Former NRB Governor Dr. Chiranjibi Nepal: 'Economic Politics' Trapping Nepal's Economy, Urges Prudent Debt Management and Growth Focus

Dr. Chiranjibi Nepal, former Governor of Nepal Rastra Bank (NRB), has issued a stark warning, asserting that 'economic politics' is currently ensnaring the nation's economy. Speaking at a recent dialogue program in Kathmandu titled 'Public Debt: Volume, Mobilization, Productivity, and Future Strategy,' organized by the Nepal Law Society and the Constitution Monitoring Group, Dr. Nepal highlighted critical areas of concern for Nepal's economic trajectory.

Dr. Nepal critically examined the prevailing narrative that discourages credit expansion, arguing that such a perception has severely hampered the country's economic vitality. He pointed out that for the past three to four years, credit expansion has stagnated, failing to surpass the 6-7 percent mark. This prolonged period of subdued credit growth, he emphasized, is a significant cause for alarm, as robust credit flow is essential for stimulating business investment, fostering job creation, and driving overall economic dynamism.

Challenging widespread negative perceptions surrounding Nepal's public debt, Dr. Nepal clarified that the current public debt-to-Gross Domestic Product (GDP) ratio, standing at approximately 45 percent, is well within international standards and should not be a source of undue panic. He underscored that a substantial portion of Nepal's foreign debt has been secured at remarkably low-interest rates, typically ranging from 0.75 percent to 1.5 percent, coupled with extended repayment periods. This favorable financing structure, he argued, mitigates immediate risks and provides ample time for the nation to manage its obligations effectively. He further noted that institutions like the IMF often provide loans at zero interest, while the ADB's rates are also relatively low, around 2 percent, contrasting this with the significantly higher debt burdens carried by developed nations, such as the United States' $38 trillion debt.

The former Governor reiterated his assertion that 'economic-political decisions' are inadvertently creating a trap for the economy. He identified sluggish economic growth and the ineffective utilization of capital expenditure as the primary challenges confronting the nation. Inefficient capital expenditure, he explained, directly impedes long-term infrastructure development, productivity enhancements, and the creation of a conducive environment for sustained economic progress.

Dr. Nepal also reaffirmed that maintaining financial stability remains the paramount responsibility of the Nepal Rastra Bank. He stressed the delicate balance the central bank must strike between controlling inflation and fostering an environment conducive to economic growth. While acknowledging the need for vigilance, particularly in light of economic crises observed in neighboring countries like Sri Lanka, he cautioned against an overly restrictive approach to credit that could stifle legitimate economic activity. His remarks serve as a crucial reminder for policymakers to adopt a balanced approach, prioritizing both stability and growth, and to learn from international experiences without succumbing to unnecessary fear, thereby ensuring a resilient and prosperous economic future for Nepal.