Nepal gets new Finance Minister amid economic doldrum

CPN-UML leader Bishnu Prasad Paudel was sworn in as Deputy Prime Minister and Finance Minister on Monday. But he confronts myriads of challenges to correct the course in the economic sector.

Ashim Neupane

  • Read Time 3 min.

Kathmandu: When Bishnu Prasad Paudel, a CPN-UML leader with no expertise in economics, was appointed the Finance Minister in 2015 for the first time, the country’s economy was in a doldrum. The devastating earthquakes in April that year followed by unofficial blockade by the government of India in September had pushed Nepal’s economy to the crisis. 

When he was again appointed the Finance Minister for a second term in 2020, the economy was hit by the Covid-19 pandemic.

In both terms, Paudel did not deliver an extraordinary performance. He took policy to appease private sectors but he largely failed to give a long term direction to the country’s worsening economic situation. For instance, his decision to provide soft loans to business firms during the pandemic has put the economy under pressure even now. 

The situation is not comfortable now when he is taking the reins of the Finance Ministry–his third term. 

The external sector of the economy is under serious pressure. The pressure on Paudel to deliver in this extremely tough time is equally high.

Paudel’s immediate challenge is to save the economy–hit hard by rising inflation and dipping revenue collection. 

But will he be able to deliver? Experts are doubtful this time as well.

In both his tenures, the economy didn’t do well. It is just the stock market that does well in his tenures without any efforts from him.

Unlike other finance ministers, he doesn’t speak against the stock market, but he has done little to end the insider trading. 

In October 2015, when he handled the ministry, the share market index was just over 1,100 points, which crossed 1,800 points in 2016. And in his second stint in 2020, the market crossed the 3000 points-mark.

And this time too, just when the rumors grew that he would be appointed the finance minister, the market grew by 56.88 points on Monday.

The rising points in the Nepal Stock Exchange (Nepse) index have already welcomed him. But several problems lie elsewhere.

For one, the revenue collection is declining. Then the remittance inflow is also declining. Besides, the government is not getting foreign aid and investments as expected.  On top of that, there is a high chance of a budget deficit.

The recurrent expenditure of the government, in the first five months of the current fiscal year, has exceeded the total revenue collection. In this period, the collection was Rs 327 billion, while the expenditure exceeded Rs 354 billion.

The revenue collection this year has declined by a whopping 20 percent.

Another challenge Paudel must address is to improve the relationship with the central bank. The tussle between the outgoing Finance Minister and governor of the central bank Maha Prasad Adhikari put a serious dent in the economy.

Another major problem is to solve the crisis in the banking sector. When he handled the finance ministry during the Covid-19 pandemic, the banking channel flowed a massive amount to the private sector. And it is a known fact that the money was invested in the unproductive sector–particularly in real estate and share market. 

The consequences are now visible.

The banking system is facing a massive shortage of liquidity. The interest rate has doubled in a year as a liquidity crisis is still haunting the financial sector. Despite the raise, depositors are not rushing to banks.

The other problem is that the private sector is unwilling to borrow for investments due to the high interest rates. Paudel, in this stint, has to boost the morale of the private sector and work towards maintaining economic stability.

After assuming office on Monday, Paudel said that the economy is on the brink of crisis, and the government has to work to bring it back on track. “I will consult with experts to find the solutions,” he said.

In his previous stints, he was accused of violating fiscal discipline. In 2016, he increased the size of the budget by 28 percent, and in 2021 by 12 percent. However, both budgets had to be revised as the government failed to spend.

Despite calls from stakeholders not to bring out a full budget, Paudel, finance minister in the caretaker government, presented a full-fledged budget with election-centric programs—increasing senior citizens’ allowance, educational loans, and huge infrastructure projects, among others.

In 2016, the budget targeted revenue collection of Rs 565 billion, while the recurrent expenditure was proposed at Rs 617 billion. Paudel was criticized that the revenue collection would’t bear the recurrent expenditure, and it would trigger inflation. 

Bishnu Paudel has become the Finance Minister again at a time when the experts have warned of a serious economic crisis in the days to come. His performance will be judged based on how well can address the pressing economic problems facing the country at the moment.