The newly-appointed president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has blamed foreign exchange controls by the government for the current economic slump.

Speaking at the third edition of the Kantipur Economic Summit organised by the Kantipur Media Group on Wednesday, FNCCI chief Chandra Prasad Dhakal said, "Under almost any scenario, the economy is set to have a difficult year."

A slowdown in consumer spending, spike in unemployment, sluggish manufacturing activity, drop in personal income, layoffs and low government revenue that characterise the economy all show that Nepal is going through a recession, insiders say.

Last April, alarmed by the fast pace at which Nepal's foreign currency reserve was diminishing, the government imposed import restrictions besides ordering importers to maintain a 100 percent margin amount to open a letter of credit.

The directive issued on April 26 embargoed 10 types of goods described as luxury items. They included, among other things, mobile sets worth over $600 and motorcycles of over 250 cc capacity.

Harsher restrictions followed, and mobile sets costing more than $300 and motorcycles with a capacity of more than 150 cc were banned. These imports were major sources of government revenue besides being key business lines for the private sector.

“There were fears that our economy was heading the Sri Lankan way,” said Dhakal. “These restrictions definitely put the country in a difficult situation, but now we should not waste time in a blame game.”

Kailash Sirohiya, chairman and managing director of the Kantipur Media Group, said that there was a need for the government to play an active role to accelerate the economy.

“The entire private sector is bearing the brunt of the economic slump. The government itself has been unable to collect its targeted revenue. While it is still difficult to get bank loans, those who succeed in getting them have to pay high interest rates,” said Sirohiya.

“The Nepali economy has not been able to foster confidence among the people,” he added.

The slowdown has worried everyone.

Many retailers who had high inventory levels were forced to slash prices to move excess stock out of their stores. But customers are still reluctant to step into shops despite all the discount offers being dangled in front of them.

Traders say many stores have either adopted a markdown strategy or shuttered.

Speaking at the third session of the summit entitled Many Obstructions to Economy, Nepali Congress leader Minendra Rijal said the government is deficit by Rs400 billion.

“The government is in no condition to spend more than Rs220 billion under the capital expenditure heading in the current fiscal year,” Rijal said.

Economists say that the failure of the government to spend would further hurt economic activities and could put the economy into complete disarray.

With less than three months remaining for the current fiscal year to end, capital expenditure as of Tuesday stood at Rs115.2 billion, or around 30 percent of the allocation of Rs380 billion, according to the Financial Comptroller General Office.

Speaking on the topic Priorities and Identification of Nepal’s Economic Backbones, former government secretary Shankar Adhikari pointed to political instability as the root cause of the country’s economic woes.

Nepal has seen 11 government changes since 2008 when the 239-year-old monarchy was abolished.

“Differences in political ideologies have been affecting the implementation of effective plans and policies,” said Adhikari.

Prime Minister Pushpa Kamal Dahal admitted as much. “There is a need to change the development model of the country,” he told the summit.

“We focused on infrastructure development in the villages, but people started migrating to urban areas for employment. Our constitution has envisioned a socialist-oriented economy, but our policy and programmes are not in that direction,” said Dahal.

“I don’t see it possible to bring revolutionary changes just by making some policy reforms. We need to discontinue the existing development model and start from a new way.”

Adhikari sees hydropower development as the way out of a gloomy scenario. He said that Nepal's hesitation to strike win-win deals with India and China on energy trade had affected hydropower generation in the past three decades.

Latika Golyan, chairperson and managing director of Made in Nepal, said that among a number of potentials, the country’s agricultural products had not been untapped.

“We need to export agricultural goods, and this needs immediate attention. We need to ensure consistent quality products from Nepal to establish our presence in the international markets,” Golyan said.

“The Made in Nepal vision is to have a portal where anybody who wants anything from Nepal can come and buy Nepali products and trust suppliers on the portal. There are a few Nepali brands that have a global presence.” Golyan said her company had also started exporting dog chews.

Another portal Authentic Nepal promotes Nepal’s sculptures and arts.

But agriculture has not been able to attract Nepali youths. The country has been witnessing a mass exodus after the peace process began following the decade-long Maoist insurgency because of lack of jobs at home.

“Foreign jobs and remittance have become important for us. But we should not depend on them entirely,” said Min Bahadur Shrestha, vice-chairman of the National Planning Commission.

“Our education and policies, obviously, are responsible for the mismanagement of our human resources. All our resources—from agriculture to hydropower—have been underutilised,” he said.

Shrestha said there was a problem in the system too. “Most of the bureaucrats are incompetent and some are corrupt.”

Nepal Rastra Bank Governor Maha Prasad Adhikari insisted that the country’s financial sector was sound and secure.

“Our financial system is safe compared to other countries in South Asia,” said Adhikari, speaking at the session entitled Where is the Money?

The central bank governor said that fluctuations in the economy result in an increase in non-performing loans of banks. “But Nepali depositors need not worry as Nepali banks have allocated certain amounts from their profits to cover non-performing assets,” said Adhikari.

Lila Prakash Sitaula, chairman of Prabhu Bank, said banks were reluctant to issue loans because of the reduction in their asset quality as debtors had failed to make repayments.

“Demand for loans is low,” said Sitaula. “It is said that the banks have loanable funds, but actually they have been struggling to maintain the credit-to-deposit ratio.”

FNCCI Vice-President Jyotsna Shrestha said high interest rates made it difficult to keep businesses afloat.