Absolute poverty declined to 13 percent in Nepal in six years

This is incredible. Prem Khanal writes that a forthcoming study based on Nepal Living Standard Survey (NLSS) 2010 shows that absolute poverty declined to 13 percent, a 18 percentage point decline in absolute poverty in the six years between 2003/04 and 2009/10. That is like three percentage point decline each year. The NLSS II conducted in 2003/04 showed 31.5 percent of the population was under absolute poverty. The first NLSS in 1995/96 showed 42 percent of the population under absolute poverty. The latest survey is based on 7,200 samples of households selected randomly nationwide.

Findings of NLSS III:

• 13 percent Nepalis below the poverty line fixed at 2,200 calorie consumption per day per person and access to essential non-food items.
• Based on current market prices, a person needs an income of at least Rs 14,430 per year to manage food items equivalent to 2,200 calorie per day and other essential non-food items.
• Households receiving remittance increased to 55 pc from 31.9 percent reported in NLLS 2003/04 (24 percent households received remittance in FY95/96). Of this income, 79 percent is used for daily consumption while only 2.4 percent is invested for capital formation.
• Sex ratio decreased to 85.6 from 92.6 in 2003/04.
• Average household size decreased to 4.9 persons from an earlier 5.3 persons.
• The Gini-coefficient has fallen to 0.35 from 0.41 recorded in the second NLSS. The nominal average per capita income of the poorest 20 percent of the population has increased nearly fourfold to Rs 15,888 from Rs 4,003 registered in the second NLLS. However, such income of the richest 20 percent of the population merely doubled, to Rs 94,419 from Rs 40,486 over the period.
• Households headed by females has increased to 26.6 percent from 19.6 percent recorded in the second NLLS.
• The per capita consumption share of the poorest 10 percent, according to the survey, is Rs 11,093 whereas the share for the richest 10 percent is Rs 102,772.
• The nominal average household income has seen a 2.5-fold increment to Rs 202,374 from Rs 80,111 six years ago.
• Households using cooking gas has doubled to 17.7 percent.
• Households taking loans from banks have gone up to 20 percent from 15 percent whereas households taking loans from local money lenders has gone down to 15.1 percent from 26 percent six years ago.
• More than 62 percent of households have outstanding loans as against 66.7 in 2003/04.
• The expenditure on cereal food has declined by a whopping 16 percentage points to 52.3 percent whereas expenditures on meat and vegetables have increased considerably.
• Kathmandu Valley has the lowest poverty incidence of less than 5 percent while Taplejung, Khotang and Sankhuwasabha have the highest -- up to 23 percent.

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COMMENTS:

The survey showed everything positive happening at the household level right now. This has come about when the major macroeconomic variables are deteriorating and political uncertainty increasing. Something other than the economic variables are at play. The only exogenous factor I can think of are remittance and migration. It looks like it is a remittance- and migration-led decline in absolute poverty.

More households received more remittance money, increasing their income and consumption. The first two deciles household on the income scale got a bump in their income due to remittance money, decreasing income inequality. This also means that the marginal increase in growth of remittance received by poorest households is higher than the marginal increase in growth of income of richest households. I am surprised by this. Also, it means an increase in female headed households as men leave to sweat outside the country.

Sex ratio, the ratio of male to female, has decreased. It is like Nepal is having more females than males (just opposite in India—where the latest census showed 940 girls for every 1000 males)? Or am I reading the number incorrect?

About the astounding decrease in poverty, the impact is not only due to remittances. NLSS III shows that absolute poverty declined to 13 percent. If we account for the impact of remittances, the poverty incidence has declined to 21 percent. What accounts for the eight percentage point decline in absolute poverty? Increase in real wage in agriculture sector? Increase in the number of population moving from low productivity to high productivity sectors?? Decrease in fertility??

A three percentage point decline in poverty each year for six years is quite incredible. More incredible would be to know the reasons behind this. Also, compare this one with Multidimensional Poverty Index, which showed that the percentage of people who are MPI poor (headcount) is 84.7 percent. The World Bank estimated that 55.10 percent (15.59 million) of the population living below income poverty line of $1.25 a day (2005 PPP US$). Again, the 13 percent national poverty figure is very surprising. The National Planning Commission must have a good answer to this. Isn’t 2,200 calorie per day (Rs 14430 per year including food and access to basic non-food items) per person too low to sustain given high inflation?

The increase in remittances has led to a consumption binge. Since most the consumed goods are not produced in Nepal (for various reasons related to labor dispute, political instability, policy inconsistency, loss of competitiveness both in domestic as well as foreign markets), they are imported, leading to huge trade deficit. Interestingly, the increase in household income has led to consumption of more dietary goods like meat and vegetables.

The increase in average household income and remittance inflows has led to decline households in debt as well. But, loans from banks are increasing and from nonbank lenders decreasing. Is creditworthiness of Nepali households increasing?

At the policy level, it seems like without any substantive policy reform absolute poverty has declined in Nepal. We have dangerously outsourced the reform need of our economy to remittances. How long can it last? What’s up, Ministry of Finance and National Planning Commission? It comes amidst stagnation in manufacturing sector and even growth rate.

The all-positive results of NLSS III should not blind the MoF and NPC from enacting reforms. I would be reluctant to applaud the outcome shown by this survey unless the NPC comes up with good and convincing explanation. There are way too positive results amidst too many inconsistencies. Basking on the good results of NLSS III survey and doing nothing substantive to revive the economy like in previous years is going to be dangerous. For now, the remitters (not the policymakers and political leaders) should be applauded for brining about this change.

I am eagerly waiting for the full report (and possibly the raw data so that I can play with it and look for other stuff).

U-shaped GDP of Asia between 1700-2050

The estimates in a new book (Asia in 2050) by the ADB shows that if Asia continues on its recent trajectory it would double its share of global GDP to 52% by 2050 and regain its dominant economic position it held in the 1700s. The rise, fall and rise of Asia is depicted in figure 1 by the U-shaped GDP (share of global GDP). Specifically, it is like the shape of a marginal cost curve.

But, it warns that “Asia’s continued rise is plausible, but by no means pre-ordained”. China, India, Viet Nam, and Indonesia could fall victim to the “middle-income trap”—as countries grow rapidly they are unable to compete with low-income, low-wage economies in manufactured exports and advanced economies in high-skill innovations. It basically means that countries fail to make a timely transition from resource-drive growth, with low-cost labor and capital, to productivity-drive growth. South Korea avoided this trap, but Brazil and South Africa could not, says the report.

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Two scenarios:

• Asian Century scenario: Asia’s GDP (at market exchange rates) increases from $17 trillion in 2010 to $174 trillion in 2050, or half of global GDP. Seven countries—China, India, Indonesia, Japan, South Korea, Thailand, and Malaysia—would lead the Asian march to prosperity. They will account for 73 percent of global population and 90 percent of Asia’s population. They will account for 45 percent of global GDP. Asia would have a per capita GDP of $40,800 in 2050, equal to the Europe’s level today. Interestingly, Asia would have no poor countries (those with average per capita GDP of less than $1000), compared with eight today.
• Middle Income Trap scenario: Assumes that fast-growing converging economies fall into the trap in the next 5-10 years, without any of the slow- or modest-growth aspiring economies improving their record. Asia’s GDP in 2050 would be $65 trillion only and GDP per capita $20,600. A combination of bad macro policies, finance sector exuberance with lax supervision, conflict, climate change, natural disasters, changing demography and weak governance could lead to this scenario.

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Growth challenges faced by Asia’s leaders:

• Increasing inequality within countries, which could undermine social cohesion and stability.
• For some countries, the risk of getting caught in the “Middle Income Trap”, for a host of domestic economic, social, and political reasons.
• Intense competition for finite natural resources, as newly affluent Asians aspire to higher standards of living.
• Rising income disparities across countries, which could destabilize the region.
• Global warming and climate change, which could threaten agricultural production, coastal populations, and major urban areas.
• Poor governance and weak institutional capacity, faced by almost all countries.

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In May 2011, the ADB came out with an earlier version of the same report/book. Then, it argued that Asia’s GDP under Asian Century scenario and Middle Income Trade scenario would be $148 trillion and $61 trillion in 2050. Have to find out what led to the discrepancy in estimates in two months period.  Below is how the report identified per capita GDP in South Asia.

South Asian per capita GDP and 65+ population in 2050
Country	per capita GDP (PPP, US$)	65+ population
Bhutan	48,600	15
India	41,700	13.7
Sri Lanka	34,700	21.4
Bangladesh	14,200	14.9
Pakistan	7,900	10
Nepal	3,400	10.6
Afghanistan	2,800	3.6

Reviving Nepalese exports with Special Economic Zones (SEZs)

[This was published in Republica, July 31, 2011, p.7]

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Reviving exports with SEZs

Nepal’s exports are decreasing due to loss of competitiveness engendered among others by power shortage, labor dispute, lack of investment, inadequate supply of infrastructure, policy unpredictability, and other supply-side constraints. The declining exports revenue and ballooning imports is leading to an ever-widening trade deficit, which is not only draining out foreign exchange reserves but also impacting balance of payments. The situation has gotten so worse that our exports revenue, which is around 15 percent of GDP, is barely enough to finance petroleum imports. Worse, foreign direct investment (FDI) inflow has been stagnant at US$ 39 million for two years now and FDI commitment has declined by almost 40 percent.

Right now, with the assistance of donors, both bilateral and multilateral, a number of initiatives are implemented with an objective to boost exports in line with the recommendations of Nepal Trade Integration Strategy (NTIS). Since these initiatives are run amidst the existing constraints mentioned above, the ultimate impact on exports will be minimal, if any, in the short term. To increase export competitiveness, export revenue, and FDI, an immediate enactment of Special Economic Zone (SEZ) Act is a must. This is even more necessary to revitalize the ailing manufacturing sector. Unfortunately, despite a well-prepared SEZ bill ready to be presented to the parliament for discussion and enactment, no political leaders have shown genuine interest in pushing it through for the benefit of the struggling exports sector.

The exports success in China, East Asia, Latin America, and our regional partners such as India, Pakistan, and Bangladesh are partly attributed to the enactment of SEZs—where industrial and labor laws are more liberal than in the whole economy; infrastructure requirements such as road, power and communication are adequately supplied; security is guaranteed; and firms are given income and tax incentives to locate plants inside the zone. The primary objectives of a SEZ is to enhance industry competitiveness, attract FDI, boost exports and diversify exports basket while maintaining protective barriers to create jobs and stimulate economic activities. 

A 2008 World Bank study estimated that there are 2301 SEZs in 119 developing and transition economies (clustered mainly in Asia and the Pacific and Latin America), accounting for about 69 million direct jobs and over US$ 200 billion in gross exports per annum. In Bangladesh, Pakistan and Sri Lanka, over 75 percent, 50 percent and 67 percent respectively of manufacture exports originate from SEZs. The success of Bangladeshi garment industry at a time when the corresponding Nepali industry is dying is attributed to the enactment of SEZs. The Chittagong Export Processing Zone is considered to be third most competitive SEZ in the world. At present, there are over 133 and 8 operational SEZs (with several more planned) in India and Bangladesh respectively. While our neighbors and competitors in the international market are actively pursuing every means available to incentivize industries to locate inside SEZs, entice FDI, and boost exports, our political leaders are not even showing interest in debating in the parliament the already prepared SEZ bill.

Typically most of the industries in SEZs are labor intensive and assembly-oriented activities, including light manufacture goods such as textiles, apparel, leather, and light electrical and electronic goods. Sector specific zones such as Agriculture and Herbs Processing Zone, Export Processing Zone, and Garment Processing Zone inside SEZs are established to boost exports of and investment in particular sectors.

There are numerous advantages of having SEZs in a least developed country like ours which is losing competitiveness and manufacturing base. First, infrastructure facilities, tax incentives and subsidies provided to industries that locate inside the zones will help boost their competitiveness, which in turn will aid our struggling exports sector, generate revenue and diversify exports. Second, due to policy certainty and economic incentives, multinational companies will come and bring in investment and technology with them. This will help to not only spur economic activities but also increase employment. Third, in most of the manufacture -oriented zones, a large chunk of employment is secured by women, accounting for almost 60-70 percent of total employed workforce in such zones worldwide. Empowering women via gainful employment will be much more effective than the shallow talk on women empowerment and inclusiveness at the political level.

Fourth, ancillary firms and local suppliers of raw materials, which are needed for industries in such zones, will emerge when entrepreneurs see a stable market inside the country. It will not only help in stimulating local economies but also accelerate backward supply linkages and dissemination of technology, leading to increase in productivity. Fifth, there will be economies of scale, which means decrease in average cost of production as output increases, when similar or near-similar industries operate in the same place, resulting in cost competitiveness of our products. Sixth, most of the firms in Nepal are operating below their capacity, leading to low production and productivity. With the supply of infrastructure guaranteed inside SEZs, these firms will be able to operate at full capacity. They will not only export items to contribute foreign exchange reserves, but also sell items in the domestic market, which is flooded with imported goods, by paying appropriate local taxes.

None of these benefits are in any way against our national interest, at least when viewed in terms of stimulating growth, employment and poverty reduction. There is no reason why our political leaders should not do the necessary for the enactment of SEZ Act. Specifically, the Minister for Commerce and Supplies and the Minister for Industry should personally push for the enactment of this Act by amending few provisions in the existing SEZ bill. These include, among others, lowering mandatory export requirement of 75 percent of total production for companies inside SEZs and a more flexible and industry-friendly labor law regime, which as of now includes fixing wages and welfare based on ‘agreement between industry and employee’.

The enactment of SEZ bill will help to realize the objectives of Trade Policy 2009 and Industrial Policy 2010, and in the effective implementation of NTIS, which identified 19 products having export potentials. Currently the government has proposed establishing SEZs in Bhairawa, Panchkhaal, Simara, Dhangadhi Jhapa, Kapilvastu, Jumla and Biratnagar. The International Finance Corporation (IFC) recommended SEZs in Simara and Biratnagar as being the most feasible ones. The construction of SEZ in Bhairawa is expected to be completed by the end of this fiscal year. The delay in enacting SEZ Act will negatively impact investment plans by companies considering locating plants inside the zone.

For a long time now, finance ministers, including FM Bharat Mohan Adhikari, have been regularly mentioning about SEZs in their budget speeches, but without concrete effort later on to push for the enactment of the Act. For the sake of the struggling exports and manufacturing sectors and for national interest, the political parties should at least leave aside partisan differences over political issues and collectively endorse SEZ Act, and also create enabling environment for operation of such zones. This is the surest and best way to revive our exports and manufacturing sectors for now.

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FDI inflows to Nepal, 1990-2010

FDI inflows to Nepal was the second lowest in South Asia in 2010. It received approximately US$39 million last year. The highest recipient was India with US$ 24 billion and the lowest Bhutan with US$ 11.69 million. The total FDI inflows in the world was US$ 124.37 billion, to developing countries US$ 573.57 billion, and to South Asia US$ 31.95 billion (South Asia excluding India received US$ 7.3 billion of which approx 30 percent went to Pakistan).

FDI inflows to Nepal was US$ 5.94 million in 1990. It then decreased to almost nil up until 1995. In 1996, FDI inflows was US$ 19.16 million and fluctuated quite a bit until 2000, when FDI inflows was negative US$ 0.48 million. In the last two years FDI inflows have been stable at around US$ 39 million.

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Nepal received 0.12 percent of total FDI inflows to South Asia in 2010. Similarly, it received 0.15 percent and 0.17 percent of FDI inflows to LDCs and landlocked developing countries in 2010. The corresponding figures in 1990 to these destinations, respectively, were 2.79 percent, 1.04 percent, and 0.98 percent. In 2005, they were 0.02 percent, 0.02 percent and 0.04 percent.

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Persistent labor problems, power outages, political instability, cumbersome regulations and tax regime (leading to high transaction costs), corruption, and lack of adequate infrastructure (leading to high transportation costs), among others factors, are impacting FDI inflows to Nepal. Here is a blog post I wrote in 2009 about FDI policy and investment climate in Nepal. According to Enterprise Survey 2009, 62 percent of enterprises think instability is the biggest constraint. Here is a report on FDI investment opportunities in Nepal. There are plenty of opportunities for FDI in agriculture and agro-based industries, flowers and flowering plants, Pashmina, garments, tourism, health, education, IT, nursing homes, construction, hydropower and alternative energy sources, and manufacturing, among other sectors.

Total FDI inflows
FDI inflows (US$ million)	1990-1995	1996-2000	2001-2005	2006-2010	2009	2010
Afghanistan	-0.01	571.81	566.38	1041.65	185.00	75.65
Bangladesh	125.85	4608.81	2338.69	4158.61	700.16	913.30
Bhutan	2.25	18.93	17.18	138.28	14.68	11.69
India	4220.69	43360.95	28827.96	148512.08	35648.78	24639.92
Maldives	41.57	249.65	182.86	565.43	112.34	163.82
Nepal	8.16	89.80	31.70	77.89	38.56	38.99
Pakistan	2591.56	7556.31	5059.00	19655.00	2338.00	2016.00
Sri Lanka	658.88	2191.96	1102.01	2717.20	404.00	477.60
Total FDI inflows
FDI inflows (US$ billion)	1990-1995	1996-2000	2001-2005	2006-2010	2009	2010
World	1349.12	7825.63	3750.82	7605.60	1185.03	1243.67
Developing economies	423.78	2214.48	1199.64	2744.64	510.58	573.57
South Asia	7.53	72.40	51.56	188.43	42.46	31.95
Least developed countries (LDCs)	8.40	79.49	56.34	132.93	26.54	26.39
Landlocked developing countries	7.81	65.02	42.29	102.30	26.19	23.02

[All data are sourced from the latest UNTCAD’s World Investment Report 2011. Here is a WIR’s FDI profile of Nepal].

Have we already achieved MDG target on poverty?

In a latest policy brief, Laurence Chandy and Geoffrey Gertz of The Brookings Institution argue that the MDG target on halving global poverty may have been already achieved in 2008. Using household survey data, they come up with new poverty estimates, which are lower than the World Bank’s estimate.

They estimate that between 2005 and 2010, the total number of poor people around the world fell by nearly half a billion people, from over 1.3 billion in 2005 to under 900 million in 2010. Looking ahead to 2015, extreme poverty could fall to under 600 million people—less than half the number regularly cited in describing the number of poor people in the world today. Their estimates show that as of 2010 less than 16 percent of world population remained in poverty, and fewer than 10 percent will likely be poor by 2015.

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The sharpest fall in poverty has occurred in Asia, mainly because of the rapid growth in India and China. South Asia is estimated to have 145.2 million poor people in 2015, much lower than in Sub-Saharan Africa which is expected to have 349.9 million poor people. Nigeria is expected to have the highest number of poor people (95.9 million) in the world in 2015.

Poverty (US$ 1.25 a day)	Number of poor people (millions)			Poverty rate (% population)
Region	2005	2010	2015	2005	2010	2015
East Asia	304.5	140.4	53.4	16.80%	7.40%	2.70%
Europe and Central Asia	16	8.4	4.3	3.40%	1.80%	0.90%
Latin America and Caribbean	45	35	27.3	8.40%	6.20%	4.50%
Middle East and North Africa	9.4	6.7	5.4	3.80%	2.50%	1.90%
South Asia	583.4	317.9	145.2	40.20%	20.30%	8.70%
Sub Saharan Africa	379.5	369.9	349.9	54.50%	46.90%	39.30%
World	1,337.80	878.2	585.5	25.70%	15.80%	9.90%

Between 2010 and 2015, India is expected to see 367.7 million people rise above poverty; 23.8 million for Bangladesh and 8.5 million for Pakistan. The poverty landscape is going to change four years from now. In 2015, India, Bangladesh and China are expected to have 88.1 million, 33.2 million, and 48 million, respectively, people in poverty. As mentioned above, Sub-Saharan Africa will have the largest number of poor people, with Nigeria having the largest of any country.

Reduction in number of poor people (millions)
	2005-2010	2010-2015	Total
India	230.4	137.4	367.7
Bangladesh	18.9	23.8	42.8
Pakistan	14.6	8.5	23.1
China	153.1	50.1	203.3

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What is driving reduction in the number of poor? Rapid and sustained growth in the developing world, especially India and China led to such a remarkable reduction. Their estimate also takes into account the impact of global recession on poverty. China and India are responsible for three-quarters of the reduction in the number of world’s poor.

They find that while 20 percent of the world’s poor lived in fragile states in 2005, this share is rising sharply and will exceed 50 percent by 2014. They argue that “with the majority of the world’s poor expected to be living in fragile states within the next three years, poverty is likely to increasingly be viewed through a security and governance lens, with potentially important ramifications for rich-world policies on poverty reduction.”

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Here is how their estimate differs with that of the World Bank:

Percentage of the population living under $1.25 a day in 2015
	Chandy & Gertz	World Bank
East Asia	2.70%	5.90%
China	0.30%	5.10%
Europe and Central Asia	0.90%	1.70%
Latin	4.50%	5.00%
Middle East and North Africa	1.90%	1.80%
South Asia	8.70%	22.80%
India	7.00%	23.60%
Sub Saharan Africa	39.30%	38.00%
World (developing only)	9.90%	15.00%

Land distribution and inequality in West Bengal

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This paper uses data from a household survey to estimate changes in land distribution in rural West Bengal between 1967-2004 and decompose these into contributions of different factors. There was a substantial drop in land per household and land per capita, while within-village inequality rose. The latter was associated mainly with rising landlessness induced by high rates of household division for marginal and small landowning households. Conversely, division of large landowning households reduced inequality. We find a significant indirect effect of the tenancy reform (Operation Barga) on inequality, as it reduced division rates of small landowning households while raising those of large landowning households. The land titling (patta) program also reduced inequality by reducing landlessness. Land markets were highly active, and were mildly equalizing. The inequality reducing effects of land reforms and land markets were dwarfed by the rising inequality and landlessness induced by division of small landowning households and immigration.

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Full paper by Pranab Bardhana, Michael Lucab, Dilip Mookherjee, and Francisco Pino here. Seems like inequality was reduced by breaking away landholdings of large landowning households and by implementing land titling program. But, inequality and landlessness also increased as smallholding lands (and immigration) were further divided. The latter effect overshadowed the former gains.

Nepal’s Monetary Policy for FY 2011-2012

I forgot to post it even though I wrote it few days back. So, here it is, my take on the monetary policy for fiscal year 2011-2012.

Major highlights:

• CRR to be 5 percent (decrease by 0.5 percentage points)
• Growth rate target of 5%
• Inflation target of 7%
• BoP surplus target of Rs 5 billion
• Forex Reserve targeted to finance at least 6 months of imports
• Broad money supply target 12.5%
• Domestic credit growth target 13.7%
• Credit growth to private sector target 14%
• Banks deposits growth target of13 percent growth, up by Rs 87 billion to Rs 756 billion
• Bank rate (policy rate) unchanged at 7 percent. The penal rate, which NRB has been charging while issuing finances to the BFIs, has been left unchanged at 3 percent of over 91-day Treasury Bill rate or bank rate, whichever is higher.
• NRNs allowed to open dollar account.
• Foreign exchange facility raised to US$ 2,500 at one instance and up to US$ 5,000 in total in a year by showing relevant document (mainly passport). NRB has also allowed Nepalis returning from foreign country to carry up to US$ 1,000 on behalf of Nepalis residing abroad for giving it to their family members back home.
• Deprived sector lending for BFIs increased by 50 basis points. Commercial banks, development banks and finance companies would need to lend 3.5%, 3% and 2.5% respectively of their total loan portfolio to the deprived sector.They will need to raise such loans by 50 basis points every year for the next three years.
• The central has bank agreed to let BFIs issue loans in foreign currency in priority sectors like hydropower and infrastructure.
• Intensify actions against willful defaulters that took loans of Rs 10 million or more from BFI
• To strictly enforce prudent corporate governance in the BFIs and punish players that flout its norms
• Legal actions against borrowers that use loans, taken for one stated purpose, to run different unproductive businesses
• Loans of Rs 1.5 million at zero interest rate to the micro-finance institutions--the category D financial institutions--if they opened branches in 9 remote districts where access to finances is pretty low.

More highlights here. Here is the full text in Nepali language.

Quick comments:

• A sudden decline in BoP deficit and a surplus of Rs 1 billion due to reimbursement of foreign aid (grant and loan), pension of Gurkhas, and government expenditure is expected for FY 2010/11. The deficit was around Rs 12 billion in the first eleven months of FY 2010/11.
• Bringing down CRR by 0.5 percentage points will not solve the liquidity crisis, whose roots lie in the number of BFIs, which meant that the more they are, the more money they need to keep up their deposit and loan targets.
• GDP growth, inflation and BoP targets are very unlikely to be achieved. These targets are follow up of the targets mentioned in the budget. It is NRB’s religion to do that. But, it should be more honest in advising the government on what can be achieved and what not. GDP growth target is hard to achieve due to loss in productivity and power outages and other non economic constraints. High and sticky inflation has more to do with supply-side constraints and the NRB can do very little to tame it. Partly, it is also due to rising food prices, which are unlikely to come down. BoP target is hard to achieve because we are in the same mess as we were two years ago.
• It is very disappointing that the NRB has not brought clear policy framework to incentivize BFIs to go for merger or acquisition. Nepal’s financial sector needs consolidation and the BFIs will not do it on their own and will wait till the last moment when the NRB will be forced to step in.
• The bank rate should have been lower (it should be always lower than inter-bank rate). Since inter-bank rate is very high, it would not hurt to lower bank rate below 7%. The lower the bank rate, the higher will be credit withdrawal by banks from NRB. This would have reduced strain in short term liquidity in the market.  
• Emphasis on channeling credit to deprived sectors and in rural areas is noteworthy of this monetary policy.
• Overall, it is a weak policy that will do very little to bring Nepali economy out of the mess it is in right now.