The relationship between the central bank and the finance ministry is vital for the effective management of the economy. Political decisions must be made with the goal of maintaining stability for the public, businesses, and the overall economic environment. Coordination between these two bodies is essential in order to develop coherent policies that address the needs of all stakeholders. In the past, a lack of coordination between the central bank and the finance ministry led to problems in the financial policy. Monetary policy was often implemented unilaterally, which created negative impacts on the private sector and people's standard of living. The current synergy between the two bodies is crucial for addressing these issues and ensuring that the needs of the public and private sectors are met.
It is believed that the revision of the working capital loan guidelines is the outcome of this synergy. Is the government trying to disseminate the message that it is becoming private-sector friendly? An increase in private-sector investment leads to an increase in production and job creation, which ultimately benefits the public. Coordination between the central bank and the finance ministry is crucial in order to strengthen the supply system and improve the standard of living for the general population. The recent revision of working capital loan guidelines in coordination with the Prime Minister is a positive step, although it may have come late. The central bank had previously expressed concern about the fragility of the economy, but with the formation of the new government, the central bank seems to have changed its tone. How correct is the central bank's statement that the economy is returning to normalcy? Imports have decreased due to restrictions, while remittances have improved. The balance of payment (BoP) situation is becoming favorable with the foreign exchange position. The central bank seems to have said that the economy is returning to normalcy based on this situation. But I don't think so. Even now, the economy is facing a crisis. Interest rates are high, and so is the cost of production. Without investment, production does not increase. The economy is facing a crisis, as evidenced by a number of factors. The revenue is not sufficient to cover current expenses and capital expenditure is only at 11%. Inflation is out of control and non-productive expenditure is high, further exacerbating the problem. The private sector is agitated and there is no return on investment, leading to a lack of employment opportunities and a decline in exports. Agriculture and industry are in disarray, and a large amount of money is being spent on education. All of these factors indicate that the economy is in a precarious state. I don’t agree that the economy is returning to normalcy. However, there are glimmers of hope as power generation is increasing and tourist arrivals are picking up. The government is said to be in a situation to borrow money to pay the salary of its staffers. How can this situation be tackled? Lately, I have been criticizing monetary policy as being one-sided. Tight measures may have been necessary in the past to address a lack of liquidity, pressure on foreign exchange reserves, and high inflation. While these measures may have been necessary in specific circumstances, they have had a negative impact on the supply and investment side of the economy rather than the demand side. The central bank should have been more selective in its approach and taken into account the potential contraction of the economy along with the supply. This is a weakness of the fiscal policy rather than a monetary one. The government should have implemented policies to compensate for the negative effects of the tight monetary policy. It should have brought a policy to increase revenue, realizing that import restrictions would have an impact on revenue. It is positive that coordination between the central bank and the finance ministry has begun. Unproductive investments should be controlled in order to improve the economy. In the past, the government has allowed a limited number of households to invest indiscriminately and then implemented tight policies that have negatively impacted the entire economy. It is important for the government to play a coordinating role by creating an immediate action plan to redirect investments from unproductive sectors to productive ones by providing special facilities. Do you think there is a need for a supplementary budget? In order to provide relief to the private sector and improve the distressed economy, it is important to bring a supplementary budget. However, it would be counterproductive if the budget aims to increase liabilities, non-productive expenses, and allocates funds randomly. It is necessary to restructure the current budget and create a supplementary budget based on the election manifesto of the ruling party and the minimum common program of the government. The budget should also identify medium and long-term problems. However, it should be also noted that the current budget brought by the government for the current fiscal year has everything necessary to address the issues. Capital expenditure does not reach above 60% even after fund transfers, which raises questions about the quality of work being performed. There is a lack of accountability and transparency in the government's development projects, which is perpetuated by a rent-seeking tendency. This cycle affects the overall quality of development works. If the government wants to address these issues, a supplementary budget could be effective in bringing about the necessary changes. We are not in a position to mobilize revenue to meet even our expenses? What caused this situation? The import control policy has led to a decrease in revenue and shrinking demand, which has discouraged private sector investment. The private sector is talking about reducing production, as the purchasing power of people has decreased, and there is no demand for their production. This has led to a decrease in economic activity and a parallel economy has been created. Also, there is a high leakage of revenue, VAT has not been mobilized as per the production numbers. I think direct taxation has a great potential. Also, we have failed to bring expansionary activities in the tax net. The increasing possibility of Nepal being blacklisted for money laundering confirms the illegal business growth. Thus, we are headed for a contraction of the economy. All of these developments are encouraged by our fiscal policy. Was the import ban necessary? Selective restriction was fine. The decision to stop the import of non-essential goods was correct after continuous balance of payment deficits. We shouldn't have allowed such a deficit for a long time. Corrective policies should have been adopted to ensure that measures aimed at controlling one sector do not negatively impact others. While attempting to preserve foreign exchange reserves, the decrease in revenue should have been addressed by implementing policies to increase revenue. High interest rates and inflation have been a major concern for both ordinary citizens and businesses. The belief that high interest rates would curb inflation has not been effective in this case.
