Kathmandu University School of Management

Pinchhe Tole, Gwarko, Kathmandu

Policy Review #4 on

Nepali Economics

Topic: The Monetary Policy, 2019/20

Submitted by:

Name: Supriya Shrestha

Section: A

Roll no: 187106

Batch: 2018

Faculty Name:

Ms. Anupama S. Panta

Visiting Faculty – Nepali Economics

April 11, 2020

INTRODUCTION:

Nepal has seen a wide range of transformation in the recent years in all aspects. From witnessing
the long-awaited political transformation to pitching for strong local development and extending
beyond boundaries through external bilateral relations, the Himalayan nation is on path to
progress. In line with its growth prospects, the Oli-led Nepal Government had announced a well-
planned Budget for FY 2076-77 with high emphasis on infrastructure development and self-
sustainability through economic progress.

The Nepal Rastra Bank on Wednesday, July 24, announced the new Monetary Policy for the
Fiscal Year (FY) 2076/77 (2019/20), to support the planned initiatives and drive income
generation locally. The central bank has accorded significant priority to promoting bank mergers
and achieving the government’s ambitious growth target of 8.5 percent for the upcoming fiscal
year. The actions of a central bank, currency board or other regulatory committee that determine
the size and rate of growth of the money supply, which in turn affects interest rates. It is how
central banks manage liquidity to create economic growth. Monetary policy is one of the most
important policies to manage aggregate demand. The primary objective of the monetary policy is
to manage inflation and secondary objective is to increase stability, growth, full employment,
favorable balance of payment and so on.
 SUMMARY:

Here are some highlights of the Nepal Monetary Policy 2076/77 (2019/20), as released
by the Nepal Bureau of Standards and Metrology (NBSM):

1) A Snapshot of Nepal Economic Outlook

• GDP Growth

Nepal’s GDP has seen three highs in the last five years from 3.30% in FY 2071 -72 to
7.40% in FY 2073-74 and is expected to grow further to 8.50 percent in FY 2076-77

• Inflation

Nepal has seen a drop in its inflation rate in the last five years (2071-76), from a record
high of 9.90% in FY 2072-73 to 4.50% in FY 2075-76 and is targeting 6% inflation in FY
2076-77

• Banking Institutions

Nepal currently has 91 micro finance banks spread into 3570 branches, 32 development
banks with 1250 branches, 28 commercial banks with 3539 branches and 24 finance
companies with 205 branches

2) Monetary Policy Targets for 2076-77

• Inflation to be maintained within 6 percent for FY 2019-20

• Foreign exchange reserves will have to manage imports and services dependence for 7
months period unlike 6 months in FY 2018-19
• Domestic and private credits have been set to grow by 24% and 21% respectively, more
than 22.5% and 20% in the previous year
• Bank rates for the Lender of Last Resort (LOLR) reduced from 6.5% in 2018 to 6% for the
current fiscal
• Interest rate on general refinance has been reduced from 8% in 2018-19 to 7% for the
current fiscal
3) Ways to Achieve Targets – Credit Management

Source: Nrb.org.np
4) Regulations

Source: Nrb.org.np
 5) Payment System Reinforcement

• RTGS mode of payment will be operational within this fiscal year, and a separate Nation
Payment switch will also be developed for electronic payment and settlement within the
nation
• Transaction made on POS will not be subjected to additional charges
• Cash Deposit Machines will be set up across all banks and financial institutions
• For every e-transaction or through card on the purchase of goods and services, 10% of
VAT from the respective invoice will go to the buyer’s bank account

6) Foreign Exchange Management

• Now, any remittance for maintenance or purchase of software will require the
recommendation of respective regulatory authority
• Respective departments are also working on a model for Payment/Acceptance in foreign
currency for social media ads
• Foreign currency remittances will be placed in national priority sectors; Foreign
Employment Saving Bonds and Citizens Saving Bonds shall be open throughout the year
• Single point service center will be established to ensure easy inflow and outflow of foreign
investment
• In line with Visit Nepal Year 2020 campaign, Foreign exchange counters will be made
available in major tourism destinations

The key highlights of the Monetary Policy 2076/77 (2019-2020) are:

▪ The Cash Reserve Ratio (CRR) for domestic banks, commercial banks and financial institutions
remains fixed at 4% each.

▪ Inflation rate for the coming fiscal year 2076/77 has been targeted to 6% from the previous 6.5%

▪ The Statutory Liquidity Ratio (SLR) for commercial banks, development banks and financial
institutions has remained the same as their previous rate at 10%, 8% and 7% respectively.

▪ The Capital-Cum-Deposit (CCD) for banks and financial institutions are to remain unrevised for
FY 2076/77. Currently, the CCD imposed on banks stands at 80%.
▪ The policy has targeted to expand credit availability to the government and the private sector up
by 24% and 1% respectively, from the target of 22.5% and 20% in the last FY.

▪ The Central Bank has reduced the bank rate from 4.5% to 5% to reduce the interest rate
fluctuations.

▪ The central bank has also eased the regulatory provisions for banks to merge by mid-July 2020.
The policy allows merging banks to maintain the spread rate at 4.4 percent and 10 percent for the
agricultural sector’s lending and issue debentures within the next two years.

▪ The Interest Rate Corridor has the following features:

PROS:

1. Increase in GDP

Through Central Bureau of Statistics projection, it is estimated that GDP (Gross Domestic Product)
is to grow by 7.1% in 2018/2019 as it has mentioned that Banks and financial institutions are
allowed to open one branch in sub-metropolitan city only after opening one branch in the
municipality and rural municipalities. Some provisions under this section include: disbursement
of credit by commercial banks to productive sectors, stress testing guidelines, additional facilities
for the merger and acquisition of MFIs etc.

With the increase in Agricultural Production, ease in energy supply, acceleration in construction
activities, expansion in industrial production, increment in the arrival of tourists, all these activities
directly or indirectly increase consumption, investment, and government expenditure, leads to
increase in GDP.

In the above figure (i) , X- axis represents Real GDP and Y-axis represents general price level.
As the consumption, investment and government expenditureis the part of AD, it shifts the AD
curve upward from AD1 to AD2. This increases the Real GDP or the income of the nation from Y1
to Y2.

The increase in real national income increases the money demand (MD) in figure (ii). This shifts
the money demand curve from MD1 to MD2. The rise in money demand increases the rate of
interest from I1 to I2. This rise in interest rate might discourage investors to invest in an economy.

Thus, a product market always has its corresponding money market effect in an economy.
2. Increase in National Income:

A lessening in the bank rate expands the cash supply in the economy. As per standard
macroeconomic hypothesis, an expansion in the stockpile of cash brings down the loan fees in the
economy, prompting increasingly private utilization and loaning and ventures. Private utilization
and speculation being the parts of total interest, an expansion in venture and private utilization
builds the total interest. This in financial terms can be appeared with the assistance of the multiplier
impact, which implies that alongside rising private utilization and speculation levels in the
economy, the genuine GDP and national pay in the country is required to rise.

According to the policy, that is mentioned i.e. “The nominal GDP has been taken as the basis for
monetary projection. Given this, the limit for the growth of broad money (M2) has been set at 18
percent. In addition, domestic credit and private sector credit growth rates are projected to be 24
percent and 21 percent respectively”, domestic credit and private sector credit growth rates have
been projected to be 24 percent and 21 percent respectively. The bank rate, applied for the purpose
of the lender of the last resort (LOLR) facility, has been reduced to 6 percent from 6.5 percent.

The increase in AD will prompt higher financial development and potentially inflation. In the long
run, an increase in investment would also increase productive capacity and increase aggregate
supply. Subsequently, the expansion in total inventory empowers a continued ascent in AD without
causing inflation. Consequently, credit funds creation, consumption, and capital development,
prompting high financial development.
3. Reduction of poverty:

HIGHER INCREASED
AGGREGATE PRODUCTION
DEMAND

HIGHER
INCREASED
CONSUMPTION EMPLOYMENT
RATE

RISE IN INCOME

With such policies being created like “Consolidation and strengthening of the BFIs will be
prioritized to enhance their ability to mobilize resources while increasing the access of the general
public to financial services”, “The goal of the financial sector program will be to enhance financial
access through the modernization of payment system while giving due attention to financial
governance and consolidation”, “Payment service providers will be encouraged to expand
financial access in remote areas by payment services through mobile phones and internet”, helps
expand poor people’s access to financial services, increasing their economic opportunities and
improving their lives resulting into poverty reduction.

Increasing the access to finance to achieve higher growth is one of the main objectives of this
policy. Getting access to finance is positively correlated with economic growth and employment.
When people use such finance for productive purposes such as expanding a business or investing
in children’s education which creates a multiplier effect in the economy creating additional income
and employment opportunities. This financial inclusion helps to lower poverty and income
inequality. Increase in the income of the people leads to increase in consumption and saving which
further leads to higher demand and investment, which further leads to an increase in production ,
increasing the employment opportunities in the economy which helps generate more income to the
people.
CONS:

1. Increase in inflation:

The Monetary Policy 2019/20 adds to the inflationary pressure to some extent. The average
consumer price inflation in the eleven month of 2018/19 is 4.5 percent. Such inflation was 4.2%
year ago.

In the above figure, x-axis represents quantity demanded and supplied and y-axis represents price.
When the demand of consumer increases from AD0 to AD1 while supply S remaining constant, the
price increases from P to P1. This increases the cost of living though the quantity rises from Y0 to
Y1. In this way, when the demand rises the rate of inflation increases due to demand pull inflation.

Again, because of the decrease in aggregate supply from AS0 to AS2 the price increases from P1
to P2, bringing the aggregate output back to Y0 but with increased in price, this is due to cost push
inflation.

The inflation increased within a year due to increase in demand from consumer side. The demand
increased due to reasons like the decrease in the bank rate helps the banks to increase the money
supply in the economy which increases the consumer spending and decreases the rate of interest
encouraging lending and investment in the goods market as people borrows more money at a low
rate of interest. The increase in the private consumption and investment results in the upward shift
in the aggregate demand curve. The upward shift in the aggregate demand curve increases the
national income along with an increase in the price level resulting into demand pull inflation. This
demand-pull inflation can further lead to cost push inflation.

As the price increases the purchasing power of the workers decreases so the workers' demands
more wages to compensate them for the higher cost of living which leads to a rise in the wages.
Increase in wages increases the cost of production. The employers start cutting off employees to
reduce their cost of production which leads to a decrease in the aggregate supply leading to a
leftward shift in the aggregate supply curve. The leftward shift in the supply curve again leads to
a rise in the price which results into cost push inflation. Thus, this policy lead to higher economic
growth along with the higher inflation.
2. Trade deficit

The major causes of Nepal's increasing trade deficit are landlocked, low export and high import,
low quality goods, improper trade policy, higher cost of production, lack of publicity and
advertisement, low production, slow industrial development, lack of trade diversification, etc.
Trade deficit widened by 17.2 percent in the eleven months of 2018/19. The high current deficit is
due to the expansion of imports. On the other hand, Nepal imports machinery items and luxury
goods while exports primary products. There is huge price difference between these two products
which ultimately causes trade deficit.

In the above figure, x-axis represents quantity while y-axis represents Nepali currency (assume).
Export revenue is downward sloping curve while Import spending is the upward sloping curve.
They both intersect with each other to determine the balanced trade (i.e. neither deficit nor surplus).
However, if the import spending is greater than export revenue, there is trade deficit.

Balance of Trade in Nepal averaged -37973.27 Million NPR from 2001 until 2019, reaching an all
time high of -3913.30 Million NPR in October of 2001 and a record low of -132194.70 Million
NPR in September of 2018. This page provides - Nepal Balance of Trade - actual values, historical
data, forecast, chart, statistics, economic calendar and news. Nepal Balance of Trade - values,
historical data and charts - was last updated on April of 2020.
Nepal’s lack of infrastructure and geographic constraints has led to chronic trade deficits. Nepal
mainly exports iron and steel, knotted carpets, textiles, plastics, hollow tubes, beverages and
vegetables. Nepal mainly imports oil, gold, iron and steel, clothes, pharmaceutical products,
cement, electronic appliances, food and vehicles.
EFFECTIVNESS:

1. Technological development

The policy has focused on the necessary infrastructure development for the modernization of
payment system. Electronic payment transaction will be introduced through the development of
national payment gateways. The policy has put major emphasis on digitization of banking
transactions. Thus, it helps to build up capital infrastructure of the country. In this way, with the
development of online banking system, e-commerce websites such as food delivering companies
or online retail stores will provide services to consumers developing consumer goods in an
economy.

In the above figure, x-axis represents Consumer goods and Y-axis represents Capital goods. The
development of banking technologies would develop capital goods in an economy. The
development of these capital goods would help in effective and efficient utilization of resources
which increases productivity. Hence, technological development in industry would increase capital
as well as consumer goods through development e-commerce sites. These e-commerce sites
provide services to consumers increasing the production and consumption of consumer goods. In
this way, the PPC curve shifts upward where capital goods is produced at X2 and consumer goods
is produced at Y2.
2. Decrease in unemployment:

According to point no, 2.1: To build a strong and dynamic economy by generating additional

opportunities for income and employment through expanding productive activities.

Expansionary monetary policy is traditionally used to combat unemployment by increasing the

money supply available in the market. This Monetary policy also aims to build a strong and

dynamic economy by generating additional opportunities for income and employment through

expanding productive activities. A decrease in the bank rate will increase the money supply in

the economy decreasing the rate of interest which increases investment. Lowering the rate of

interest results in easy credit which entice businesses into expanding leading to increased

production scale, and improved productivity. The expansion of business demands more

workforce resulting in additional employment and income opportunities.

Thus, an increase in the foreign investment would lead to an increase in the demand of labor in

the economy. Businesses will need to more labors to exploit the additional investment to produce

efficient output.
 i. Phillips Curve

According to article;

Published by H. Plecher (Statistica)

Dated Nov 20, 2019

In 2018, the average inflation rate in Nepal was at 4.15 percent, a slight drop compared to the

previous year. However, this year the inflation has increased by 6.1%.
Similarly, according to article,

Published H. Plecher, Dated, Feb 12, 2020,Titled: Unemployment rate from

In 2019, the unemployment rate in Nepal was around 1.25 percent whereas in 2018 it was 1.26%.

The relationship between the inflation rate and unemployment can be shown through Phillips

curve.

As shown in the figure above, the Phillips curve shows an inverse relationship between inflation

and unemployment. This can be proven as, with an increase in inflation from 4.15% to 6.1%,

there has been a decrease in unemployment from 1.26% to 1.25%.

3. Increase in merger and acquisition:

Mergers and Acquisitions is an important financial tool that enables companies to grow faster

and provide returns to owners and investors. Mergers and Acquisitions have become the most

widely used business strategy of restructuring and strengthening bank to achieve

competitiveness, to ensure long term existence with considerable profitability, achieve

operational efficiency and strengthen the resilience of banking and financial service institutions,

to forge entering in new markets, and to strengthen the capital base and lending capacity, etc.

Economists, policymakers, the general public and even the bankers themselves are arguing that

the Nepali banking industry is bloated, considering the size of the economy, and hence mergers

and acquisitions are needed. This government policy primarily intends to bring down the number

of banks in the country and raise their capital, thereby enhancing their lending capacity. The

NRB wants to reduce the number of banks and financial institutions (BFIs) through merger and

acquisition processes. To encourage the BFIs to go for merger and acquisition, we have

announced additional five facilities to them while giving continuity to the existing relaxation

provided by the NRB the capital base of the BFIs was increased to make them stronger and able

to absorb small financial risks. The banks were seen less interested in the merger policy adopted

by the government. However, a notable number of banks have expressed their commitment to go

for merger and acquisition.

The banks that have expressed willingness to go for merger includes: Agricultural Development

Bank, Nepal Bank, Nabil Bank, Everest Bank, SBI Bank Nepal, NIC Asia Bank,

Machhapuchchhre Bank, Janata Bank, Global IME Bank, Citizens International Bank, Sunrise
Bank, Mega Bank and Civil Bank, among others. Meanwhile, Janata Bank and Global IME Bank

have already decided to go into merger process.

INEFECTIVENESS:

1. The targeted growth rate was 8% however, it was not achieved:

According to article,

Title: Nepal to achieve 6.5 percent growth

Published by: Rajesh Khanal

Published at: October 13, 2019

Updated at: October 14, 2019 12:50
Kathmandu

Nepal's economy is estimated to grow at 6.5 percent in this fiscal year 2019-20, way below the
ambitious 8.5 percent target set by the government, according to the World Bank.

The Asian Development Bank has projected a growth rate of 6.3 percent while the Institute for
Integrated Development Studies, a research wing of Kathmandu University, has arrived at the
figure of 6.02 percent. The government has set a target of 8.5 percent growth to make Nepal a
middle-income country by 2030.

“Lack of coordination among the key institutions of the government and lack of a mechanism to
conduct a trend analysis in changing macroeconomic variables has led the government to make
rampant projections which often yield figures highly deviated from reality,” said Pyakuryal, who
is a professor of economics at Tribhuvan University and has several decades of research
experience.

The government has set a target of 8.5 percent growth to make Nepal a middle-income country
by 2030. However, Nepal's economy is estimated to grow at 6.5 percent in this fiscal year 2019-
20, way below the ambitious 8.5 percent target set by the government, according to the World
Bank. The World Bank said in its report entitled South Asia Economic Focus published on
Sunday that the gross domestic product growth rate was forecast to reach 7.1 percent in 2019 and
6.4 percent in 2020. The growth of private sector consumption is expected to drop due to
increased import tariffs on selected agricultural products and consumer goods. Similarly, the
government might not achieve the targeted economic growth rate even with a rise in public
expenditure. Despite increased investment in infrastructure, capital expenditure is below the
level necessary to achieve the ambitious growth target.
2. Crowding out effect:

The monetary policy 2019/20 continuously emphasizes on decreasing the bank rate, extending
the credit in productive sector, increasing financial access, etc. as mentioned earlier, a decrease
in the bank rate decreases the costs of borrowing from the central bank and thus, increases the
ability of banks to create credit. This causes the banks to decrease the rates at which they lend,
encouraging businessmen and others to take loans. Thus, this will lead to an increase in the
volume of credit increasing the money supply.

In the above figure, x-axis represents Income and Y-axis represents interest rate. The shift of IS
curve from IS1 to IS2 only leads to increase in income from Y1 to Y3 while the economy had the
full potential to rise till Y2.

An increase in money supply lowers the interest rates in the economy which encourages the
investment in the goods market. Investment being the components of aggregate demand, an
increase in investment increases the aggregate demand causing an upward shift in the aggregate
demand curve which results into an increase in the national income. But this national income
does not increase as per the expectation with the multiplier effect due to the interdependence
between goods market and the monetary market which is creating the crowding out effect. When
the national income increases the transaction demand of money also increases causing an upward
shift in the money demand curve in the monetary market. The rate of interest increases with the
increase in the money demand which discourages the investment in the goods market. The
increase in the rate of interest decreases the investment resulting in the downward shift in the
aggregate demand. The downward shift in the aggregate demand curve again decreases the
national income. Thus, the national income will not increase as expected with the multiplier
effect due to the interdependence between goods market and the monetary market. This is
referred to as a "crowding out effect".
3. The inflation rate was to be reduced below 6%, however it was not effective:

The objective of the monetary policy 2076-77 is to maintain inflation within the limit of 6% as
per budget forecasts.

The inflation target of 6.0% in FY2020 seemed realistic. However, the Current Macroeconomic
and Financial Situation of Nepal (Based on One Month’s Data of 2019/20) released by the Nepal
Rastra Bank (NRB) on Tuesday, the year-on-year inflation, measured in consumer price index
(CPI), shows that inflation reached a near three-year high of 6.95 percent in mid-August
following a sharp hike in food prices, compared to 4.19% a year ago.

The multilateral agency has attributed the rise in the consumer price index to higher public sector
wages, increases in import duties on agricultural and industrial goods, and the removal of value
added tax exemptions on some intermediate goods and services. Food prices have been rising
rapidly in recent months, driving up the overall inflation. The NRB data shows that food and
beverage inflation stood at 8.02% in the review period compared to 6.27% year ago. The
continued rise in the import of goods fueled by remittance growth will further elevate inflation.
Similarly, the year-on-year salary and wage rate index increased to 13.44% in mid-August 2019
compared to 7.4% a year ago, according to the NRB data.

The inflationary pressure in neighboring India is also contributing to the increase in prices in
Nepal. If the trend continues during the rest of the fiscal year, Nepal’s inflation rate is likely to
cross 6 percent. Apart from this, the coronavirus has also started threatening the nation’s
‘inflation’ rate. The increase in inflation in the first six months of the current FY 2019-20 is
primarily due to the rise in prices of the consumable goods in the country. However, the recent
rise in prices of non-food items is the result of coronavirus outbreak in the economy.

According to the NRB Spokesperson Gunakar Bhatta, the rise in prices can be attributed to the
fall in Nepali currency value against the US dollar and supply bottlenecks due to coronavirus
epidemic. The Nepali currency has been falling after the local market placers started investing in
gold and dollar against stocks and businesses on the back of COVID-19 threat. The exchange
rate of Nepali currency against the US dollar has reached to NPR 118.28 per dollar on March 9,
2020, reaching close to the record of NPR 119.33 per dollar on October 10, 2018.
SOLUTIONS:

1. Improving inflation

Sometimes with an increase in money supply in the market may cause inflation. If there will be

an unnecessary increase in inflation, monetary policy can be applied.

The monetary policy uses high interest rates to drop inflation. Increased interest rates will help

reduce the growth of aggregate demand in the economy. The slower growth will then lead to

lower inflation. Higher interest rates reduce consumer spending because:

• Increased interest rates increase the cost of borrowing, discouraging consumers

from borrowing and spending.

• Increased interest rates make it more attractive to save money

• Increased interest rates reduce the disposable income of those with mortgages.

• Higher interest rates increased the value of the exchange rate leading to lower

exports and more imports.

As shown in the diagram itself, with an increase in interest rates, the above-mentioned activities

will take place. There will be a decrease in Aggregate demand from AD1 to AD2. This will lead

to decrease in price level from P1 to P2 and decrease in Real GDF from Y1 to Y2.

However, it might be difficult for Monetary policy to maintain cost push inflation and growth at

the same time.

2. Government subsidy to encourage private sector investment:

The increase in inter-bank rate among the commercial banks has increased savings but has
discouraged private sector investment. Therefore, the government must provide subsidy to the
private sectors so that there is investment in the productive sectors. The investment in the
productive sectors increases the productivity and hence decreases the price of goods and services
in an economy.

In the above figure, x-axis represents quantity while y-axis represents price. The downward sloping
curve is the market demand which intersects with market supply pre-subsidy to determine the first
equilibrium point. Here the price is at P1. However, if the government provides subsidy to the
private sector such as exemption on tax rate, decrease in the price of raw materials or decrease in
the wage rate of labor, such policies further encourages investors to invest in an economy. It also
increases the productivity and efficiency of businesses, thus shifting the supply curve leftward. It
decreases the price of the product or services from P1 to P2. In this way, the rate of inflation
decreases in an economy.
Following are the simple steps to overcome some of the challenges that we see in the private sector
engagement projects in Nepal:

1. Engage and Align Goals: Governments and development agencies need to interact with
potential private sector partners to understand their needs and motivations while attempting
to identify shared goals where meaningful partnerships can thrive. Before any project is
designed, necessary stakeholder interactions need to take place not just in boardrooms in
Kathmandu, but also with potential program partners and beneficiaries in rural areas, for
whom the programs are designed.

2. Create Necessary Enabling Environment: Private sector-oriented interventions require the

necessary enabling environment like adequate government policies, access to finance and
technical assistance for the projects to achieve its objectives. Due to the agendas that
development organizations are guided by, the comprehensiveness of business facets is
often not addressed. With organizations targeting only certain business support
requirement, they are not being able to address business and management issues
holistically. The failure to address holistic support for businesses mean unsatisfactory
development results at the end.

3. Evaluate Program Beneficiaries and Tailor Interventions: Development programs often

have the tendency to assume that all program beneficiaries are in the same stage of business
growth and tend to provide interventions without taking time to understand individual
project beneficiaries. This can sometimes lead to program beneficiaries not getting the
support that they truly require. Thus, development projects should take the time to study
each individual beneficiary and attempt to tailor assistance based on their needs.

4. Pilot Programs at a Smaller Scale before Full-Scale Implementation: Too often

development programs have lofty goals and program interventions are designed to
maximize impact. However, as with any program design, many assumptions are made
regarding how the stakeholders or beneficiaries will react to the interventions. In several
 cases, development projects do not bring about desired results and yet fail to adapt to
market realities. This is also escalated by the changing market needs and demands as most
of the projects are multi-year. Thus, piloting the interventions at a smaller scale would test
theories and allow for the implementing agencies to make necessary programmatic changes
where necessary before intervening at a full-scale.

5. Need to Mobilize and Support Local Government Bodies: With the outset of federalism in
the country, the local government has been delegated with more power and authority. They
play a prominent role in developing policies and making decisions at the local level. Any
program that is directed towards local development requires acceptance and support from
the local body. Therefore, if development programs could be designed in a way that
mobilizes and supports local government bodies then program implementation could be
carried out more efficiently and effectively. As Biruwa has witnessed that the majority of
the local bodies want to attract private companies and want to benefit their communities,
they are clueless about planning and execution of such activities. If development
organizations can support such local bodies, it will create a lasting impact in private sector
development at the local level setting them as a role model for others to follow.

6. Use of Team Members and Project Partners who have Understanding of the Private Sector:
It is not uncommon that development programs are filled with development professionals
with little exposure to the private sector. As a result, many programs are designed without
truly understanding the needs and motivations of the private sector which leads to
implementation becoming problematic. Thus, adequate resources in the team who have an
understanding of such programs can improve program results.
3. Fiscal- Monetary Mix to solve crowding-out effect

In economics, increased government involvement in a sector of the market economy substantially

affects the remainder of the market, either on the supply or demand side of the market. To solve,
this problem the government must implement policy mix. The policy mix is the combination of
company’s monetary and fiscal policy to influence growth and employment. The government
should come with such type of monetary policy that could control interest rates and money supply
to balance the outcomes for inflation and unemployment.

In the above figure, x-axis represents Income and y-axis represents interest rate. The increase in
government autonomous spending shifts the IS curve rightward from IS0 to IS1. It causes crowding
out effect. Therefore, in order to solve those problems, the LM curve should also be shifted
rightward from LM0 to LM1. It helps to balance the rate of interest and achieve optimum income
level. Therefore, during the hard times, if the government is unable to achieve optimal rate of
inflation and employment, it must carry out appropriate monetary policy.
MANAGERIAL IMPLICATIONS:

In this technologically advance world, any entity will possess the threat of a better entity. Hence,
as a manager, one should always focus on establishing promising yet achievable goals. In order
to comprehend with the goals, favorable system should be developed and policies regarding
responsible use of investment should be outlined.

“On my honor as a student, I pledge that I have neither given nor received aid on this
assignment.”
REFERENCES:

http://biruwa.net/2019/09/making-private-sector-engagement-effective-in-nepal/

https://www.worldbank.org/en/country/nepal/publication/nepaldevelopmentupdate

https://www.adb.org/sites/default/files/institutional-document/495276/nepal-macroeconomic-update-
201904.pdf

https://kathmandupost.com/money/2019/10/13/nepal-to-achieve-6-5-percent-growth-world-bank-says

http://biruwa.net/2019/09/making-private-sector-engagement-effective-in-nepal/

https://thehimalayantimes.com/business/monetary-policy-focuses-on-easing-liquidity-promoting-credit-
growth/