| Naoyuki Shinohara, the deputy managing director of the
International Monetary Fund (IMF), is in Nepal to participate in the
49th South East Asian Central Banks (SEACEN) Governors� Conference and
the 33rd meeting of the SEACEN Board of Governors, being hosted by Nepal
Rastra Bank (NRB) in Kathmandu. At a time when Nepal is facing
double-digit inflation and the weakening of the Nepali currency against
the US dollar, Shinohara spoke to Prabhakar Ghimire of Republica on
Thursday about the current economic challenges facing the country. | | | | | | | | | | | | | | 
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Stable government necessary for better economic performance |
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Naoyuki Shinohara, the deputy managing director of the International
Monetary Fund (IMF), is in Nepal to participate in the 49th South East
Asian Central Banks (SEACEN) Governors� Conference and the 33rd meeting
of the SEACEN Board of Governors, being hosted by Nepal Rastra Bank
(NRB) in Kathmandu. At a time when Nepal is facing double-digit
inflation and the weakening of the Nepali currency against the US
dollar, Shinohara spoke to Prabhakar Ghimire of Republica on Thursday
about the current economic challenges facing the country. | |
| Excerpts:
Nepal�s economy has been passing through an average of 4 percent
economic growth for the last few years. How can Nepal accelerate growth
at this point in time?
Our projection for economic growth in Nepal for this year is 4.5
percent. Still, it is lower compared to Nepal�s economic potential. It
is important for any country to be equipped with infrastructure such as
roads, and a favorable business climate for encouraging the private
investment. More public spending is also crucial for greater economic
growth.
Nepal has a huge potential for hydropower development. If you develop
road networks, you can expand the market access for local products.
Strengthening the road network linking Nepal to neighboring India and
China will also help boost Nepal�s economic activities. Infrastructures
such as transport development and creation of business climate with a
stable government and resolution of labor issues will be of great
support for higher growth.
For the last few years, Nepal has been experiencing double-digit
inflation. How can Nepal bring down inflation, given the peg system of
the Nepali rupee with the Indian currency when two-thirds of Nepal�s
total trade is with India?
The central bank can tighten monetary policy and strengthen vigilance of
the market to bring down inflation. However, given the depreciation of
the Nepali currency against the dollar by over 20 percent over the last
few months in line with the Indian currency, with which Nepali rupees is
pegged, controlling inflation is challenging. But, you can benefit from
the weakening Nepali rupee because of the increased value of
remittances. You can also benefit from the stronger dollar by enhancing
the supply side for more export.
Do you see this time as appropriate for shifting from the existing
pegging with the Indian rupee to determination of the value of currency
from a floating rate system?
Nepal�s trade with India is more than 60 percent of its total foreign
trade. It is natural to maintain a stable exchange rate with the Indian
currency. Maintaining the peg of the Nepali rupee with the Indian rupee
is appropriate for the time being, given the economic performance of
Nepal. Nepal does not need to shift from the pegging with the Indian
rupee unless economic competitiveness is increased through diversified
industrial sectors and exports.
IMF and the World Bank (WB) are undertaking an assessment of the
financial sector of Nepal. Could you update us on the progress so far?
What would be the next steps after the assessment?
The ongoing financial sector assessment program will help the Nepali
authorities strengthen and stabilize the financial system in Nepal. IMF
will work together with Nepali officials and provide the necessary
financial assistance to Nepal for the stability of financial sector in
the coming days as well.
Remittance inflows to Nepal have increased significantly over the last
few years. But the huge amount of remittance has not been utilized in
the productive sectors to support economic growth in the country. What
would be your suggestions for Nepal to take maximum benefit of the
earning from our overseas workers?
It is very difficult to properly channelize remittance as it comes into
individual or family levels. As people are not finding jobs in the
country and going abroad to earn money, they use a large chunk of the
remittance for consumption. But in the absence of alternative sources of
income among remittance receiving families, we can�t stop the trend. As
remittance contributes as much as 25 percent of Gross Domestic Product,
you have a huge potential to use remittance for the productive sector
to generate new employment in the country.
Nepal has to create a business-friendly environment and remove
infrastructure bottlenecks to create the situation for generating
employment for the growing number of unemployed youth job-seekers. And
Nepal has also to create a favorable economic and political situation to
encourage more investment of remittance in productive sectors.
As you know, Nepal is located between two Asian giants India and China.
How can Nepal benefit from the strategic location for greater economic
prosperity?
Nepal can benefit from both these huge neighboring countries which are
also large markets for Nepali products. Nepal should start boosting
production of farm goods which have huge competitive advantages for the
country in the region. Tourism will also been another potential sector
for Nepal by luring tourists from these emerging Asian economies. Nepal
can take huge benefit from hydropower development by bringing in
investment from China and India. Exporting surplus electricity to
power-hungry India will help bring down Nepal�s trade deficit.
Besides, Nepal can become transit points between India and China by
developing the necessary transportation infrastructure.
Is IMF planning to establish its resident mission, given its increasing
support for Nepal, especially in financial sector development?
It is true that we don�t have a resident mission in Nepal. It doesn�t
mean that our support to Nepal is little. We have been giving priority
to Nepal for its financial sector development. Though we have not been
able to set up our permanent mission due to our financial difficulty,
our resident representative based in our New Delhi offices have been
frequently visiting Nepal to oversee the financial situation of the
country. We have also a technical assistance advisor in Nepal to look
after support programs.
Our central bank --Nepal Rastra Bank (NRB) -- has stopped granting
licenses for new commercial banks. Is it the right move?
It is necessary for the central bank to have the ability to maintain
financial sector stability, which is crucial for economic growth. The
central bank is heading in the right direction by stopping new licenses
for commercial banks. We welcome the measures taken by NRB. The central
bank might have taken this step to ensure proper monitoring of the
financial sector. We have also been supporting the central bank
strengthen its power to effectively regulate the financial sector. Not
only does the number of financial institutions need to be regulated, we
need to develop the legal and supervisory framework for an effective
financial sector.
How do you assess the ongoing political situation after the successful
elections of the Constituent Assembly?
We are not in a position to comment on the political development of
Nepal at this point. I can only say that more political stability is
needed to pave the way for higher economic growth with better economic
activitie
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Excerpts:
Nepal�s economy has been passing through an average of 4 percent
economic growth for the last few years. How can Nepal accelerate growth
at this point in time?
Our projection for economic growth in Nepal for this year is 4.5
percent. Still, it is lower compared to Nepal�s economic potential. It
is important for any country to be equipped with infrastructure such as
roads, and a favorable business climate for encouraging the private
investment. More public spending is also crucial for greater economic
growth.
Nepal has a huge potential for hydropower development. If you develop
road networks, you can expand the market access for local products.
Strengthening the road network linking Nepal to neighboring India and
China will also help boost Nepal�s economic activities. Infrastructures
such as transport development and creation of business climate with a
stable government and resolution of labor issues will be of great
support for higher growth.
For the last few years, Nepal has been experiencing double-digit
inflation. How can Nepal bring down inflation, given the peg system of
the Nepali rupee with the Indian currency when two-thirds of Nepal�s
total trade is with India?
The central bank can tighten monetary policy and strengthen vigilance of
the market to bring down inflation. However, given the depreciation of
the Nepali currency against the dollar by over 20 percent over the last
few months in line with the Indian currency, with which Nepali rupees is
pegged, controlling inflation is challenging. But, you can benefit from
the weakening Nepali rupee because of the increased value of
remittances. You can also benefit from the stronger dollar by enhancing
the supply side for more export.
Do you see this time as appropriate for shifting from the existing
pegging with the Indian rupee to determination of the value of currency
from a floating rate system?
Nepal�s trade with India is more than 60 percent of its total foreign
trade. It is natural to maintain a stable exchange rate with the Indian
currency. Maintaining the peg of the Nepali rupee with the Indian rupee
is appropriate for the time being, given the economic performance of
Nepal. Nepal does not need to shift from the pegging with the Indian
rupee unless economic competitiveness is increased through diversified
industrial sectors and exports.
IMF and the World Bank (WB) are undertaking an assessment of the
financial sector of Nepal. Could you update us on the progress so far?
What would be the next steps after the assessment?
The ongoing financial sector assessment program will help the Nepali
authorities strengthen and stabilize the financial system in Nepal. IMF
will work together with Nepali officials and provide the necessary
financial assistance to Nepal for the stability of financial sector in
the coming days as well.
Remittance inflows to Nepal have increased significantly over the last
few years. But the huge amount of remittance has not been utilized in
the productive sectors to support economic growth in the country. What
would be your suggestions for Nepal to take maximum benefit of the
earning from our overseas workers?
It is very difficult to properly channelize remittance as it comes into
individual or family levels. As people are not finding jobs in the
country and going abroad to earn money, they use a large chunk of the
remittance for consumption. But in the absence of alternative sources of
income among remittance receiving families, we can�t stop the trend. As
remittance contributes as much as 25 percent of Gross Domestic Product,
you have a huge potential to use remittance for the productive sector
to generate new employment in the country.
Nepal has to create a business-friendly environment and remove
infrastructure bottlenecks to create the situation for generating
employment for the growing number of unemployed youth job-seekers. And
Nepal has also to create a favorable economic and political situation to
encourage more investment of remittance in productive sectors.
As you know, Nepal is located between two Asian giants India and China.
How can Nepal benefit from the strategic location for greater economic
prosperity?
Nepal can benefit from both these huge neighboring countries which are
also large markets for Nepali products. Nepal should start boosting
production of farm goods which have huge competitive advantages for the
country in the region. Tourism will also been another potential sector
for Nepal by luring tourists from these emerging Asian economies. Nepal
can take huge benefit from hydropower development by bringing in
investment from China and India. Exporting surplus electricity to
power-hungry India will help bring down Nepal�s trade deficit.
Besides, Nepal can become transit points between India and China by
developing the necessary transportation infrastructure.
Is IMF planning to establish its resident mission, given its increasing
support for Nepal, especially in financial sector development?
It is true that we don�t have a resident mission in Nepal. It doesn�t
mean that our support to Nepal is little. We have been giving priority
to Nepal for its financial sector development. Though we have not been
able to set up our permanent mission due to our financial difficulty,
our resident representative based in our New Delhi offices have been
frequently visiting Nepal to oversee the financial situation of the
country. We have also a technical assistance advisor in Nepal to look
after support programs.
Our central bank --Nepal Rastra Bank (NRB) -- has stopped granting
licenses for new commercial banks. Is it the right move?
It is necessary for the central bank to have the ability to maintain
financial sector stability, which is crucial for economic growth. The
central bank is heading in the right direction by stopping new licenses
for commercial banks. We welcome the measures taken by NRB. The central
bank might have taken this step to ensure proper monitoring of the
financial sector. We have also been supporting the central bank
strengthen its power to effectively regulate the financial sector. Not
only does the number of financial institutions need to be regulated, we
need to develop the legal and supervisory framework for an effective
financial sector.
How do you assess the ongoing political situation after the successful
elections of the Constituent Assembly?
We are not in a position to comment on the political development of
Nepal at this point. I can only say that more political stability is
needed to pave the way for higher economic growth with better economic
activitie
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