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Looming economic crisis
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WM Correspondent
It was expected that the cash crunch in the banking system would ease with the increment in development expenditure beginning from mid-February.
But, the liquidity crisis continues to dog the banking system as the development expenditure has failed to pick up a required pace.
Institutional depositors such as Employees' Provident Fund (EPF) are demanding more interest rate from the banks.
New lending is virtually zero. Inter bank lending rate is as high as 11 percent. The banks with limited treasury bills are finding it hard even to get money from the Nepal Rastra Bank (NRB). The new banks have limited treasury bills.
Despite strict measures on gold import, there has not been any desirable result.
The excessive of import of the precious yellow metal has been the major factor behind the augmentation of the balance of payment deficit, which is now as high as Rs. 19 billion.
It has been assumed that the gold imported in Nepal is being increasingly smuggled to India due to price differences between the two countries, which has subsequently barred the flow of the Indian currency back to the Nepal's banking system.
Likewise, it is also suspected that the Indian currency of 500 and 1000 denominations have not flowed to the country's banking system as the banks don't eccept such notes and they are stored with individuals.
Amidst such a grave situation, the government has failed to appoint even a governor of Nepal Rastra Bank (NRB) to systematize the major economic and financial components.
A recent NRB supervision report found out the inability of many banks to manage liquidity properly has resulted in the emanation of various anomalies in the country's economy.
Exports continue to go downhill whereas imports are surging causing a huge trade deficit of Rs. 128 billion, which is more than double of Rs. 61 billion recorded in fiscal year 2007/08.
Inflation is augmenting ceaselessly. Specially, the prices of food items have skyrocketed, making the lives of ordinary people more difficult.
The steps taken by the finance ministry and the NRB to tide over economic disorder have failed to yield significant results so far.
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