A top central bank official hinted that the monetary policy for the next fiscal year 2021-22 won’t be as facilitative for businesses as it was in the current fiscal year with the central bank expecting that the economic activities might operate normally to a large extent in the second half of the fiscal year that begins on July 16.

The Nepal Rastra Bank is currently preparing to introduce the monetary policy for the next fiscal year which is expected to announce certain facilities for businesses hit hard by the second wave of Covid-19 pandemic.

But Governor Maha Prasad Adhikari said that a significant population of the country is expected to be immunised with Covid-19 vaccines by the second half of the next fiscal year and economic activities are expected to operate normally to a large extent.

“Potential such scenarios will be taken into account while introducing the monetary policy for the next fiscal year,” Adhikari said at a roundtable organised by Kantipur, sister publication of the Post on Saturday.

As of Saturday, 2.61 million people have received their first dose of vaccines while 1.01 million received both jabs, according to the Health Ministry. The government has been taking delivery of 4 million Chinese Covid-19 vaccines it had procured and the US has announced providing 1.5 million Johnson & Johnson vaccines to Nepal through the COVAX facility and is expected to arrive Sunday.

But, Adhikari refused to divulge any policy measure to be introduced through the monetary policy next fiscal year.

Many stakeholders had been astonished with how liberally the central bank had announced several monetary measures to support businesses badly affected by the Covid-19 pandemic last year.

The monetary policy for the current fiscal year had made provisions of mandatory lending to sectors such as agriculture; micro, small and medium enterprises; and hydropower.

As part of providing relief, it extended the deadline for paying loan instalments by six months, nine months and one year, depending on the degree of impact on the particular sector as the central bank sought to ease the pains on businesses caused by the pandemic.

It permitted banks and financial institutions to extend further loans to industries and businesses affected badly by the pandemic by 20 percent of the maximum working capital provided by banks as of mid-April last year. The central bank had also decided to provide over Rs200 billion in refinance facilities targeting mainly small and medium enterprises. It is the largest refinance facility ever approved by the central bank.

“The business community had asked for a deferral of loan repayment by three months and it was surprising even for them as we allowed deferral of loan payment up to one year,” Adhikari said at the roundtable.

However, he hinted that liberal policy would be continued but not to the extent it has been done in the current fiscal year.

“Due to the massive impact of the nearly four-month-long lockdown to control the pandemic on badly hit businesses, our main effort from the monetary policy for this fiscal was to ensure the survival of businesses and measures were announced accordingly,” said Adhikari.

The facilitation measure had a positive impact to ensure the survival of many businesses, according to the central bank.

For example, the refinance facility worth Rs148 billion was made available to 48,000 borrowers in the current fiscal year.

“Of them, 36,000 were the borrowers who had taken credit worth up to Rs1.5 million,” said Adhikari. “Likewise, the number of borrowers of subsidised loans also increased by 65,000 in a single year from 25,000 in total in the previous three years.”

Despite the apparent positive impact of the central bank’s policy for the current fiscal year, the central bank hinted that it would not be as liberal this time considering the relatively lower impact on businesses from the second wave.

“Last year, we prioritised facilitating the revival of businesses. We sought a balance between financial stability and facilitation for businesses. Now, we cannot compromise on [financial] stability,” Adhikari said.

The government didn’t issue blanket prohibitory orders nationwide in the second wave of pandemic despite the fact that the humanitarian crisis was more severe in the second wave compared to the first one.

Deaths caused by the pandemic more than doubled in the second wave compared to the first wave and health facilities were pushed to the limit with a surge in Covid-19 patients.

In the first wave, the death toll was around 3,000 and deaths have now crossed over 9,000 in the second wave, according to the Health Ministry. As of Saturday, a total of 9,362 people have died of Covid-19 while a total of 654,212 people were infected with the coronavirus.

But, Adhikari said that the central bank would continue to support the revival of businesses and that the tourism businesses relying on foreign tourists would require more time for a revival. During the interaction, economists and businessmen asked for more flexibility from the central bank to ensure the implementation of the monetary policy.

Satish Kumar More, president of Confederation of Nepalese Industries, the apex body of Nepalese industrialists, suggested providing a refinance facility based on loan exposure of borrowers. For example, big hotels may have taken loans amounting to Rs3-4 billion and providing refinance facilities up to Rs200 million will not be sufficient for their survival amid Covid-19 pandemic,” he said.

Currently, the maximum single borrower refinance facility is up to Rs200 million.

Rita Simha, President of Federation of Women Entrepreneurs' Association of Nepal suggested increasing the threshold lending for women entrepreneurs. “Currently, the policy is guided by the assumption that women entrepreneurs are only confined to running micro enterprises,” she said. “But there are women who run bigger enterprises too and a policy should be introduced to help them to scale up their enterprises.”

However, former Vice-chairperson of the National Planning Commission Min Bahadur Shrestha suggested downsizing the stimulus package, with more funds going towards micro and small enterprises.

He also suggested making the stimulus package more accessible to many borrowers announcing bigger packages. For example, the government through the budget for next fiscal year announced that students would be provided credit up to Rs2.5 million to bachelor’s degree holders against the collateral of their university certificates at the interest rate of five percent. Currently, they can get a maximum amount of Rs700,000.

“If this credit is made easily accessible to most university graduates, close to around Rs100 billion in funds are required. Do the banks have adequate funds?” Shrestha asked.