Editorial: Central folly

Some disagreement between the Ministry of Finance and the Nepal Rastra Bank, the central bank, is not only expected but also desirable. The bank has a high level of autonomy so that it can craft monetary policies and regulations with minimal political meddling. The exercise of this autonomy can often cause friction with the finance ministry, which works with a different set of priorities. Only with the right balance between the functioning of these two entities can the country’s economy hum along. The goal is not to remove the friction but to use it to come up with carefully-weighed monetary and fiscal measures.

 

 Finance Minister Janardan Sharma, on the other hand, seems to believe that the central bank’s leadership should be beholden to him and seek his guidance every step of the way. He proposed for the removal of Governor Maha Prasad Adhikari—a proposal that Prime Minister Sher Bahadur Deuba promptly endorsed—on the charge that Adhikari refused to heed him on vital matters and leaked sensitive information to the press. Minister Sharma has furnished no good proof to substantiate his claims. Instead, recent media stories suggest his main gripe with Adhikari was that the latter refused to follow through on some of Sharma’s dubious directives.

 This is the first time Nepal’s sitting central bank governor has been removed for insubordination. A horrible precedent has been set at a time the economy is battling strong headwinds and steady hands at the central bank are desperately wanted. Even PM Deuba seems to have acted out of spite: Adhikari had reportedly blocked one of Deuba’s chief financiers from expatriating his money. This kind of reckless governance at such a sensitive time could cause grievous damage to the economy that is already battered by the prolonged pandemic and ever-widening trade deficit.  

 All evidence suggests it is not Adhikari who should be fired but the finance minister who seems to lack even basic understanding of the economy’s functioning or the limits to his powers. PM Deuba has miscalculated. With the public uproar Adhikari’s untimely sacking has caused, he and his party could have to pay for it in the upcoming elections–—and rightly so.