April 10: Nepal Rastra Bank (NRB), the regulatory body of the financial sector, plays an important role in uplifting the economy. The central bank is the institution that can get the troubled economy back on track. The monetary policy brought by the central bank every year has a great impact on the stability and progress of the national economy. The financial sector and the economy are closely linked. 

Due to various reasons, the country's economy has entered a critical situation. The economy, which was recovering from the effects of coronavirus, has been hit by liquidity crisis, inflation, energy shortage and declining foreign exchange reserves. 

The governor of the central bank advises the government on policy interventions to prevent the economic crisis from deepening and to bail out the troubled economy.

In this sense, the country’s economy needs a governor at all times. Meanwhile, the government seems to have weakened the NRB by suspending Governor Maha Prasad Adhikari during such critical time.  

Experts say that this will affect the main task of revitalizing the economy. They are of the view that the government has made a blunder by suspending the governor. They noted that the suspension of the governor was not appropriate, even during normal circumstances. There is no concrete reason to suspend the governor, they say. 

The dispute between Finance Minister Janardan Sharma and Governor Adhikari could have been resolved through discussions. Experts say that there is weaknesses on both sides. Even though it could be resolved through discussions, they say that the situation was complicated by political bias. 

A cabinet meeting held on Thursday has formed a committee to investigate various allegations against Governor Adhikari due to which he has been automatically suspended. The government made the decision public on Friday, prompting reactions from different perspectives. 

Former finance secretary and economist Rameshwar Khanal says that the government has tried to weaken the NRB when the economy was in crisis. 

The economy has been in a critical situation since last July. Since then, NRB has been working on various issues for its improvement. In particular, NRB tightened imports to curb declining foreign exchange reserves. Apart from this, the regulatory body has also made various other policy arrangements in the meantime. 

Despite this, the economy has entered a phase of crisis. In such a situation, NRB’s role is even more crucial. The central bank may have to make important decisions at any time. However, economist Khanal says that the government’s decision has closed the door for the central bank to take vital decisions. 

"The government has suspended governor Adhikari and assigned deputy governor Neelam Dhungana as officiating governor,” said Khanal, “However, the acting governor's jurisdiction may be limited. No bold decisions can be made. Also, there is no guarantee that the officiating governor’s orders will be carried out. Thus, the NRB is weakened in terms of policy when the economy is in crisis.” 

He added that the government's move would have a negative impact on the overall economy.

“Since there is no chief executive officer at the central bank, it will create a negative impact. Financial services could be affected,” he said, adding, “At the same time, we can lose our reputation in the international arena if there are shortcomings in foreign exchange trading.” 

Similarly, chairman of Nabil Bank Upendra Poudel said that there was no good coordination between the Ministry of Finance and NRB during the crisis. “I don't want to comment on what happened,” he said, “However, the economy is in crisis right now. At this time, everyone should coordinate with each other. Nevertheless, there is a lack of coordination between the two government bodies.”

According to Bhuvan Dahal, former president of the Nepal Bankers' Association, it is wrong to suspend Governor Adhikari. He says this has really weakened NRB. 

 “The government's move to weaken the NRB will have a negative impact on the economy and the financial sector. The current situation is not normal as before, the economy is in crisis. There are also problems in the banking sector including the liquidity crisis. At this point, the suspension of the governor could have unpleasant consequences,” said Dahal.

He said that the entire banking and financial sector is concerned over the incident. 

“The banks have a history of CEOs facing injustice on issues related to credit flow and recovery. Now the governor of NRB has been treated unfairly,” he said. 

“It is normal to have difference of opinion between the finance ministry and the central bank. This also happens abroad but not to this level. The issue should have been resolved through discussion. However, the government has done injustice by suspending an honest governor,” he added. 

Likewise, president of Nepal Financial Institutions Association, Saroj Kaji Tuladhar said that the incident will have a psychological impact on the financial sector. He said that, in particular, it will affect financial stability. 

Similarly, chairman of the Microfinance Bankers Association, Prakash Raj Sharma, said that the development of the financial sector and services would be affected due to this incident. Stating that it will also have an impact on the recovery of the troubled economy, he said that the financial sector would not support this decision of the government under any circumstances.