Governor Highlights Economic Challenges and Urges Holistic Approach Beyond Real Estate, Automobiles, and Stocks

Nepal Rastra Bank Governor Maha Prasad Adhikari has emphasized that the country's economic recovery cannot solely depend on sectors such as real estate, automobiles, and the stock market. Speaking at a recent forum, he underscored the need for a balanced and coordinated approach to tackle the broader challenges facing Nepal's economy.

Governor Adhikari highlighted the cyclical nature of economic challenges and encouraged stakeholders to avoid panic, especially regarding the sale of founder shares in the market. “There is no need for undue panic in selling founder shares. These are natural cycles, and the economy will stabilize over time,” he stated.

Economic Challenges at a Glance

1. Sector-Specific Dependency: Over-reliance on sectors like real estate and the stock market has created an unbalanced economic structure. Governor Adhikari called for a shift in focus toward industrial development, infrastructure, and production-driven initiatives, which can create jobs and ensure sustainable growth.

2. Construction and Industrial Lag: The construction sector, a significant contributor to GDP, has been in decline. The governor attributed this downturn to non-economic factors such as regulatory and structural bottlenecks. Similarly, the lack of progress in industrial development since the 1990s has left Nepal trailing in creating competitive manufacturing hubs.

3. Liquidity and Interest Rates: Nepal's banking system has ample liquidity, and interest rates have reached historic lows. While this creates opportunities for investment, the funds remain underutilized due to uncertainties in economic policies and non-economic barriers.

4. Affordable Housing Deficit: The inability to provide affordable housing has been a significant concern. In Kathmandu, the average price of a house exceeds NPR 50 million, far beyond the reach of most citizens. A strategic push toward affordable housing projects could generate substantial economic activity across multiple sectors, including construction, cement, and steel.

Policy Limitations and Needed Coordination

Governor Adhikari acknowledged the importance of monetary policy but cautioned against over-reliance on it for economic recovery. “Monetary policy alone cannot drive the ecosystem. Industrial, trade, and investment policies must work in tandem to ensure holistic growth,” he noted.

The lack of coordination among various government bodies has slowed progress on key initiatives such as affordable housing and industrial development. For instance, proposals to build thousands of affordable homes have stalled due to bureaucratic inefficiencies.

Call for Strategic Intervention

The governor highlighted the need for targeted interventions beyond interest rate adjustments. Economic activities like housing projects and industrial zone revitalization can stimulate demand and address structural challenges. “A single well-executed industrial zone could consume an entire year’s production of a cement plant, creating jobs and boosting related industries,” he remarked.

He also pointed out that addressing non-economic barriers is critical to unleashing the potential of existing monetary policies. This includes streamlining regulatory frameworks, ensuring policy consistency, and fostering an environment conducive to private sector growth.

Positive Outlook Amid Challenges

While recognizing the economic headwinds, Governor Adhikari remained optimistic about Nepal's long-term potential. He assured stakeholders that the financial system's current difficulties are part of a natural cycle and can be reversed with proper measures. “Recovery is a matter of time, but it requires collective efforts from all sectors, including the government, financial institutions, and private enterprises,” he said.