Liquidity crunch and low capital expenditure

The government must find ways to substantially increase capital expenditure.

For about a month now, two news stories about the Nepali economy, liquidity crunch (limited availability of loanable funds in the banking sector) and low capital expenditure by the government have dominated the media. The latest data released by Nepal Rastra Bank, the central monetary authority, also points to a severe cash shortage in the market. In the first two months of the current fiscal year, the central bank injected a net Rs362.5 billion in the financial market, out of which Rs352.3 billion was from the bank's standing liquidity facility. By mid-September, deposits at banks and financial institutions (BFIs) increased by only 0.7 percent reaching close to Rs4.7 trillion, whereas credit disbursement increased by 5.7 percent. The actual liquid funds now available in the system is estimated to be only around Rs55 billion, which is also enjoyed by a few financially healthy banks.