Last year, the flavour of May was low foreign exchange reserves. This paper had alarm bells ringing. This year, it is monetary policy and recession. It’s fashionable in Nepal to talk about big things without knowing what they mean. During the 2015 earthquake, Nepalis could predict the shake on the Richter scale, and during Covid-19, Nepalis could tell the antigens of people looking at someone’s face!

The Nepali economy has bounced back after the shocks of Covid-19, with an increase in remittances by 24.2 percent to Rs903.30 billion, which means the informal increment is equal. So we should end the year with $18-20 billion of formal and informal remittances. The forex reserves are up to 11 months of imports, from a low of six months last year. The balance of payments surplus was Rs180.17 billion in the first nine months of FY 2022-23, compared to a deficit of Rs268.26 billion in the same period last year. However, negative narratives are what Nepalis love.

The folks in deep financial distress owing to their mismanagement and investment in speculative assets want the state to bail them out of their mess. Now they want a flexible monetary policy, and their dream is to have a banking system that is never regulated. Business cartels even convinced former finance minister Janardan Sharma to sack governor Maha Prasad Adhikari, who was propagating restriction and regulation, only to have him reinstated by the Supreme Court. However, it is important to understand that Nepal has its own limitations on monetary policy as the currency has a fixed peg with the Indian rupee, which is more of a political exchange rate than an economic one. Indian monetary policy is as important, if not more important, to understand how the Nepali macro-economy prevails.

FDI and mindset change

Global studies of countries with accelerated growth show that they have always been able to do so through foreign direct investment (FDI), be it China, India, or Vietnam. In Africa, Rwanda, a $12 billion economy in 2022, attracted more than $2 billion FDI in 2022 and expects $3 billion in 2023. This is 25 percent of GDP. By this parameter, Nepal should aim for $10 billion FDI in a year, which will help create hundreds of thousands of additional jobs each year and make the tax less dependent on taxing imports. The government, bureaucracy and politicians are blamed for making FDI difficult, if not impossible, but I have been writing ad nauseam that the private sector cartels are to be blamed for that.

The private sector groups—the biggest funders of political parties—do not want FDI, as it will bring global benchmarks, norms and practices. As a nationalist hydropower developer told me at a recent event, allowing FDI and international firms means stringent environmental regulations, safety measures during construction and rigorous equipment testing. "Why should we do that?" he told me. Nepali firms have benefited from their own definition and utilisation of loans. Nothing is wrong if business loans get invested in speculative investments in real estate and the stock market if everybody is doing this. Bringing international norms of correct utilisation of loans and prudent financial practices is against Nepali culture and value system. Maybe there is nothing wrong with having roulette machines in the stock exchanges that are being planned. Why bother about technical or financial analysis? Pay it straight!

The FDI companies that have been operating successfully in Nepal have also done little to talk about global norms and competitive standards. Similarly, the types of FDI companies that come in do not want to explore Nepal as they do in other countries. They are happy to meet powerbrokers and political party sycophants rather than listen to professional advisory firms. They then run into trouble and then start telling the world how Nepal is not FDI-ready. If you prefer to go to quacks to get your toothache treated rather than visit a doctor, it is your problem, not the system’s.

Investing abroad

I remember being consulted by the Nepal Rastra Bank folks two decades ago on allowing Nepalis to invest abroad. When the Finance Ministry committee I was part of drafted the Mutual Fund Regulations, it was about allowing Nepali funds to invest in Indian mutual funds. But this demand from Nepali firms to invest abroad seems to be dying; either they have found ways to circumvent the laws, or it is also limited to information and communication technology companies. Nepali businesses seem to understand that doing business outside Nepal means following global rules and professionalising one’s management. Both are things that most Nepali businesses are not comfortable with. However, as someone operating across different countries, I can only say that working beyond Nepal can only provide you with growth. But the processes have to improve, be it by having more avoidance of double taxation treaties, an easier but better regulated foreign exchange regime, or allowing global minds to work for Nepali companies.

There is no alternative to reforms to push economic growth in Nepal. There is money, but the big change required is in our mindset. Yes, negativity sells, but never in the long run. A positive mindset can yield returns in the long term. It's not that Nepali businesses are not making good money, but for a change, return expectations need to transform. Start playing by the rules and think big!