nepal is robbed of any academic inquiry into the existing social phenomenon that presents politics as a social activity. Secondly, its minuscule reliance on political science for any scientific observation is not sufficient to produce a good political scientist. Thirdly, its overemphasis on national power and national security divulges divergence between everyday social realities and political rhetoric. As such, IR is more of an elite sense, not a social science.

More elite, less social

The syllabus of IR is crammed with global, regional, and national issues. But those issues are scarcely studied and investigated in the context of social realities. Professors in the IR program may make a quick escape by divulging the lack of required human resources to teach the subject. Here, physical walls built by departments inside the university also share the blame. After all, the physical walls confine your epistemic behavior to the constructed sense of belonging to one academic discipline. It utterly prevents the discipline from becoming suitably interdisciplinary. Just lettering your syllabus as interdisciplinary doesn’t fulfill the objective unless an IR wala is made enthusiastic to sit in the classrooms of political science, sociology, anthropology, history, and economics prior to his/her foreign policy analysis of any diplomatic episodes. Sad but true, there are no practices of visiting philosophically associated departments and spending time in each other’s libraries and classrooms. In such a context, how and from where a young program like IR will acquire and develop the components of ‘social’ and ‘science’?

A prevalent irony in Tribhuvan University’s social sciences is the rationale behind classifying the academic subjects as social sciences. Generally, social science is understood as the study of society, social institutions, and social behavior. But those elements are missing in the syllabus and teaching of IR in the university.

University’s social sciences—which are largely expected to study social realities—have today poignantly failed to grasp the nature and characteristics of existing Nepali society. Despite the mediocre history of social sciences in Nepal, just a cliche(mentioned as an example below) may instantly attest that social sciences in the university remain ignorant of everyday social experiences. For instance, academic departments and programs at Tribhuvan University, including the IR program, are never tired of describing Nepal as a “poor and underdeveloped/ developing country”. But the exorbitant semester fees imposed on the students of “the poor and underdeveloped/ developing country” stands contrary to their claim. It’s an apt example revealing the indifference of university authorities to existing social realities shaped by class, wealth, income, and social inequalities. When the university doesn’t pay heed to the students of “the poor and underdeveloped/ developing country” opposing the exorbitant semester fees, it becomes obvious that the university is apathetic to social realities. In such an environment, programs like International Relations may attract more money to the university.

An IR wala never gets bored of reiterating foreign policy as the extension of domestic policies. But the social actors and factors associated with those domestic policies are seldom discussed in the classroom. It may be because of two reasons: Firstly, faculties find it easier to weave the accessible media narratives on the everyday changes taking place in global and regional politics. Secondly, IR students remain submissive to the details drawn from the elitist phenomenon of decision-making in world affairs. Actually, they find the world being presented to them in the classroom adventurous. As such, they rhapsodize world political affairs, where the amount of ‘social’ is swiftly relegated to the study of power and influence.

While the IR program at TU is all set to make a decade-long institutional history, students and young faculties in the IR are incessantly lured by the mere mentions and fleeting references of the globally renowned diplomats. Being ignorant of the significance of intellectual biography and intellectual history, their taste and flavor are either reduced to general likes/dislikes or driven by popular narratives. In the Nepali context, two historical characters are seemingly glorified in the IR classroom—PN Shah and Mahendra Shah—for their reported contributions to Nepal’s national security and diplomatic responsibilities. Interestingly, the social realities in their days never become the units of the syllabus, the matter of classroom discussion, and the topic or argument of dissertation writing/ supervision.

Although the key actors shaping Nepal’s foreign policy and diplomacy in different periods of time are taught and studied, neither the IR faculties nor the students have the access and understanding to identify the backroom boys and decipher their roles in foreign policy decision-making. Take the case of MCC as an example, the classroom discussions of international relations in the university were widely dependent on the news and views from the mainstream media. The IR faculties may be well paid for what they teach but their dependence on media analyses and internet surfing corrode the analytical and observatory capacities, which a university faculty should cultivate unremittingly. Consequently, their routine emphasis on the secondary data positioned around the matters of national power, national security, and national interest fails to comprehend the social realities shaping both the historical and contemporary episodes with regard to what is nation and national.

Mere sense, no science

Social science studies society on various fronts. In today’s academic milieu, while political science, sociology, anthropology, and history themselves have botched to report, investigate, and analyze society and social institutions treading on the existing philosophical, historical, and theoretical standpoints, it may not be fitting to expect a new program like IR—which theoretically and philosophically doesn’t have anything of its own—concentrate its teaching and study on the inevitability of social elements shaping foreign policy decisions?

Already, as a discipline, IR is preoccupied with the interests and relations between the states. Saddest of all, in developing countries, those interests and relations are also not taught as per global academic practices, commenced and continued by the best IR schools around the world.  As a result, faculties and students in countries like ours may make sense of the events and phenomena but can rarely practice it as a social science.

After all, the strands of society are largely elapsed in their approaches and analyses. In all the dissertations produced by the students of the IR department since 2016, the social component is relentlessly missing. A cursory look over the analysis and inferences drawn in their dissertations may indicate the presence of scientific research methods but a thorough probe into the dissertation may reveal the story of duplication and oversimplification. Dissertations produced on Nepal-China relations are an apt example. How justifiable is it to pen a dissertation on Nepal-China relations without knowing basic Mandarin or the basic attributes of Chinese society? Is it convincing and per the popular research ethics to pull the information already available in Google or archives and reproduce it as your own analysis? The most bewildering aspect of teaching IR at the university is the acceptability of the dissertations without any scientific knowledge of the proposed issues. Not even a handful of dissertations are based on field visits, participant observations, ethnography, and interviews. Against such a backdrop, on the basis of what remaining yardsticks can IR be considered a social science in the Nepali context? Methodologically, it has compromised science over sense. In terms of perspectives, it has dismissed social interests and social relations over the promotion of elite interests and power relations, which are often misunderstood as national interest in IR classrooms.

'Khambandi'

Injecting a few components of ‘social’ and ‘science’ into the disciplinary hat of International Relations won’t make its approach social, however. Instead, the understanding of ‘social’ may vary from one IR walla to the other, at least, until power remains at the core of its disciplinary existence. The element of ‘science’ that the syllabus is supposed to carry—not in a prescriptive sense, but more in a reflective sense—has already been compromised to the 'Khambandi' culture. When acquaintances come to know that your department has received funds from the University Grants Commission (UGC) or elsewhere, you will see ‘experts’ in droves being welcomed with 'Khambandi'—paid in an envelope for their ‘expertise’. Despite the reckless duplication in the contents of the syllabus being revised, plagiarism in the units, and above all, more guff-gaaf and less expertise in the process of syllabus-making, they don’t hesitate to receive the 'Khambandi'. On what moral and professional grounds is that justifiable? When experts and practitioners are lured more by 'Khambandi', faculties are dependent on Google and popular narratives, and students are reliant only on the faculties’ slides, one can imagine the future of Nepali IR under the semester system in the oldest university of Nepal.

Public diplomacy has emerged as an important tool of a country’s foreign policy. The democratization of foreign affairs, i.e. the growing say and influence of the people in matters of foreign relations, has made public diplomacy an attractive, important and necessary means for every country. This is applicable not only in the cases of democratic and developed countries but also in developing countries and countries with different types of political systems.

Countries have different experiences in the matter of public diplomacy. We have seen that countries like the United States of America have been using public diplomacy effectively, especially since the beginning of the Cold War. During the Cold War, both the USA and the then USSR used public diplomacy against each other. The objective was to influence the public in the other camp against their regime. At the same time, other countries have been using public diplomacy to enhance their national image before the international community. China is one such example. It has been using public diplomacy to demonstrate its economic development and other achievements, and also to attract foreign students, tourists and businessmen. On the other hand, it is also possible that some countries may try to use public diplomacy as one of the tools to interfere in the internal affairs of another country. Radio and TV channels, printed materials and other such resources can be used to influence the public in the target countries.

In the present-day world, the nature and focus of public diplomacy have changed. It is used more to influence the foreign publics to influence foreign governments and achieve the countries’ interests. In a way, this can be termed a legitimate method. Though the traditional approach of using public diplomacy as a propaganda tool and a way for interfering in the internal affairs of other countries still continues, there is a visible shift in the overall approach. 

First, public diplomacy has received universal recognition and acceptance. Almost all countries—rich and poor, big and small, developed and developing—have been using public diplomacy to meet some of their diplomatic objectives. 

Second, public diplomacy has now gained a positive connotation; people do not take it only as a propaganda tool but also as an effective and acceptable means for national branding and advocacy. 

Third, public diplomacy can still be used as a means for interfering in the internal affairs of a country, especially among developing and weaker countries. The possible victims have to take effective measures to counter such efforts. Many countries have been using public diplomacy as an effective tool of diplomacy. Public diplomacy has also proved an effective means to promote the commercial interests of a state. Promotional activities, exchanges of people, and branding of various products have helped promote a country’s image and dignity as well as the promotion of trade and tourism. 

Countries like China have made visible achievements in the area of public diplomacy through activities such as English language media, events and projects to increase Chinese visibility abroad, English publications, exchanges with foreign countries, and Chinese gardens abroad. Similarly, India’s public diplomacy activities include distinguished lectures, documentaries on various aspects of India, publicity campaigns through ‘India Perspectives’ and ‘Bharat Ek Parichaya’, etc. In the case of Nepal, we have seen that public diplomacy is a relatively new area. Some efforts had been made in the past to promote the country’s dignity but foreign publics were not targeted much. 

After the restoration of democracy in 1990, Nepali missions abroad started organizing various activities under their economic diplomacy programmes. And, it was rather late that the Government of Nepal started using the term public diplomacy in its official documents. Now, Nepal has taken some steps toward public diplomacy. Nepali diplomatic missions abroad have started meeting people, business leaders and academicians with a view to promoting Nepal’s national interest. Still, a lot more needs to be done by Nepal to make public diplomacy a truly useful and effective tool of its foreign policy.

The Government of Nepal, and the Ministry of Foreign Affairs, in particular, have to streamline public diplomacy in the overall foreign policy. It has to undertake studies to identify the areas where public diplomacy can be a useful tool. Public diplomacy needs to be made an integrated tool of the country’s foreign policy. The foreign ministry should provide training to Nepali diplomats. 

As public diplomacy itself is a new area, Nepali diplomats need thorough training incorporating both theoretical and practical aspects. Only well-trained and skilful diplomats can implement public diplomacy in an effective and appropriate manner.

Excerpts from the research paper published by Policy Research Institute, a government think-tank