Yadav Humagain

July 7: The government had appointed Maha Prasad Adhikari as the governor of Nepal Rastra Bank on April 8, 2020, while the nation was in lockdown due to the Covid-19 pandemic. After his appointment, Adhikari introduced a Covid-19 relief plan to provide 10 per cent waiver on the interests on loans to the affected businesses. The two monetary policies issued by the governor focused on providing relief to Covid-19-affected industrialists, businessmen and the general public and reviving the economy after the pandemic.

He was praised for providing relief to the general public through banks and financial institutions when economic activities were halted due to Covid-19.

Due to the flexible monetary policy of the fiscal years 2077/78 and 2078/79 aimed at reviving the Covid-19 affected economy, the cash flow in the market increased and the economy was afloat. However, with businesses and individuals using the cash in unproductive sectors and imports, the indicators of the economy became negative. Due to this, the NRB is not in a comfortable position as it had been in formulating monetary policy for the past two years.

Adhikari is formulating the monetary policy for the upcoming fiscal year 2079/80 BS. The central bank is not in a position to fulfill the expectations of the private sector industrialists, businessmen, bankers and the general public through the monetary policy. He has already signaled a tight monetary policy, stating that the concessions given in the past will not be continued and has asked businesses to be ready for the impact.

 Pressure on Foreign Exchange Reserves

The country's foreign exchange reserves have been steadily declining due to high imports. At this time, NRB is under pressure to protect foreign exchange reserves through the monetary policy.

According to the NRB, foreign exchange reserves stood at Rs 1,146.88 billion in mid-April this year. Reserves, which stood at Rs. 1,399.3 billion during the start of FY 2078/79 declined by 18 per cent until mid-April. Based on the data of the 10-month import of FY 2078/79, the foreign exchange reserves in the banking sector can support 7.34 months of goods and 6.57 months of goods and services.

Even though the NRB has put forward a policy to discourage imports from last December, it has not been able to work accordingly as the balance of payments has been high and foreign exchange reserves have started declining.

In the third week of January, the central bank added 27 types of goods to the list requiring cash margins for imports. In the third week of March, the gold import quota was halved to 10 kg per day. The Ministry of Industry, Commerce and Supplies has banned the import of 10 different types of luxury goods till April 30. Despite the efforts of the government and NRB, imports have not declined.

The central bank, which is under pressure due to a continuous increase in imports, is facing the challenge of saving foreign exchange for essential commodities by reducing imports of luxury goods.

Sri Lanka is facing an unprecedented economic crisis due to the lack of foreign exchange reserves. Sri Lanka has not been able to buy much-needed fuel.

Chairman of the Nepal Development Bankers' Association, Pradyuman Pokharel, said that reducing imports by 20 per cent would ease the pressure on foreign exchange reserves.