DOCKING NEPAL’S ECONOMIC ANALYSIS
macroECONOMIC OVERVIEW
The first half of FY 2013-14 witnessed low capital spending; the Ministry of Finance spent only 13.5% of the allocated amount for capital budget for this fiscal year. If the government is to meet its lofty target of 5.5% economic growth in this fiscal year, it needs to expedite its capital and recurrent expenditure. Also, in spite of favorable political developments, the private sector is cautious about investing in the economy. This has led to excessive liquidity in the banking system.
AGRICULTURE The Government of Nepal has been taking sufficient measures to remove the financial constraints and to revitalize the agriculture sector, which accounts for over 60% of the GDP, in order to increase the output. In spite of these efforts, credit towards the sector is still lagging behind in comparison to other productive sectors.
The agriculture sector lending has doubled in the last two years. However, reaching the regulator’s prescribed mark of 10% lending still seems to be a far off target. The sector has received loans worth NPR 41.2 billion (USD 412 million) until mid-November 2013, which accounts only for a meager 4.1% of the total lending of Banks and Financial Institutions (BFIs).16 Agro lending of BFIs doubles:
BFIs’ credit exposure to agro sector stood at NPR 20 billion (USD 200 million) in November 2011, which increased to NPR 40 billion (USD 400 million) by November 2013 due to the
mandatory lending policy introduced by Nepal Rastra Bank (NRB). Since the beginning of the current fiscal year, loans to the agriculture sector has increased by 3.8%, which had gone up by 18% in the corresponding period last fiscal year, according to NRB statistics (see Figure 1: Loans to agriculture sector in comparison to other productive sector).
Furthermore, NRB has also asked BFIs to provide collateral free loans of up to NPR 1 million (USD 10,000) to agriculture business projects /activities like coffee, orange, tea, and livestock and dairy products based on the business plan’s viability. In addition, NRB has offered the banks refinancing facility against agro loans at 5% interest to promote the sector.
Figure 1: Loans to agriculture sector in comparison to other productive sectors
Source: NRB
NEFPORT ISSUE 16 – MARCH 2014
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