Kathmandu-Kerung railway to cost US$2.6 billion, mandatory credit rating of loans and more

Kathmandu-Kerung railway to cost an estimated Rs257 billion

From The Kathmandu Post: The Department of Railways (DoR) on Sunday said construction of Kathmandu-Kerung railway is estimated to cost Rs257 billion. The construction of the railway running through complicated geological terrain and challenging engineering work is likely to be completed in nine years, the department said. The DoR observations corroborate the report prepared by Chinese team.

The railway would be 72.25 km in Nepal. Around 98.5 percent of the railway would either be bridges or tunnels. The project would cost Rs3.55 billion per kilometer. The project’s longest and most steep grade is up to 95 km long out of 121 km. A report obtained by the Post states, the railway plan that passes through rugged Himalayan mountains involves complex structural engineering.The report says engineering crews would build ramps along the northern and southern slopes leading to Lake Paiku, near Kerung, to connect tracks to the Kathmandu section. The ramps would overcome the huge difference in elevation between the southern and northern toes of the Himalayan mountains.

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Bankers seek incentives for borrowers to execute provision of credit rating

From The Himalayan Times: Bankers have sought incentives for borrowers to execute the provision of credit rating of borrowers who want to avail loans of Rs 500 million and above, and renewal of loans as provisioned by the Monetary Policy. Borrowers will not be encouraged to opt for credit rating without any incentive, as there are multiple challenges to execute this policy introduced by the Monetary Policy.

The firms that avail loans worth Rs 500 million and above are big companies and they will be reluctant to disclose all the information about their company that a credit rating requires to avail the bank loan because their competitors — businesspeople — might be in the board of the respective banks and financial institutions (BFIs), according to Gyanendra Prasad Dhungana, president of Nepal Bankers’ Association. “On the other hand, BFIs cannot issue loans on the basis of rating without collateral or guarantee. If collateral or guarantee is a must, the borrowers will not be encouraged for credit rating of their companies because it is a costly affair.”

As per the provision of the Monetary Policy, BFIs must float loans on the basis of credit rating for loans of Rs 500 million and above. “In this regard, the cost of rating could also be a liability for the BFIs and if so, the cost must be adjusted in lending rates,” said Dhungana. “BFIs cannot treat borrowers differently based on their ratings if the cost of rating has to be borne by the BFIs.”

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Power leakage came down to 20.45pc last fiscal year

From The Himalayan Times: Nepal Electricity Authority (NEA) has said that it was able to reduce electricity leakage by 2.45 percentage points in the last fiscal year 2017-18. As per data released by NEA, it was able to meet its target to reduce the leakage of electricity. NEA had earlier set a target to reduce electricity leakage from 22.90 per cent to 20.45 per cent of the total electricity supply in the last fiscal. According to NEA, the 20.45 per cent electricity leakage figure is the lowest in NEA’s history. At present, NEA loses 5.5 per cent of electricity through leakage in its transmission system and 14.5 per cent through its distribution system.

“In this fiscal, we plan to reduce the electricity leakage by 1.95 percentage points to 18.5 per cent, however if possible we will try to bring it down to around 15 per cent,” said Kul Man Ghising, managing director of NEA. Currently, NEA has started taking strict action against electricity theft and has become more stringent in collecting dues. It has also installed high-capacity transformers, and upgraded the transmission and distribution system and substations to reduce electricity leakage. In the last fiscal 2017-18, NEA was able to earn net profit of Rs one billion (unaudited). NEA has forecast to earn net profit of Rs 1.1 billion in this fiscal. In the last fiscal, NEA earned operating profit worth Rs 7.86 billion.

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Public Expenditure Review Commission 

A cabinet meeting on Sunday decided to form a five-member Public Expenditure Review Commission led by Dr. Dilli Raj Khanal. The commission will review public expenditure, its usefulness, policy reforms, and selection of projects among others. 

Indian EXIM Bank proposes stake in Nepal's infrastructure bank, Nepal Bangladesh energy cooperation and more

India’s Exim Bank proposes stake in infrastructure bank

From The Kathmandu Post: Exim Bank of India, an undertaking of the government of India, is exploring an investment opportunity in Nepal, potentially setting up its own infrastructure bank or making equity investments in an existing Nepali bank.

Officials of the southern neighbour’s export finance institution had approached the Finance Ministry in June with a proposal, which coincides with the Nepal government’s decision to sign an MoU with China’s Zhongji Richway Holdings Limited that same month, just days before Prime Minister KP Sharma Oli’s visit to China. Finance Ministry officials told the Post they recommended the Exim Bank enter into an equity partnership with Nepal’s Infrastructure Development Bank (IDB), financed by local businessmen in partnership with the government.

Emerging Nepal, which was established under public-private partnership, is expected to come into operation by November 22, after it received a letter of intent (LoI) from the Nepal Rastra Bank in May. Chandra Prasad Dhakal, a board director of Emerging Nepal, confirmed to the Post that they had talks with Exim bank officials. He said they have been exploring the possibility of a joint venture with a number of Indian companies, and the Exim Bank of India is one. “The discussions are still at an early stage, so no concrete decision has been taken yet,” he said. Dhakal said Emerging Nepal could accommodate the Exim Bank as a promoter by altering the existing capital structure of the proposed bank. According to the IDB licensing policy introduced by NRB last year, foreign investors can invest up to 85 percent in such banks; and a paid-up capital of Rs20 billion is required to establish the bank.

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Nepal, Bangladesh ink energy cooperation deal

From myRepublica: epal and Bangladesh inked a bilateral agreement on cooperation in electricity development, in Kathmandu Friday. This paves the way for opening the market in Bangladesh for Nepal’s hydroelectricity as well as bringing in Bangladeshi investment in this sector. Bangladesh, for its part, will meet its energy needs in the face of depleting natural gas, for sustaining its high rate of economic growth. 

Under the bilateral agreement, both countries will work on electricity generation, energy efficiency, renewable energy and on building grid connectivity, according to a press statement issued by the Ministry of Energy, Water Resources and Irrigation. The agreement was signed by Minister Barshaman Pun and Bangladesh State Minister for Power, Energy and Mineral Resources Nasrul Hamid.

Bangladesh has to produce 40,000 MW of electricity by 2030 and 60,000 MW by 2041 to become a middle-income country, according to statistics of the Bangladesh government. According to a media report, if Bangladesh is to increase its GDP by 1 percent it will have to increase electricity generation by 1.5 percent. Currently, 80 percent of Bangladesh’s 160 million people have access to electricity—up from 47 percent in 2009.

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Gandaki Province to integrate all tourism fees into one

From myRepublica: The provincial government of Gandaki Province has announced that it will integrate all tourism fees into one, following criticisms by trekking agencies and tourism professionals for not doing the needful in removing ambiguity about redundant tourism fees collected by different government entities. The tourism entrepreneurs had been demanding with the government to roll back the tourism fee imposed by each municipalities and rural municipalities separately to the trekkers. 

From the beginning of the current fiscal year, the Gandaki Province had imposed US$ 5 in tourism fee for tourists from the SAARC countries and US$ 10 fee for other nationals. Likewise, the local levels have imposed similar taxes on the tourists. Tourists who travel to the Annapurna Conservation Area Project (ACAP) pay tourism fee in the name of Trekkers Information Management System (TIMS), while they are also required to pay additional fee for entering into specified areas in the name of ACAP Permit Fee. 

India's improving economic outlook

Here are major highlights from IMF’s 2018 IV report on the Indian economy: 

Following disruptions caused by November 2016 demonetization and July 2017 GST rollout, the economy is stabilizing. Real GDP growth slowed to 6.7% in FY2018 (April 2017-March 2018) but is expected to increase to 7.3% in FY2019 and 7.5% in FY2020 on account of strengthening investment and robust private consumption. 

Headline inflation averaged 3.6%, a 17-year low, due to low food prices thanks to favorable monsoon rainfall, agricultural sector reforms (pulses buffer stock, national agriculture market, crop insurance, irrigation), subdued domestic demand, and currency appreciation. It is expected to increase to 5.2% in FY2019 owing to the recent depreciation of the Indian rupee along with higher oil prices, housing rent allowances and agricultural minimum support prices. 

Current account deficit is expected to increase to 2.6% of GDP due to rising oil prices and strong import demand. Remittances are expected to increase slightly. High forex reserves and strong FDI inflows have helped contain external vulnerabilities. External position remains broadly consistent with fundamentals. 

Fiscal consolidation is expected as FY2019 Union Budget targets fiscal deficit of 3.3% of GDP (but a 3.6% GDP in IMF terms). India’s Fiscal Responsibility and Budget Management Review Committee recommended the government to cap public debt level to 60% of GDP by FY2023. Considering the general elections to be held by May 2019, the government is accelerating implementation of ongoing reforms rather than initiating new ones. 

Monetary policy is expected to remain tight on account of higher inflationary pressures as output gap narrows to -0.3% of potential GDP. India follows an inflation-targeting monetary policy framework (helps lower sticky inflation expectations), which dictates it to maintain CPI inflation between 2% and 6%. More needs to be done to improve NPAs and recapitalized public sector banks. The recent fraud at a public sector bank indicates how vulnerable is the financial sector to poor governance and operations. 

India’s GDP is US$2,602 billion; per capita GDP is US$1,942;  total population is 1.32 billion (with 33.1% residing in urban areas); poverty headcount ratio at $1.90 a day is 21.2; and Gini index is 35.2.

Risks to the economy are on the downside. Key external risks include higher global oil prices and tighter financial conditions. Key internal risks include tax revenue shortfalls and delays in addressing the twin bank-corporate balance sheet problems. The plan to recapitalize PSBs announced in October 2017 will add at least 0.8% of GDP to public debt (financed through recapitalization bonds). 

Structural reforms are needed in labor, land and product markets. 

Here is a collection background issue papers covering GST, fiscal discipline in Indian states, FDI, labor market reforms and agricultural sector reforms.

Subnational regulations and competitive populism

It was published in The Kathmandu Post, 07 August 2018.

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Competitive populism

An emerging but entirely predictable major headache for federal government is the tendency of subnational governments to engage in a race-to-the-bottom revenue policy. Provincial and local governments have introduced overlapping tax regimes and are openly sparring with the federal government to assert their rights as per their own understating of power mentioned in the constitution. 

The uncertainty over tax regime and the subnational government’s jurisdiction with respect to mobilizing certain type of taxes have unnerved business community and potential investors. A competitive populism instead of cooperative and competitive federalism will have negative consequences on budget execution and investor sentiment. Note that this has happened even when the ruling Nepal Communist Party has two-thirds majority at federal as well as subnational levels. 

Subnational budget

All seven provinces as well a majority of local governments have introduced fiscal year 2018/19 (FY2019) budget, the first under the federal set up. Federal transfers (fiscal equalization, conditional, special and matching grants) and revenue sharing form the basis for their budget. In fact, total federal fiscal transfer and revenue sharing account for over 90% of provincial budget. They plan to cover remaining budget gap by raising revenue (province 2 and Karnali governments plan to borrow one billion rupees internally as well). Provincial and federal budget together tops Rs1552 billion, of which about 28.6% consists of capital budget. Similarly, a majority of the 753 local governments have presented FY2019 budget in line with federal and provincial fiscal transfers and revenue sharing. They plan to raise revenue by imposing local taxes when their expenditure plan is in excess of fiscal transfers and revenue sharing.

The whole process of designing expenditure priorities and revenue policy is supposed to be cooperative and competitive so that all tiers of government have synchronized and coherent plans to boost economic activities (and probably help the government realized its overarching motto “Prosperous Nepal, Happy Nepali”, irrespective of how that is measured or what is means!). This appears not to be the case right now. Several provincial and local governments are at loggerheads with the federal government over their jurisdiction in designing revenue policy. Note that they don’t have much say over expenditure priorities owing to the fact that the constitution is clear on what public services they must provide and how federal transfers are to be utilized for that purpose. 

Fiscal management

The subnational governments are aspirational and want to do more with larger budgets, which require more and bigger sources of revenue. Besides fiscal transfers and revenue sharing, they have limited options: internal loan, raising taxes and widening tax net as well as taxable economic or social activities. Currently there is a lack of clarity on procedures and regulatory framework to raise internal loans. So, most of the subnational governments have resorted to either raising taxes and/or including any economic activities under the tax net. This has pitted the subnational governments against the federal government, leading to a regulatory regime that looks like a race to the bottom and especially damaging to improving investment climate.  

For instance, province one has imposed district export tax on agricultural and forest items against the spirit of the constitution. Upon a challenge by the federal government that intra and inter province movement of goods should be free, province one government renamed it sales tax. All they did was to change the name of tax but keeping its distortive nature intact. Similarly, province two is imposing natural resources tax, province five is charging entry fee to Indian vehicles, province seven is imposing a fee on registration and renewal of industries, province three is imposing export tax, and Karnali province is imposing taxes on inter-district export of mining and quarrying items. Meanwhile, several local governments have drastically increased or introduced taxes on tourism, transport and small business activities— the lifeline of local economies and employment. 

This kind of uncertainty and tax policy disarray kills the spirit of federalism rooted in cooperative and competitive interaction among the three tiers of government. Two course corrections are important going forward. 

First, the federal government should immediately work to resolve this matter as this kind of uncooperative federalism harms local businesses and potential investment. Ministry of Finance, Prime Minister’s Office, National Planning commission and Ministry of Federal Affairs and General Administration need to work together with subnational governments to create not only a coherent and consistent expenditure plan, but also a revenue policy that is unambiguous to business community and one that is geared toward boosting local economic activities. Unfortunately, the federal government itself is weak in fiscal management and governance exercise, evidenced by the dismal capital budget execution record and its singular focus on mobilizing revenue. The subnational governments are thinking that their success lies in raising more revenue to fund more recurrent spending type commitments they made to voters before the elections. Alas, this is fiscally fatal, kills entrepreneurship and harms investment prospects. Confusion is also cropping up due to the delay by the federal government to introduce laws and policies to implement the constitution. 

Second, the federal government should facilitate competitive federalism between provincial and local governments to boost investment and commerce. They should be focusing on attracting investment in their region by rolling out regulations that eases cost of doing business, provides tax and land concessions, and raises productivity by supplying necessary infrastructure. Furthermore, the subnational governments should compete to attract more fiscal transfers by improving budget execution as more meaningful and efficient projects of subnational governments tend to attract more fiscal transfers. 

The subnational governments must compete to attract more investment and to boost growth instead of competing on regulatory regimes that sets them on a path to the bottom. 

Action room to resolve implementation issues, Chinese funded infrastructure bank, empty treasury and more

Government to set up ‘Immediate Problem Solving Centre’ at PMO

From The Kathmandu Post: The government is set establish an Immediate Problem Solving Centre at the Prime Minister’s Office (PMO) in order to address legal, institutional and administrative issues at priority projects and service delivery of the government agencies. The centre, to be known as ‘Action Room’, will have a separate set of staff under the PMO secretary. Armed with video conferencing and telephony facilities, the centre will allow the prime minister to instruct the ministers, secretaries and project chiefs directly to instantly address the issues that arise in key priority projects and service delivery, according to PMO officials.

The PMO action room will help solve the problems at different ministries through cross-ministry coordination, among others. “In fact, the action room will be developed as a body to keep tabs on the monitoring bodies in the ministries to ensure timely completion of project works and service delivery,” said a PMO official.  The PMO is looking for space to setting up the action room. It has already arranged a team of staff, including a secretary, a joint-secretary, an under-secretary and three section officers. It plans to add some technical staff. The government is drafting a regulation to govern operations of the action room and establish a mechanism for monitoring and solving problems at the ministry levels.

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NRA work stalls without a CEO

From The Kathmandu Post: The process of extending deadline for obtaining second tranche of housing grant has been in limbo as the National Reconstruction Authority (NRA) is without Chief Executive Officer. Yubaraj Bhusal had stepped down as the NRA chief in the second week of July, following the Oli-government’s decision on July 5 to revoke all the political appointments made by the erstwhile government led by Sher Bahadur Deuba after August 30, 2017.

A meeting of the NRA Advisory Council scheduled on July 6, which was supposed to take call over the matter, did not convene due to the government decision which had revoked the appointment of NRA CEO. NRA Deputy Spokesperson Manohar Ghimire said, “There would certainly be repercussions over the top position at the NRA which is vacant at the moment. There are a number of issues that need to be resolved,” 

A frequent change in NRA leadership due to political meddling has severely hit the reconstruction process even though three years have passed since the horrifying disaster struck the country that killed nearly 9,000 lives, leaving tens of thousands homeless. The authority had set mid-July 2018 deadline for quake survivors to obtain Rs150,000—the biggest chunk in Rs300,000 housing reconstruction aid handed out by the government. 

According to the agency mandated to carry out the reconstruction works post the Gorkha Earthquake, around 250,000 households have yet to receive second tranche of the government aid. Following the earthquake, the government decided to provide Rs200,000 per household in private housing rebuilding aid. It later increased it to Rs300,000 to be distributed in three installments—Rs 50,000, Rs 150,000 and Rs 100,000. The NRA also has to address several other issues urgently as the meeting of the NRA Advisory Council and Steering Committee cannot convene in the absence of chief executive.

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Govt to set up Rs 100bn infra development bank under Chinese investment

From The Himalayan Times: The government has approved the proposal to form an infrastructure development bank under Chinese investment. A Cabinet meeting recently agreed in principle to form such a mega bank under Chinese investment, which will have paid-up capital of Rs 100 billion, informed Rajan Khanal, secretary at the Ministry of Finance (MoF). Following the Cabinet’s nod, MoF is currently holding bilateral discussions with China to set up the bank as soon as possible. The Chinese-investment bank needs to have at least 20 per cent domestic share.

In August last year, Nepal Rastra Bank (NRB) had brought ‘Licensing Policy for Infrastructure Development Bank 2017’ opening licence for Nepal Investment Development Bank (NIDB), which will have paid-up capital of Rs 20 billion. Likewise, MoF officials informed that Indian investors have also expressed interest to set up an infrastructure development bank in Nepal.

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Govt treasury empty after haphazard spending in last month

From myRepublica: The government treasury is now empty following irrational budget distribution at the end of the fiscal year that ended Monday. Not a single penny has been left from the previous fiscal year , according to officials of the Ministry of Finance (MoF). This fiscal indiscipline on the part of the current government is sure to have serious consequences as it may trigger internal borrowing right from the first month, just as the previous government had done this time last year. The internal borrowing may exert further pressure on cash available for lending in the banking sector, shrinking the growth of the private sector, said two MoF officials who have direct knowledge of the matter.

The government spent about 33 percent of the total allocated budget for development purposes of Rs 335 billion, or Rs 110 billion, in the 12th month . A total of Rs 27 billion was paid out for the purpose on a single day in the last month. Overall payment by the government in the last month (mid-June to Mid-July) hovered at around 28 percent of the total budget of Rs 1,278. Economists have criticized this eleventh hour spending, questioning the motives and rationale.

The pressure on the government has already started as it has to disburse immediately a total of Rs 78.66 billion-- Rs 21 billion for provinces and Rs 57.66 billion for the local levels-- as part of conditional grants, and these were payable on Tuesday, the first day of the fiscal year. The government needs further disbursements of Rs 16.76 billion and Rs 45.16 billion by August 10 to the provinces and local levels respectively as equalization grants . “Government has no choice but go for internal burrowing as early as possible,” added an official. In a change from the past year, the payment of equalization grants was separated and scheduled on August 10 in order to evade pressure for fiscal transfers to subnational governments in the Appropriation Act 2075.

Import-based revenue account for 45% of tax revenue in Nepal

Finance ministers in their budget speech focus exclusively on two issues: new or augmented expenditure programs and revenue mobilization plan to cover additional expenditure without drastically increasing budget deficit (although this and previous finance ministers unveiled budgets with larger-than-expected deficits). Implementable reform measures to enhance public service delivery and effective budget execution are usually missing or mentioned cursorily. The core focus of expenditure plan and associated reform measures are to attain high and inclusive economic growth by transitioning the remittance and monsoon based economy to a one that is based on more robust sources of growth (industrialization, commercial agriculture, tourism, innovation, etc). For this, the government requires both revenue and knowledge transfer (comes usually with foreign grants, loans and investment).

However, meeting revenue target supersedes all other objectives of MOF (which sometimes is labelled Ministry of Revenue instead of Finance). The strategy for meeting ever-higher revenue target is dependent on import related taxes and duties, and revenue administration’s efficacy. The core strategy of raising more revenue from duties on imports to finance an ever-increasing expenditure plan that aims to change the structure of the economy is at some level self-defeating (unless the expenditure plan, i.e. budget execution, is realized faster than expected to create a base for generating higher non-trade/import related revenue). Else, we are always at the mercy of remittance income!

Anyway, this dynamics is not going to change anytime soon and the economy will continue to bank on customs duties and taxes on trade as a core source of tax revenue to finance expenditure. The share of trade related revenue (total customs revenue including taxes on exports, VAT on imports, import duties in the form of excise duty) in tax revenue is about 46%. In FY2018, this was equivalent to about 9.6% of GDP.  Note that total tax revenue is about 21.9% of GDP). Non-tax revenue is about 2.3% of GDP. Total receipts (tax and non-tax revenue plus foreign grants) is about 25.4% of GDP. 

Import related revenue increased from 6.5% of GDP in FY2012 to 9.6% of GDP in FY2018. It is projected to be about 11.6% of GDP in FY2019.  This indicates how much the economy is reliant on import-based revenue to finance its rising expenditure. As long as imports are increasing, largely financed by remittance income, tax revenue will continue to rise. It will rise even more if excise duties on some imported goods are increased. There isn’t much room to raise trade/custom tariffs due to various multilateral and bilateral treaties.  

Total expenditure was about 34.8% of GDP (23.3%, 7.9% and 3.6% as recurrent, capital and financial provision expenditures, respectively). From FY2019 onward, federal government has to share 30% of VAT and 30% of domestic excise duty collections with subnational governments (it further squeezes available revenue sources and without a reduction in expenditure, it increases federal budget deficit). 

Kerung-Kathmandu railway, cartelish NBA and dysfunctional ICP

Kerung-Kathmandu railway ‘most significant step in history of bilateral cooperation’

From The Kathmandu Post: Nepal and China have signed a landmark accord to develop a cross-border railway line that will connect the Tibetan town of Kerung with Kathmandu, calling the Cooperation for Railway Connectivity “as the most significant initiative in the history of bilateral cooperation”. The two sides signed the memoranda of understanding on Thursday following hour-long delegation-level talks at the Great Hall of the People.

This follows nine agreements signed by Nepali and Chinese public and private sector companies on Wednesday, with major ones being: Investment Board Nepal (IBN) and Huaxin Cement Company of China to develop a Rs15-billion Huaxin Narayani Cement; Butwal Power Company and Sichuan Investment Group (SCIG) to work together on Marsyangdi Cascade to produce 1,000 megawatt electricity; Nepal Electricity Authority and China’s State Grid Corporation will construct a 159-km Kerung-Galchhi transmission line.

In a visit where connectivity was the political buzzword, the two sides agreed to encourage Nepali and Chinese airlines to operate additional direct flights between the two countries. They will also speed up the construction of the Pokhara International Airport.

Though it was not explicitly stated which of the China-assisted projects fall under BRI, the two sides agreed to intensify implementation of the MoU on Cooperation under the Belt and Road Initiative to enhance connectivity, encompassing such vital components as ports, roads, railways, aviation and communications within the overarching framework of trans-Himalayan Multi-Dimensional Connectivity Network.

**Here is an excerpt from joint statement between Nepal and the PRC:

The two sides agreed to intensify implementation of the Memorandum of Understanding on Cooperation under the Belt and Road Initiative to enhance connectivity, encompassing such vital components as ports, roads, railways, aviation and communications within the overarching framework of trans-Himalayan Multi-Dimensional Connectivity Network. The two sides also agreed to take practical measures to promote cooperation in all fields contained in the MOU. The Nepali side conveyed its readiness to facilitate more Chinese investment in infrastructure building and in other productive sectors. In this regard, the Nepali side expressed its willingness to welcome further investment from Chinese enterprises and, in accordance with Nepali laws and regulations, simplify the related approval procedures on applications related to land, taxes and visas in an efficient manner, and create a favourable investment climate and business environment for Chinese enterprises.

Both sides agreed to reopen the Zhangmu/Khasa port at an early date; improve the operation of the Jilong/Keyrung port; ensure the sound operation of Araniko Highway; and carry out the repair,maintenance and improvement of Syaphrubesi-Rasuwagadhi Highway and push forward the construction of a bridge over Karnali river at Hilsa of Pulan/Yari port at an early date. To ensure the inter-connectivity and smooth running of the infrastructures above, the Nepali side will complete the disaster treatment around the Tatopani Port and along the Arniko Highway, maintain Kathmandu-Syaphrubesi Highway in operational condition.

Both sides expressed happiness over the signing of the MOU on Cooperation for Railway Connectivity. They underscored it as the most significant initiative in the history of bilateral cooperation and believed that it would herald a new era of cross-border connectivity between the two countries. Both sides agreed to make good use of the long-term communication mechanism on railway cooperation between government departments and promote railway cooperation. The Chinese side agreed to provide such support as in technology and personnel training.

The two sides agreed to encourage Chinese and Nepali airlines to launch/operate more direct flights between the two countries in accordance with provisions of the bilateral air service agreement between the two countries. Both sides will coordinate closely to speed up the construction of the Pokhara International Airport so that it would start operation at an early date.

The two sides expressed satisfaction over the successful commercial operation of China-Nepal cross-border optical fiber cable and agreed to further strengthen cooperation on information and communications for mutual benefit.

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Birgunj ICP fails to please importers

From MyRepublica: Importers claim that the transportation of goods through the ICP has been inefficient and costlier than before. Although the replica infrastructures were constructed in both sides of the Nepal-India border so as to ease and advance trade and customs, the experience importers have faced transporting goods through the ICP is far from what was expected.

Om Prakash Sharma, president of Birgunj Chamber of Commerce stated: “The ICP has created more problems and the entry process of vehicles is very slow. As a result, containers are lined up for up to 25 kilometers.” He added, “Besides, the Indian security forces are not well-behaved. Entering the ICP, which was built to strengthen mutual trade relations, gives people the feeling as if they are entering an army camp and drivers are thus not willing to enter the ICP. Extortion of funds by Indian security forces is prevalent and at an increasing trend outside the ICP. Those who do not give the demanded money have to wait for an entire week and have also faced manhandling by the security forces outside the ICP. However those who pay between IRs 500 to IRs 1,000 per vehicle, are easily allowed to enter the ICP. 

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Banks agree to cap interest rates, again

From The Himalayan Times: The Nepal Bankers’ Association (NBA) has once again decided to regulate deposit rates without providing assurance of reining in runaway lending rates. This is an indication that commercial banks are more interested in reducing their expenses by forcefully lowering deposit rates, while maximising their income by keeping lending rates high.

The NBA today barred all 28 commercial banks from offering annual interest of over 11 per cent to retail depositors who park money in fixed deposit accounts. The interest threshold on funds deposited by institutional depositors in fixed accounts has been set at 10.5 per cent. The NBA has also said yields on money parked in savings deposit accounts should not exceed seven per cent.

Here is my earlier pieces on interest rate volatility, slack NRB, and cartelish NBA.