More than four months have already passed since the election results were published giving a clear majority to the left coalition led by KP Oli as the future Prime Minister. And two months have passed since Oli took the oath of office. However, the country’s private sector is still in a state of confusion as the ruling coalition has failed to give policy clarity.
Though the Vice-Chairman and Members in the National Planning Commission (NPC) are appointed in late April, the more than two months delay in forming such an important policy institute is clearly because of the ongoing power struggle between CPN (UML) and CPN (Maoist Centre) who still seem to be far from being united. This leaves the private sector still unconvinced about political and policy stability. And this explains why the investment commitments of foreign investors are still not realised.
The White Paper published by the Finance Ministry about the state of the economy has scared investors as it depicted a bleak picture of the economy and contained anti-privatisation rhetoric. It also points out the need for massive reforms in innumerable aspects of macroeconomic management. More than a dozen laws need to be enacted, but no Bill reached parliament during the winter session. The budget session is to be convened soon, and the budget for the coming fiscal year is to be presented on May 29, the date fixed by the Constitution. As the budget day is barely one month away, it is too late already to make those laws. That means, the budget for the coming year will be based on the same old laws. Probably the budget speech will promise a formulation of the new laws. This further means that the existing state of confusion will linger at least for another couple of months, probably six months.
Another matter of concern is the still ongoing problem of lack of loanable funds with banks. Private sector investment in Nepal depends on government spending and availability of loanable funds in the banking system. Government spending spurs private sector investment because the government is the main buyer of the products and services of the private sector. And if the government spends, the money will flow to the banks as deposits and then creates loanable funds in the banks. The elections and the resultant formation of a stable majority government were expected to spur government spending and thus the overall economy. But that has been proven wrong. So, the private sector is fumbling to find alternative ways to survive.
The Finance Ministry is now focusing on collecting more revenue and in this process the flow of business is being disrupted. On his part, the Prime Minister is making speech after speech promising prosperity. But these speeches, though interesting to listen to due to the witty remarks they contain, are not accompanied by any meaningful action. Investors are more impressed by actions rather than speeches. Concrete actions like the one the government has initiated against the transport syndicate show real commitment and would go an extra mile in attracting investments.