By Shanker Man Singh

Shortly, the government will accelerate the process of appointing the 18th Governor of Nepal Rastra Bank (NRB). In addition to the current deputy governors, former deputies, current and retired executive directors of the National Bank, economists, administrators, those who have served in various government agencies and left after effective leadership, and experts close to the ruling party are in the race.

The post of governor is considered very attractive. NRB, central bank of the country, works in areas such as introducing monetary policy, the issuance of Nepali currency, regulation of the banking and financial sector, inspection, supervision, monitoring, price stability, foreign exchange management, economic research and exploration, and development of banking and payment systems.

The NRB is also the economic advisor to the government. Keeping in mind the challenges facing the Central Bank, it is necessary to talk about the appropriateness of the appointment.

Challenges

The new governor has to take office at a time when the public is concerned about various economic realities such as controlled inflation, excess foreign exchange reserves, rising imports, a significant increase in the trade deficit, devaluation of the Nepali rupee, problems in liquidity management, increasing deposits in banks, decreasing credit, irregularities in cooperatives, declining investor value, etc.

These burning issues are a harsh reality that will test the governor's suitability for his office. The governor of the central bank is perhaps the most technical of Nepal's policymakers.

 The job of the NRB is to maintain stability in the macro economy and financial system. In the advanced capitalist world, macroeconomic stability means price stability.

 For a developing economy, this may mean protecting the exchange rate or maintaining the government's solvency. Maintaining stability in the financial system means maintaining a functioning banking system, maintaining credit flow, and acting as a “lender of last resort”.

Monetary policy should aim to contain volatility in the financial system and the level of excess reserves, which implies a modest tightening of monetary conditions. The exchange rate peg to the Indian rupee provides useful nominal support for the economy, and the real exchange rate is broadly in line with fundamentals. Capital spending needs to be boosted to provide key infrastructure to support private investment that will help generate sustainable economic growth and job opportunities.

Will the new Governor seek to introduce tougher policies to rescue troubled financial institutions? According to some people, if the governor is a person from the organization he/she is working for, he/she will focus on "micro" management, if he/she is a former employee, he will not be affected by anything other than inflation, if he is an independent person, he will understand the essence of his own sector and focus on "macro" management and work to boost the morale of his own sector. In this way, when the economy is moving, it is necessary to be knowledgeable about the subject matter, and at the same time, an independent professional person who is free from politics and who is not biased towards the organization should be the governor.

In Nepal, there is a clear need to eliminate unproductive projects, focus on large projects, make fiscal federalism effective, make the concerned ministries and departments responsible for capital expenditure, and increase coordination between the federal, provincial and local levels. In addition, it is necessary to adopt frugality in current expenditure, increase internal resources, make expenditures effective in projects of national pride, and reduce the informal economy.

 It is also necessary to organize insurance, cooperatives, capital markets, and corporations. There is a view that the Department of Money Laundering and Research should be brought under the Ministry of Finance.

 It has been made public that foreign aid should be emphasized on investment rather than aid and loans, that climate finance should be emphasized, and that a budget should be brought in a factual and implementable manner.

 It is also seen that the revenue target should be realistic rather than ambitious, that capital expenditure should be increased that fiscal policy and monetary policy should be coordinated, that policies and budgets should be made based on facts, that existing laws should be effectively implemented, that policy stability should be maintained, and that the focus should be on the service sector. Recently, the country has been weak in preventing money laundering and has been placed on the FATF grey list.

This is why it is understood that there is pressure for the governor to be from within the NRB  or a former employee of the NRB. If a former or current employee of the NRB is appointed as governor, it will be faster and easier for the government to work on preventing money laundering.

 In addition, there seems to be an understanding in political circles that if the finance minister and the governor can be made from the same party, there will be no obstacles. The NRB Act, 2058 BS states that a recommendation committee should be formed for the appointment of the governor.

 Before appointing a governor, the Council of Ministers forms a recommendation committee under the leadership of the Finance Minister. The recommendation committee consists of one former governor and one expert in the economic, monetary, financial and management fields.

A favorable initial impression:

The new governor should have an inspiring life story, an understanding of monetary economics, and extensive experience in development economics. The new governor will have to deal with complex economic issues from the outset. These include: controlled inflation, rising foreign exchange reserves, rising imports, a significant increase in the trade deficit, devaluation of the Nepali rupee, liquidity management, increasing deposits in banks, irregularities in cooperatives, an increase in the NEPSE index, investor disillusionment, etc. It is necessary to advise the government on the upcoming budget.

The Governor faces a challenging but potentially rewarding tenure. His success will depend on his ability to navigate complex economic issues, withstand political and lobbying pressures, implement sound policies, and build a strong team. Prudence, decisive action, and a focus on long-term structural reforms will be critical to ensuring an economy that is resilient.

Regulations to protect consumers from fraud and unfair practices in the financial sector must be enforced.

Transparency in the pricing and terms of financial products and services must be ensured to build trust among consumers. These policies can help create a more inclusive financial system in Nepal, enabling more people to participate in the economy and improve their livelihoods.

There are some expectations that the new governor should continue or radically change the successful policies implemented by his predecessor, such as: caps on housing loans, direct credit policies in hydropower and agriculture.

In any country, price increases affect the entire supply chain, increase overall consumer inflation and reduce purchasing power, making it more difficult for the poor to afford their food. Nepal can learn a lot from the current Indian budget, the US President’s US aid policy and its formulation.

 Although there is some discomfort in the government's financial situation, it is not felt, such as the lack of acceleration in credit flow, lack of acceleration in the capital market, failure to stop the exodus of workers, capital expenditure being less than 20 percent, non-payment of payments to construction entrepreneurs on time, failure to complete construction work on time, etc. Considering the economic situation that Nepal is currently going through, it is time for the relevant bodies and experts in the field to come up with a short-term and medium-term action plan that can bring the country out of the current situation.

 The finance minister should play a leading role in ensuring that all political parties put aside their differences and come forward to support and implement it for the benefit of the country. Structural problems need to be resolved to achieve high growth in the medium term.

A high potential, progress is needed to address the weak business environment, infrastructure needs, weak governance, and difficult labor relations. Political stability and improved security are necessary conditions for progress in many of these areas.

Considering the large expansion of banks and financial institutions, the supervision of the NRB is still lagging behind. These problems need to be addressed urgently and with the seriousness they deserve. The period until the end of the current fiscal year is like this. We all have a role to play and we all need to be vigilant. This is not the time to play the blame game. Let's focus on how to save the situation from further erosion of confidence.