Economic policies and

reforms
 Privatization
• Most significant economic, social and political phenomena was
adopted in world wide scale in 1980s.
• The poor financial and operating performance of public enterprises
necessitated privatization.
• It is process of reducing the role of govt in business activities.
• It is the conversion of enterprises formerly controlled by government
into private hands
• It is the process of promoting private institution of society in satisfying
people’s needs.
• it encompasses process such as denationalization, deregulation,
liberalization, contracting out, competitive tendering, user charges,
cuts in public provisions, increase in private ownership and so on.
• It is the incidence or process of transferring of ownership of
business, enterprise, agency, public service or property from the
public sector (the state of government) to the private sector
(business that operate for private profit).
• The term privatization also has been used to described two
unrelated transaction.
• The first is a buyout, by majority owners of all shares of public
corporation or holding company’s stock, privatizing a publically
traded stock and often describe as private equity.
• The second is demutualization of a mutual organization or
corporative to form a joint stock company.
• Privatization generally believed to improve the output, profit and
efficiency of the organizations that are privatized.
• The term privatization is defined by privatization act 1994 as
“the participation of private sector in the mgmt. of enterprise
or selling it or giving on lease or transferring of government
ownership to private sector, employees, or desires group either
partially or fully in such an enterprise.”
• A former chancellor of exchequer of the UK has rightly insisted
in favor of privatization that “it is not the business of govt. to
be in the business and that neither is it business of govt., to be
a government of business.”

• History of privatization and opposing thoughts.

Process\Methods of Privatization:
Methods of Privatization

Share-sales:

Management Contract

Lease

Assets and Business sale

Voucher privatization
 Methods of privatization could be
• Total or partial sale
• Management/ workers buy-out
• Contracting out
• Leasing with option to buy
• Management contract etc.
• Besides these methods some writers have also mentioned some
transactional methods like sale of assets and joint ventures and some non-
transactional methods like give away (for nothing), liquidation and
demonopolization etc.
 Privatization Policy and Practices in Nepal
• Privatization is considered vital to stabilizing and developing the National
economy
• It is an alternative strategy for public sector reforms
• The legal provision to implement privatization policy are contained in
privatization act 1994.
The main features of this act :
1. Formation of privatization committee
2. Powers, functions and duties of the committee
• To recommend the programs and priorities of privatization to govt.
• To conduct study or research in order to formulate privatization programs
• To remove hindrance faced in privatization programs and maintains coordination.
• To appoint a team of National experts and foreign experts if necessary
3. Publication of notice for privatization.
• By sales of shares of the enterprises to the general public, employees,
workers. Any person or company interested in the mgmt. of such enterprise.
• By formation of cooperatives
• By selling of assets of the enterprises.
• By leasing out the assets of the enterprise.
• By involving private sector in the mgmt. of enterprise.
5. Proposals for privation:
6. Evaluation of proposals:
7. Agreement of privatization
8. Settlement of dispute
9. Provision relating to employees
Practices of Privatization policy in
Nepal:
• After the restoration of multiparty system in 1990, liberal policy
aiming at private sector development was formulated to cope
with the mixed economy
• It removed barriers for private investment and created private
sector friendly economic environment
• Many public sector enterprises proved inefficient and placed
undue burden on the budget
 Industrial policy, 2010
• reducing excessive dependency on agriculture
• accelerating the pace of development with grater liberalization of trade
and investment through the industrial policy
• related with industrial development and some progress in industry.
• related to self-reliance increasing the contribution of industry to GDP
formulating job opportunities and ensuring the balance development of
nation
• enhancing skills, technological capability and improvement in
management practices which are the key element of competitiveness in
the emerging pattern of global competition and industrialization.
Vision
To make remarkable contribution in national
economy through
• sustainable and broad-based industrial
development
• coordinated and collaborative partnership of
public, private and cooperative sectors thereby
to support poverty alleviation
 Objective of industrial policy of 2010
• To Increase export of industrial goods through qualitative and
competitive, enhancement of industrial production and
productivity.
• To Increase contribution of industrial sectors in balance national
and regional development by mobilizing local resources, row
material and skills.
• To Establish industrial entrepreneurship as sustainable and reliable
sector by using latest technology and env. Friendly process.
• To Establish Nepal as an attractive investment center in south Asia
• To Protect right of industrial, intellectual property.
 Policies
• Assistance shall be provided to increase export of industrial products
• Priority shall be accorded to develop or acquire new technology
• The no pay for no work principle shall be followed as provided by the
labour law with the objective of creating cordial relationship between
employers and employees
• Additional facilities and concession shall be made available as
incentives to export-oriented industries, industries established in
Special Economic Zone, prioritized industries and industries established
in least developed, undeveloped and under developed regions
• Encouragement shall be given to engage in research and development
in the areas of industrial information and communication, appropriate
technology and bio-technology
• promote the industries that use local resources, raw materials,
skills, labour and technology
• Technical and financial assistance shall be made available to
the industries that use environment-friendly and energy saving
technology
• The Investment Promotion Fund; Technology Development
Fund; Micro, Cottage and Small Industries Development Fund
and Sick Industries Revival Fund shall be established
• Effective body shall be established for protection of industrial
intellectual property rights.
• Special strategies relating to micro enterprises, cottage and
small industries
 Main provisions
• Entry and Registration.
• Classification of Industries.
• Prioritization of Industries.
• incentives and Facilities.
• Special Provisions for Micro, Cottage and Small
Industries and Special Economic Zones (SEZ).
• Gender and Industries
• Institutional Arrangements
 Trade policy
• The trade means exchange of goods between the individual and the
nation
• the important of indicator of economic development of the country
• all-round development and progress of trade sector is the aim of
trade policy.
• Policy of government to promote, enhance, improve and reform the
domestic and international trade
• to enhance the contribution of trade sector in the national economy
to assist in economic development and poverty alleviation
• directed towards trade diversification by country and commodity wise
• The First Trade Policy introduced in 1983 with the slogan of
"Exports for Development".
• Following the wave of economic liberalization and Structural
Adjustment Program, Nepal introduced its first Liberal Trade
Policy in 1992.
• Trade Policy 1992 removed most of the trade barriers such as
eliminating licensing for import and export, establishing
industry etc.
• Given the changed context GON introduced Trade Policy, 2009
• Considering the dynamism in the trade sector and addressing
alarming trade deficit, the Government introduced new Trade
Policy, 2015
Long term vision of Trade Policy
2015
• Achieve economic prosperity by enhancing commerce sector’s
contribution to national economy through export promotion.

Goal
• To achieve inclusive and sustainable economic growth through
export promotion
 Objectives
• To enhance supply related capacity, reduce trade deficit
by increasing exports of value added and competitive
goods and services.
• To increase access of goods, services and intellectual
property to the regional and global markets.
 Salient features of the Trade Policy 2015
• Role of the Government: Facilitator, motivator and regulator
• Enhancing competitive capacity of the products with comparative and competitive
advantage for export promotion
• Reducing trade deficit by strengthening supply-side capacity
• Enhancing the competitive capacity of exportable service sectors
• Reducing transaction costs by means of trade facilitation and institutional
strengthening
• Mainstreaming trade in order to establish it as a major component of economy
• Expanding market and enhance trade capacity by means of multilateral, regional and
bilateral mechanisms and trade diplomacy
• Linking trade in goods and services to regional and global production network by
strengthening and making them competitive as well as supplementary to each other
• Enhancing access of Nepalese products to world market by protecting and promoting
trade related intellectual property rights
 Major Highlights of Trade Policy, 2015
• Policy and Institutional Coherence and linkage
• Trade in Goods, Trade in Services and TRIPS(Trade Related Intellectual
Property Rights)
• Trade Related Infrastructure Building
• Product Development and Value Chains
• Capacity Development and Export Promotion
• Trade Facilitation
• Participation in the Global production chains and value chains
• Market Access/Promotion/Diversification
• Resource Mobilization AfT(Aid for Trade),TRTA(Trade Related Technical
Assistance)
 Labour and Employment Policy, 2062
• The primary means for eradicating poverty is employment.
• Employment provides income which will promote economic
development and the poverty is slowly reduced.
• Employment opportunity is the result of investment and
development.
• Nepalese economy is greatly suffering from unemployment and
under employment problem.
• The growing number of educated youth are feeling painful
unemployment problems.
• labor forces is increasing at higher rate but employment
opportunity are lacking which has created the problem of poverty
in the country.
• To alleviate poverty it’s important to create long term
employment opportunity
• Employment policy addresses the employment related issue
meaningfully and try to put them in practice.
• it also analyses the problems and prospect of unemployment
and underemployment with alternative mass employment
program.
• Employment policy is also related with employment generation
and human resources development.
 Long-term Goal
The long-term goal of the Labour and Employment Policy 2062
• is to provide productive, non-discriminatory, exploitation-free,
decent, safe and healthy work opportunities for
citizens of the working ages by building an environment of
friendly investments, in addition to building and managing a
labour market that contributes to the national economy so that
it can compete at the global level.
 Objective of employment policy:
• Create new employment opportunities by encouraging capital from private
sector to cottage and small scale and agro based medium scale industries.
• Create additional employment opportunities by encouraging direct foreign
investment.
• Increase employment and self-employment opportunities by developing
quality multi skilled human resources.
• Ensures equal access to employment for female Dalit, indigenous people
and displaced people.
• Promote productive employment to reduced unemployment and
underemployment.
• To eliminate child labour.
• To make labour and employment administration smart, up-to-date, efficient
and effective.
 Strategies
• Create investment friendly environment and encourage foreign investment
• Provide short term employment opportunity
• Commercialized and industrialized agriculture.
• Create employment by lunching various program in mountain, hills and tarai based
on small loan focused and generate income of suppressed, poor, women, disabled,
needy and others marginalized group of people.
• Provide low interest loan and make employment more productive by giving skill
training to the youth of poor or targeted groups.
• Efforts shall be made to build an environment that discourages activities such as
strikes and picketing in industries
• The workplace shall be made safe, healthy and productive by promoting and
developing occupational health
Please refer employment
policy 2071 from pdf
 Tourism policy 2065 (2008)
• Business activity related to the service of tourist is known as tourism
• Tourism is recognized as important sector in the development agenda
of the most of the country
• the development of tourism sector has potential for the expansion of
income and employment opportunities in the economy
• enhance foreign exchange through international tourism
• The world travel and tourism council (WTTC) declared tourism as the
world’s largest industries surpassing (exceeding) autos, steel, electronic
and agriculture
• Tourism policy includes all round development program for the tourism
sector
• Through tourism policy, tourism industry is developed as multi sectoral
• Tourism policy aimed at raising foreign currency, creating employment
opportunities, improving regional balance and projecting the image of
Nepal in the international arena (field)
• the vision of tourism policy is to develop Nepal as an attractive and safe
destination on the world map through protection and promotion of its
natural, cultural, biological and manmade heritage.
• developing tourism infrastructure
• increasing tourism activities
• creating employment in the rural areas and
• sharing the benefits of tourism in the grassroots level
• Increasing investment in tourism facilities
• Promotion of Domestic Tourism
 Objectives of tourism policy:
• Leading role of Private Sector in Tourism
• More focus on partnership approach: Public Private-People
• Emphasis on Rural Tourism, Community based Tourism and Home-stays
• Formation of Tourism Coordination Committee, Crisis Management Committee
• Activation of Tourism Council ( Apex body chaired by the PM)
• Developed, expanded and promote tourism through easy, safe, reliable and
regular air transport.
• Develop tourism as the main basis of National economy through its
diversification, expansion, creation of self-employment, linkage of eco-tourism
and rural tourism with poverty alleviation to improve standard of living of general
public
 Characteristics of tourism policy:
• Tourism policy promotes tourism industries by formulating a master plan based on
regional development concept.
• It has classified tourism industries into large, medium and small based on capacity
for service delivery.
• It has opened large tourism industries to national and international investor under
public private participations.
• It has open medium and small tourism industry to national investor and priority
base.
• It has the provision of infrastructure development for the tourism sectors.
• It has given priority to the environmental aspect in tourism infrastructure
development.
• It has arrange different facilities and incentive to establish tourism as a basic
industry.
• It has emphasis to conduct tourism program in an integrated manner.
 policy
• The participation of pvt sector
• Participation of Nepalese people in integrated manner
• Develop infrastructure and develop new tourist destination
• Improve the condition of popular religious sites
• Develop Nepal as a centre of adventure tourism
• Upgrade the quality of services and facilities
• Linkage of tourism with agro-based and cottage industries
• Local and foreign investment encouraged to promote skill and
technology
• Implement the national civil aviation policy
 Concept of monetary policy
• refers to policy actions of central bank initiated with the view to
achieve some macro economy objectives
• domestic price stability by means of influencing the quantum of money
stock and cost of money.
• The transmitting channel of monetary policy could be direct or indirect
• In the case of direct channel with expansion and contraction of money
supply both assets prices and goods prices would go up or down thus
transmitting the monetary impulses directly to the real sector .
• Under indirect channel interest rate would go down or up in the event
of increased or decreased money supply.
• monetary policies includes all the actions of monetary authority or the central bank of
a country which affect direct and indirectly the supply of money, credit, rate of
interest and the banking systems.
• it affects cost and a viability of credit in the economy .
• The central bank provides insight into how to craft optimal monetary policy.
• It can be either expansionary or contractionary.
• expansionary polices increases the total supply of money in the economy. such policy
is traditionally used to combat unemployment in recession by lowering interest rates.
• contractionery policy decreases total supply of money .it involve raising interest rate
in order to combat inflation.
• the monetary policy needs to be consistent with the macroeconomic objective of
economy.
• It regulates the foreign exchange market and exchange rate .
• the main objective of monetary policies are to achieve higher rate of economic
growth and maintain relatively stable macroeconomic environment.
 Definitions of MP
• DWAYNE WRIGHTS MAN– “Monetary policy can be
defined as a deliberate effort of central bank to control
of money supply and credit condition for the purpose of
achieving broad economic objectives.”
• Edward Shapiro, “MP is the exercise of CB’s control over
the money ss as an instrument for achieving objectives
of general economic policy.”
Objectives of MP
• To stabilize the price level
• To eradicate uncertainty and instability of
the economy
• To increase investment for full employment
• To bring rapid economic growth
• To maintain equilibrium in BOP.
Instruments of MP
• Bank rates: (rate of interest levied by CB to other banks.
• Open Market Operation: (purchase and sale of short and long
term market securities)
• Cash Reserve Ratio
• Statutory Liquidity Ratio
• Fixing the margin requirements
• Consumer credit regulation
• Publicity
• Moral suasion
• Directives
Highlights of Monetary Policy of Fiscal Year 2020-
21
• Nepal Rastra bank has been making public monetary policies since 2002-2003 as per the
legislative provision of Nepal Rastra bank act 2002 .such policies include subject matter
such as credit foreign exchange micro finance regulation and supervision of financial
system
• Every year, after releasing a budget along with a finance act by the government, Nepal
Rastra Bank (the Central bank of Nepal) announces monetary policy outlining various
initiatives to strengthen the economic aspects of the country. NRB announced Monetary
policy 2077/78 on 17th July 2020. The policy of this year was published and announced
with a detailed response to the unprecedented economic crisis caused by COVID-19 due
to which economic growth of the fiscal year 2076/77 has gone down to 2.3% against the
target of 8.2%. The policy has certainly been perceived as a progressive one and focuses
on the much required relief to the affected industries and sectors.
• NRB has targeted to achieve economic growth of 7% by the end of 2021 A.D. The
expressed focus is on economic stability and implied on economic growth.
• The Monetary Policy focuses on ramping up capital flow towards the productive sectors
such as agriculture, energy, tourism, small and cottage industries as well as to the poor.
Economic and monetary targets
Economic growth - The target is 7.1%
Investment of banks - Increment in investment in banks esp in agriculture and
energy sector by 15% and 10% respectively.
The interest of microfinance companies-Fixed at flat 15%. They cannot charge more
than that.
• Amount of refinancing -100 billion.
• Additional charge -Banks are restricted to charge an additional amount for
using the ATM lounge of other banks.
• Inflation rate -Targeted to keep the inflation rate at 7%.
• Cash reserve ratio -Cash Reserve Ratio (CRR) for BFIs to be maintained at 3%.
• Statutory Liquidity Ratio (SLR)-Statutory Liquidity Ratio (SLR) is to be maintained at
10%, 8% and 7% by Class A, B and C BFIs, respectively.
• Bank rate applied for the purpose of Lender of Last Resort (LOLR) facility- 5%.
• Core capital plus deposit ratio (CCD Ratio)- 85%.
• Payment system - Though financial transactions through digital means are
encouraged, issuance of new licenses to payment service operators and payment
service institutions is suspended.
• Time limitation for issuance of debenture- The time limitation for commercial banks
to issue at 25% debenture( of their paid-up capital) is extended till Ashad end 2079
B.S
• BFIs are restricted to charge a heavy service charge on the borrowers. 0.75% and
0.25% service charge has been set for commercial banks and financial institutions /
developmental banks respectively.
• Disbursement of subsidized loans- Commercial banks shall disburse subsidized loans
to at least 500 borrowers or at least 10 such loans per bank branch whichever is
more. Development banks: Development banks must disburse subsidized loans to at
least 300 borrowers or at least to five borrowers per bank branch, whichever is more
• The issuance of licenses for new financial institutions/ micro finance institutions
has been halted for the time being.
• current policy has encouraged merger among BFIs but has not penned down
anything on forced merger. They shall be given a discount of o.5 % and 1% in
mandatory cash ratio and statutory liquidity ratio respectively.
• Considering the after effects of COVID-19 in individual and institutional level, the
policy has provided facility of extending loan instalment and interest payment till
mid-December.
• Thoughts on the policy
• The highly anticipated monetary policy has addressed the revival of the COVID-19 affected economy by unveiling
rescue packages. The policy inculcates a positive state of expectation for the pandemic-hit economy. It is in alignment
with the annual budget, providing relief and rescue to businesses. The policy has been well received by the private
sector as it addresses the key sectors for economic revival. The policy aims at easing liquidity and promoting stability
and sustainable economic growth in the country.
• The positive aspects of the policy
• The monetary policy prioritizes agriculture, energy, and small and medium-sized enterprises. For the first time in the
history of monetary policy, the central bank has prioritized cottage and small industries. These crisis hit businesses
been provided with relief packages and policies including the extension of loan repayment deadline, refinancing, and
targeted lending.
• The borrower-friendly monetary policy has addressed the needs of the business community by ensuring increased
liquidity and easy access to credit. The policy largely mentions extension in loan repayment, grace period extension,
and refinancing. The tourism sector that has been drastically affected by the pandemic is eligible for facilities
announced under the recovery plan which include easy loans from BFIs, relief credit, and refinance.
• Mergers and acquisitions have been promoted in the banking sector. The policy lays down some incentives to facilitate
mergers. Likewise, the issuance of new licenses for microfinance companies has been forbidden in the overly saturated
sector, which is commendable as it would ensure healthy competition and a controlled financial system in the nation.
• The monetary policy has also relaxed the provisions regarding provisioning in case of loan extensions for the virus
affected sector. This comes as a huge relief to the banking sector.  The central bank has also opened doors for reviving a
business through new investments by way of private equity funds, venture capital, debt-equity conversion, and special
purpose vehicles. Overall, the monetary policy has introduced measures that are favorable to doing business despite
the effect of pandemic and lockdown.
• What could have been done better and the road ahead
• The policy aims to achieve an annual growth rate of 7 percent, which seems fairly
unrealistic given the impact of the pandemic and the nation-wide lockdown.
Moreover, the monetary policy has failed to address the need for an exit policy
through a waiver of interest. It fails to consider that certain businesses are in no
position to revive. The policy is also ambiguous regarding the amount of the
refinancing package.
• The policies and provisions laid out in the new monetary policy sound promising,
but the real struggle would be its fast-tracked implementation. The policy looks
good on paper, but the question regarding its implementation remains. To make
the policy successful its implementation and careful monitoring of execution are
equally important. Looking forward, the central bank should focus on speedy
implementation of the monetary policy which will in return ensure economic
revival and stability
 Fiscal policy
• Policy related to the levels of taxation and government
spending
• It determines the country’s economic direction
• Related to government’s revenue adjustment and
spending level
• It states the increasing or decreasing revenue to cope up
different economic situation and to meet economic goals
• It is often used with monetary policy
Purpose of fiscal policy
• To create full employment in an economy
• To maintain price stability
• To accelerate the rate of economic growth
• To have optimum allocation of resources
• To have an equitable distribution of income and wealth
• To maintain economic stability
• To boost capital formation and growth
• To encourage investment
Types of fiscal policy
•Expansionary (govt spends more money and lowers
taxes)

•Contractionary (cuts spending and raises taxes)

 Budget for fiscal year 2020/21
(objectives of the budget)
• The annual budget functions as force for economic development by providing
policy guidance and facilitating through investment to bring effectiveness in
economic, social and governance system to the country.
• Budget for Fiscal Year 2077/78 presented by Honorable Finance Minister and
Minister of Communication and Information Technology, Dr. Yuba Raj Khatiwada
on 28 May 2020.
• Major purpose of budget: Safeguard health of citizens from Corona and related
diseases
 Objectives of Budget
▪ To make life of public comfortable and safe from the infectious
disease corona virus and all types of diseases.
▪ To continue the development by quick financial revival through
optimal utilization of available means, resources, opportunities
and capabilities.
▪ To increase the role of government on public welfare by
fulfilling fundamental rights of citizen.
▪ To build Prosperous, Equitable, Self-dependent, Socialism-
oriented economy through social, economic and infrastructural
development.
 Priority areas of budget
• To develop health sectors and health service providers and ensure health safety
from corona virus and other health problems,
▪ To re-establish manufacturing and supply units and re-develop agriculture,
industry, tourism, construction and other business sectors highly affected by
corona virus,
▪ To expand social security and enhancement and creation of employment
opportunities to citizens,
▪ To complete semi-finished targets that are achievable within next year and
conduct development activities achievable in short run,
▪ To provide quality education, water supplies, enhancement of communication
media and development of social, economic and physical infrastructure,
▪ To provide quality public services and promotion of good governance
 Highlights
• NPR 1,474.64 billion budget for the fiscal year 2020/21,
• NPR 948 billion has been allocated for recurrent expenditure,
• NPR 352 billion has been allocated for capital expenditure, and
• NPR 172 billion has been allocated as financing.
• The budget for the year is 4 percent less compared to the FY 2019/20’s
budget of NPR 1,532.97 billion.
Budgeted Source of Fund-2077/78
• Budget allocation of NRs. 41.40 Billion is made for agriculture and NRs. 25.96 billion for irrigation project.
• Budget allocation of NRs. 1.26 Billion for tourism infrastructure development.
• NRs. 100 billion refinancing facility shall be provided for SMEs, tourism and agriculture sectors. Interest rate will be 5 % on these types
of loan.
• Budget allocation of NRs. 2.46 Billion is made for the Sunkoshi Marine Diversion Multipurpose project.
• Government will provide loan of NRs. 3.60 Billion to the co-operative sector with the objective of making unemployed youths self-
employed.
• Budget allocation of NRs. 11.60 Billion is made for Prime Minister Employment Program to provide employment to 2,00,000 people
through this program.
• Budget allocation of NRs. 6 Billion is made for President Educational Reform Program.
• 40 percent of the population will be brought under health insurance coverage. Budget allocation of NRs 7.50 Billion is made for the
health insurance scheme.
• Budget allocation of NRs. 6 Billion in order to disburse immediate COVID-19 treatment tools.
• Budget allocation of NRs. 1 Billion for skill development and training programs for those who have lost their jobs or employment.
• Budget allocation of NRs. 67.50 Billion is made for social security.
• All types of social security allowances that the government has been providing have been given continuity.
• Emphasis is given on virtual classroom operation. Budget allocation of NRs. 2.76 Billion in order to provide free books to the students.
• Budget allocation of NRs. 1.25 Billion to build infrastructure and start educational programs of Madan Bhandari Science and
Technology University.
• Budget allocation of NRs. 2.23 Billion for the mobilization of 6,000 health volunteers.
• Allocation of NRs. 13.96 Billion is made to provide 50% subsidy on insurance premiums against COVID-19 disease.
• Free health insurance of insured amount upto NRs. 5,00,000 for all health workers and security personnel serving against coronavirus
and other contagious diseases.
• Budget allocation of NRs. 43.10 Billion is made for drinking water and sanitation.
• Budget allocation of NRs. 8.66 Billion for railway sector.
• Post-earthquake reconstruction works to be completed in coming fiscal year for which NRs. 55 Billion is
allocated.
• 130 industrial village is to be established, for which NRs 2.64 Billion is allocated. Industries will be
provided 50% rebate in electricity use during lockdown.
• Budget allocation of NRs 5.89 Billion for sewage management.
• 1300 MW electricity production to be added in upcoming fiscal year.
• Single women, old age person, children, disabled people will be provided free legal services.
• Only frontline workers involved in Corona pandemic will be provided allowance.
• Tourism related subject shall be included in the curriculum above secondary level education.
• Bank and Financial Institutions will be encouraged to be merged and acquired.
• Saving and credit based cooperatives will be encouraged to merge with each other.
• Prime Minister Agriculture Modernization Program will be strengthened.
• Travel allowance and other allowance to employee, procurement of engine, furniture, new vehicles etc.
will face cut in budget.
• Free treatment of senior citizens with Alzheimer’s and rehabilitation for persons with physical and
intellectual disabilities.
• Thoughts on the budget
• How does the budget look in overall?
• This fiscal year, the budget has been downsized to NPR 1,474.64 billion, which can be taken positively as it is an
indication that the budget has acknowledged ground realities and is not exuberant in the usual ways. While the
budget does try to make certain improvements, there are certain aspects which might need reconsideration.
The growth target of 7%, which has been set for the next fiscal year is considerably high acknowledging the
impacts that the COVID-19 pandemic can have in the future. The set growth target seems to be guided by the
assumption that the pandemic’s effect will be minimized within a month or two. Nevertheless, the growth
target of 7% in comparison to the growth that we would be achieving in FY 2019/20, is possible. Primary
estimations as per the economic survey show a possible 2.3% growth. However, the estimations have used the
figures of until mid-March 2020, after which we have experienced more than 2-months of lockdown. Due to
which, the growth for the FY 2019/20 is bound to take a hit.
• Some positive aspects of the budget
• The increment in the budget for the health sector addresses the need of the hour while re-emphasizing health
to be a major priority area. The health sector was allocated a total of NPR 90.69 billion; where NPR 6 billion
was allocated to purchase medicines and equipment required immediately for the COVID-19, and NPR 12.40
billion was allocated for building health infrastructures. While the overall allocation was an increase of NPR 21
billion in comparison to last year, an investment specifically for health infrastructures is highly appreciable as
infrastructures in the area have done poorly in the past. Similarly, sectors like employment and agriculture have
also been well addressed. The budget largely talks about relief measures in different situations, which comes to
address the lack of mentions in the government policy and programmes. The establishment of a NPR 50 billion
fund to provide MSMEs with loans at 5% interest is also unique to government initiatives.
• Where could the budget have done better?
• On the contrary, there were a lot of repetitive programs that could have been avoided for this year, even though the budget allocation for
them has been minimal. Some programs such as conducting the study for the establishment of tourism school could have been avoided this
year. The national budget has also fallen back in prioritizing education. The sector received a mere 1% increase from NPR 163.76 billion in
current fiscal year to NPR 171.71 billion in the upcoming fiscal year. This additional budget is inadequate to implement volunteer teacher
mobilization, mid-day meal programs and two other initiatives that were announced by the government. There has also been an addition in
the national pride project, as the Mahakali Irrigation Project has been added to the list with an allocation of NPR 10.25 billion. However, the
problem with this is that it might spread priorities over the national pride projects too thinly as there are way too many of them. While the
budget has made some efforts to manage the unexplainably long and ambitious policy and programmes, a lot of programs in the budget seem
unlikely to be implemented from the upfront – as per our past track records, the capacity of our state bodies and the bottlenecks in our
implementation.
• In certain ways, there can also be assumptions made that the budget undermines the impact that the COVID-19 pandemic can have in Nepal.
The budget seems to be built on an assumption that the impact of COVID-19 will drift away within a month or two, reinstating normality into
the economy. The employment and social security structures that the budget imagines fit the existing scenario, and expects less deterioration.
It is the same for agriculture, where much more could be done. As per the economic survey, absolute poverty stood at 16.67% in FY 2019/20.
But, this could go up greatly due to the COVID-19 pandemic. In addition, we could even see more migrant workers return than what we have
been planning for. Thus, the mechanisms structured in the budget might just come short of actually addressing what is required.
• What needs to be done in the future?
• While there were a lot of vocal pressures from in-and-outside the parliament regarding the need to cut down costs, the government may have
just planted a seed for it with this year’s budget. Though the government hasn’t made any bold departures, they may have taken some small
steps – depending on the implementation of these steps. The government plans to terminate various offices and departments which have
overlapping or no responsibilities and cut down on various allowances given to government officials. There could have been much more done
here, but this might well be the start. But even with the cut down of the costs, the ratio of capital expenditure has gone down to that of the
recurrent expenditure in comparison to the last year. As per the budget, recurrent expenditure in FY 2019/20 was NPR 957.10 billion whereas
it is NPR 948.14 billion in FY 2020/21, and capital expenditure was NPR 408 billion in FY 2019/20 whereas it is NPR 352.19 billion in FY
2020/21. Looking forward, we should definitely look at increasing the capital expenditure and reducing the recurrent expenditure. Until then,
promises of cost cut downs as made in this year’s budget might bring lesser impact, and might not be able to fulfil the gap that might be made
if we do not get the expected foreign loans and grants.
 Liberalization in Nepal
• Refers to fewer govt regulations and restrictions in the economy
• Encourage greater participation of private entities
• Removal of controls over private sectors to encourage economic
development
• A sort of freedom provided to each and every sector for
betterment and better results
• Process of increasing economic competitiveness
• It is non interventionist approach to development
• It is partial or full privatization of government enterprises and
assets
• It is greater market flexibility, lower tax rate for business
• It can be achieved through deregulation and de-licencing
• It is based on assumption of pvt sectors are more efficient than
public sector
• For developed countries it is the process of remaining globally
competitive
• For developing counties it refers to opening up their economies
to foreign capital and investment and encourage privatization
• According to World Bank, “ Economic liberalization means
freeing of prices, trade and entry to markets from state control
while stabilizing the economy.”
Requirement of liberalization
• Role of govt as facilitator
• Increased role of pvt sector
• Abolishing license requirement
• Freedom in business decision
• Removal of restriction
• Reduction of tax rates
• Simplification of foreign trade
• Facilitate FDI and technology transfer
 Effects of liberalization
Positive effects
Offers the opportunity for economic sector to compete
internationally
Contributing to GDP growth and generating foreign exchange.
Liberalization attract overseas companies to invest
Better skills and technology
Better service for domestic consumers
Improved performance and competitiveness of domestic service
provider
Solved jeopardised conditions of business sector
 Negative effects
• It allows foreign providers and shareholders "to capture
the profits for themselves, taking the money out of the
country
• Risks of financial sector instability resulting from
global contamination 
• Risk of brain drain
• Risk of environmental degradation 
• Risk of a debt spiral due to decreased tax revenue
• Dominance of domestic companies
Effects of liberalization on the financial and capital market
sectors
Financial sector reforms:
• The banking sector was open to foreign investors(Nepal Arab Bank ltd first joint venture
commercial bank)
• Commercial banks were allowed to accept current and fixed deposits on foreign currencies.
(us dollar & pound sterling)
• Commercial banks were authorized to fix interest rates
• The liquidity requirement was also lowered
• The financial sector further liberalized under structural adjustment program of IMF
• NRB strengthened its supervision of banking and financial institutions and commercial bank
required to increase their capital
• Restrictive measures in business operations of banking and financial institution got liberalized
• Large commercial banks got restructured. (RBB, NBL)
• Strengthening banking sector accounting and auditing standards
• Strengthening the NRB’s supervisory capacities and ability to enforce compliance
 Capital market reforms(security market)
Capital market refers to the part of financial system
concerned with raising capital by dealing in shares, bonds
and other long term investments.
It helps in capital formation and economic growth
Security Exchange Centre was established in 1976, which
converted in to NEPSE in 1993.
Securities Board of Nepal an apex regulator of securities
markets was established in 1993.
NEPSE opened its trading floor on 13th January 1994
 Capital market reforms
• NEPSE is in the process of privatization
• Foreigners are allowed to invest in stock exchange
• 15% income tax exemption for firms that issue share to public
• No intervention in pricing of IPO, price determined based on
demand from investors and their desire to pay per unit share
• International financial institutions are allowed to issue local
currency
• Fully automated system at NEPSE.
• Develop a compatible system for cross-boarder trading/ listing
to bring investment from foreign institutional investors and NRN
Effects of liberalization- Emerging Business
Environment in Nepal
• Increased private investment in core businesses:
• Rise of financial institutions:
Nepal Bank Ltd. In 1937, NRB in 1956, RBB a decade later
Nabil Bank Ltd in 1984,
By July 2020 No of ‘A’ class commercial banks- 27,(having 4436 branches all
over Nepal) ‘B’ class developmental bank -20(1029 branches), ‘C’ class
finance companies-22(243 branches), ‘D’ class micro finance 85(4057
branches), Infrastructure development bank 1.
Mobile banking, internet banking and ATM users increasing.
Debit credit and prepaid cards facility
40 insurance companies (19 life, 20 none life 1 reinsurance)
• Increase in FDI:
The inflow of FDI has been low even though Nepal has been
developing institutional and legal infrastructure to ease doing business
since the 1980s. Foreign Direct Investment in Nepal increased to NPR
17512.80 Million (USD 152.76 Million) in 2018 and averaged NPR
4159.94 Million (USD 36.3 Million) from 2001 until 2018
• Rise of MNCs:
• Rising trade deficit:
• Nepal recorded a trade deficit of 103928.80 Million NPR in March of
2019. Nepal Balance of Trade - data, historical chart, and calendar of
releases - was last updated on February of 2020 from its official
source.
• Development of capital market
•Changing role of government
•Changing market place scenario
•Growing urban population
•Rising economic agenda
•Use of modern technology
•Integration to the world economy
•Shift towards service industry
•Work force diversity
 Questions
1. Why is management interested in fiscal and monetary policies of the government? How might the
budget deficit lead to inflation?
2. Give your assessment of the economic policies and reforms that have been adopted by the
government to facilitate and promote business in Nepal.
3. Analyze the emerging business environment in Nepal in the light of the economic policies and
reforms that have been adopted by the government.
4. What are the major reforms programmes initiated by the government in the financial and capital
market sectors?
5. The emerging environment in Nepal has boosted the role of private sector. In which sector of the
economy do you find the private sector’s participation most significant?
6. Define fiscal policy of Nepal. Analyze the shortcomings of the fiscal policy. Give the suggestions for
its reforms.
7. Discuss the monetary policy measures announced by NRB in 2020.
8. Discuss the major features of industrial policy.
9. Clarify the privatization policy of Nepal.
10. Discuss the need and importance of liberalization in Nepal.
That’s All