Record economic growth of 7.5 percent, end of load-shedding andsuccessful conduction of three elections has been some of the key achievementsfor the country’s economic sector in 2017.

The election of the local levels held after 18 years and a majorityseats won by the left alliance in federal parliament have given a positiveoutlook for strong local bodies and a stable government at the center.

2017 in review
Not withstanding the positive developments, investors coped with a massivefluctuation in the interest rates. An increment of over five percent in therates sapped the investors’ confidence and damaged many businesses. 

Now, investors expect the new government to put the economic sector inpriority. 

“We are hopeful that the new government cares for economic issues unlikepast governments and takes a more sustainable policy to address issues ofinvestment,” said Pashupati Murarka, former president of Federation of NepaleseChambers of Commerce and Industry. 

“However, we are disappointed by the recent hike in the interest rates.But no politician seems to be concerned about it. They have not spoken aboutthis matter yet, though it troubles us,” lamented Murarka, indicating that theyear 2018 would not be an easy one, at least in terms of borrowing forinvestments and paying for high interest rates.      

Toward the end of 2017, banks and financial institutions (BFIs) turneddown borrowers for loans. This shows that the country has gone back to squareone in the past 12 months. The crunch of available lendable cash in BFIs wassimilar last year this time. 

BFIs were not alone to suffer cash crunch. The government has also beenequally cash-strapped due to slow growth in revenue collection. Thegovernment’s vault depleted to a record of Rs 114 billion as of December 22,the lowest in four months. 

The record low cash reserve in the government treasury may see moredemand, particularly toward paying the bills of development works as well astoward establishing infrastructure for newly-elected provincial parliaments andprovincial offices among others, including the allotted budget of Rs 7.14billion for provinces.

There is no indication that things would be improved anytime soon withoutserious intervention by the government, such as ramping up developmentspending. With the slow pace of progress in development works, government’sexpenditure has remained too low with only 11 percent expenditure of the totalRs 336 billion allocated for the purpose. 

The government will also have to release Rs 75 billion as the thirdtranche to local bodies by mid-March. While taking retirement in October,erstwhile Finance Secretary Shant Raj Subedi had explained the challenges thegovernment could face if revenue collection, particularly Value Added Taxcompliance, was not improved. In that case, the government’s ability to spendmore for local and provincial governments will be limited.  

The current scenario shows that Subedi was correct but the Ministry ofFinance was heedless in this matter.

Combined deposit of all BFIs was only about Rs 30 billion as of Decemberfirst week. The country’s current account, which measures country’stransactions with the rest of the world, is continuously in deficit whichrecorded Rs 25 billion in the first four months of fiscal year. Balance ofpayment too posted only marginal surplus in the period. On top of this,remittance inflow dropped by 1.4 percent in the first four months, endingmid-October, of the fiscal year. 

However, as a solace to the government, spending of the newly-elected753 local levels has been reportedly too low to this date.

Explaining the current financial situation, Finance Secretary ShankarAdhikari had said last week that they were mulling to control haphazard importof automobiles and their accessories to adjust the balance of paymentsituation, as remittance inflow has dwindled. 

“And we also want to take steps to bring remittance through the bankingchannel,” added Adhikari. 

On the positive side of economic indicators, there was the recordeconomic growth of 7.5 percent, occurring in decades, apart from the threesuccessfully held elections. This growth seemed high because it came after thesuppressed near-zero growth rate resulting from the coupled effect ofearthquake and blockade of 2015. But economists say nothing to cheer about thisgrowth because the growth is has largely failed to create jobs. 

A dramatic progress in electricity supply contributed partly by importedelectricity improved capacity utilization of industries by about 10 percent.Besides, a good agricultural output helped to boost growth. Agricultural outputis projected to be almost normal despite huge crop damages by the floods ofmid-August in eastern and central Tarai.

With these few positive notes, strong steps ahead in development worksand reforms in services and governance by the next government can attract moredomestic and direct foreign investment. Jobs generated by increased investmentwill possibly retain at least a few thousand youths who would otherwise leavethe country for migrant jobs.

Major events of 2017 in business and economy

SHORTAGEOF LENDABLE CASH 
As bank and financial institutions (BFIs) endured shortage of lendable fund dueto mismatch between the growth of loans and deposits, interest rates remainedat a higher end throughout the year. Though there was some correction oninterest rates during the mid-term of the year after the government spendingrose and the Nepal Rastra Bank (NRB) eased the calculation ofcapital-cum-deposit (CCD) ratio, they started to rise again after therelaxation on prudential lending limit lapsed. BFIs’ aggressive lendingpractices despite low deposit growth have driven up interest rates as theyoffered higher interest rates to attract deposits. They were already offeringover 13 percent of interest rates on fixed deposit while they have also raisedinterest rates on credit by three to four percent. Since a huge amount will bewithdrawn by the end of the second quarter (mid-January) from BFIs for taxfiling, BFIs are panicked and raising deposit rates to lure savings of thepublic. This has prompted competition to raise interest rates as BFIs areworried that depositors might switch to another institution offering higher rate.

YEAROF CORRECTION IN STOCKS
Nepal Stock Exchange (Nepse) benchmark index nosedived 50.94 points this yearto close at one-year-low at 1,414.78 points. The year 2017 largely remained ayear of correction for the stock market. 

Stocks started to fall from the beginning of the year but they recoveredin March, only to take a dive again from May. The most bullish stocks in 2017were on April 22 when the Nepse benchmark index climbed up to 1,703.7 points. Barring some occasional spikes, the market largely remained at the lowerend in the latter part of the year. 

BANKSSHORING UP CAPITAL 
All bank and financial institutions (BFIs) have raised their paid-up capitalmulti-fold in line with Nepal Rastra Bank’s directive to increase minimumpaid-up capital. While most of the BFIs have already met the new paid-upcapital requirement, remaining institutions should meet the target for theminimum paid  up capital  and  clearly  show  it on the  ‘Notes  to Account’  by  the  time the  external audit report  and  financial statement of  2016/17  are  made  public  as  per the  Banks  and  Financial Institutions Act, 2016. 2017become the year for shareholders of most of the BFIs to reap stock dividendamid requirement to raise paid-up capital. The BFIs  have  increased their paid-up  capital  through  the  issuance of  bonus  shares,  right  shares,  further public  offerings, and through merger and acquisition.   

CAPITALMARKETS REFORMS 
There were some initiatives taken by Securities Board of Nepal (Sebon) andNepal Stock Exchange (Nepse) for the reform and modernization of capital marketand secondary market as well as to strengthen corporate governance in thepublic companies. Full-fledged dematerialized trading system came intoenforcement. Brokerage firms will now be allowed to provide margin tradingservice. Commodities market related laws and regulation got introduced. Nepsehas been working on the implementation of fully automated online tradingsystem, which is scheduled to come into implementation by next year. The Sebonalso amended rules and regulations related to securities registration andissuance, paving the way for companies to float their shares on free pricingwith some caps. Companies are now also allowed to float only 10 percent oftheir shares to the public. With the amendment on the regulation, internationalorganizations like IFC and ADB can now float local currency denominatedbonds. 

Another important breakthrough in the capital market is theimplementation of Application Supported by Blocked Amount (ASBA) system fromthe beginning of 2017.  

MASSIVEIRREGULARITY AT NOC 
Massive irregularities engulfed Nepal Oil Corporation (NOC) while purchasingland plots for the state-owned oil monopoly in various districts, which wasrevealed through an investigative reporting by Republica and its sistervernacular daily Nagarik. Later, different parliamentary committees alsoconcluded that the NOC’s managing director embezzled millions of rupees bypaying exorbitantly high prices to purchase lands to build oil storages.  

FASTTRACK AND BUDHIGANDAKI
The government awarded its dream project of linking Kathmandu with Tarai withthe shortest road of 76-km to Nepal Army on May 5, in order to promote domesticfinancing.  There was a kind of tug of war on Budhigandaki HydroelectricProject this year. The coalition government of CPN (Maoist Center) and NepaliCongress, led by Prime Minister Pushpa Kamal Dahal, awarded the Rs 259 billionproject to China Gezhouba Group Corporation few days before he stepped down onMay 24. The decision rolled back few days before the federal elections brewanother debate when CPN-UML chair KP Sharma Oli announced that the upcominggovernment would revoke the decision.

FIRSTBUDGET IN FEDERAL SET UP
The government this year tabled the budget in federal set up of Rs 1.27trillion, with each province and local level getting separate and direct budgetallocation. A total of Rs 225 billion was allocated for the local levels. Withthe local elections after 18 years, the budget for local development wasdirectly sent to local levels, creating renewed vigor in implementing thebudget and programs at the local level. 

CGT ONNCELL BUYOUT DEAL 
The Ncell buyout deal of US$ 1.36 billion by a Malaysian Telecom giant Axiataearly last year came to light this year after both seller Teliasonera and buyerAxiata tried to walk free without paying Capital Gain Tax of to the Governmentof Nepal. Varied explanations about CGT liability divided political leaders andeven parliament committees, but a report of the Office of the Auditor Generalclarified the matter that Ncell or its new owner Axiata has to pay the CGT.Axiata paid a total of Rs 13.6 billion on June last week. But the Supreme Courtcleared way for Ncell on December 25 to repatriate Rs 72 billion that was puton hold by the Nepal Rastra Bank before clearing the CGT in Ncell buyoutdeal. 

CORRUPTIONIN TAX SETTLMENT 
Office of the Auditor General in its annual report in April disclosed that thetax settlement of Rs 30.52 billion by giving discount of over Rs 21 billion wascarried out without adhering to any rule.

Source: MyRepublica, 31^st December 2017