UNIT III

ECONOMIC POLICIES
& REFORMS
Privatization
 Privatization is the transfer of ownership of
property or businesses or enterprise or agency
from the public sector to the private sector.
 The public sector is the part of the economic
system that is run by government agencies/ state
own enterprises.
 The transition from a publicly traded and owned
company to a company which is privately owned
and no longer trades publicly on a stock
exchange. When a publicly traded company
becomes private, investors can no longer
purchase a stake in that company.
Why Privatization?
 To reduce government involvement in
commercially viable activities.
 To make proper utilization of resources
 To make quick decision, no political
interference
 Increase efficiency in the delivery of
programs and services.
 Provides competition in market place
which transfers the lower price and
greater choice for the consumers.
 Methods/Forms of Privatization
 Methods of privatization comprise a number of tools that
can be used to privatize public enterprises, projects, and
services, taking into consideration a broad definition of the
privatization process.
 These methods include transferring of ownership,
contracting for management and operation, leasing, and
financing, either range from sale through public subscription,
or sale to a principal investor.
 Each method has its own consequences, regulations, and
factors that contribute to its success or failure. Generally,
more than one method is utilized to achieve the targeted
objectives. It is therefore important to choose the method
of privatization in accordance with the specified objectives
to be achieved.
1.Management Contracts
 With this method, responsibility for managing, operating,
and developing an entity is transferred to a contractor
or investor from the private sector for period of time
and an amount of money to be agreed upon.
 This method is usually used in cases that require high
levels of specialized experience in management,
operation, and marketing, or when the government has
a large investment in the project’s assets and prefers to
keep the investment rather than sell it; that is,
ownership of the assets is not transferred to the private
sector.
 Example: Biratnagar Jute Mills Company Limited
2.Leasing contracts
 Leasing contracts are agreements between the government
and the private sector whereby the latter provides the
government enterprise with administrative and technical
expertise for a specific period of time, in exchange for an
agreed-upon financial remuneration.
 The private sector investor leases and utilizes the assets or
facilities owned by the government, and the contract
determines the amount of the condition to be paid to the
government as well as the responsibilities of each party
towards the other.
 The distinctive feature of leasing contracts is that the investor
assumes all the commercial risks associated with operating the
assets, which is an incentive for the investor to reduce
expenses and maintain the assets in good condition.
 Examples: Bhaktapur Brick Factory, Lumbini Sugar Factory & Nepal
Rozin and Turpentine Limited
3. Direct sale to the private sector through public
subscription
 This method is suitable to enterprises that are
characterized by stability, continuity of activities, a sound
financial position, and commercial feasibility, or enterprises
that can become commercially feasible in the short-run.
 Either the entire entity or some of its shares are sold to
the private sector by offering them for public subscription.
 This method is also adopted by large public enterprises and
projects, which would be converted into a private
enterprise in harmony with the customary conversion
procedures.
 Examples: Bhrikuti paper factory, Harisiddhi brick and tile
factory limited, Bansbari shoe factory limited
4. Sale to a principal investor
 Using this method, the government sells the enterprise to
a principal investor who is capable of providing the
required financing, management efficiency and technology
for production and marketing development.
 The method has the advantages of ensuring the direct
availability of the required financing as well as the financial
and administrative expertise needed for technical and
administrative development, in addition to providing new
expertise and modern production and management
techniques.
 In most cases the principal investor is an international
enterprise or operator with extensive experience in the
field.
5. Sale of shares
 Under this method, the state sells to the general public
through the stock market and other financial institutions
all or a substantial part of the stock it holds in a going
concern.
 The initial public offer (IPO) can be a combination of different
methods of sale such as transfer of shares through domestic or
international block sale, public offering, sale to employees,
through ordinary sale or private placement in stock exchanges,
sale to investment funds.
 The basic principles that must be taken into consideration
when implementing the sale of shares for privatization are:
Disclosure and transparency, Expeditious implementation,
and Changing the management pattern.
 Examples: Nepal film industry limited, Balaju, Balaju Textile
Industry, Nepal Lube Oil Limited & Nepal Telecom.
 Privatization Policy and Practices in Nepal
 By the early 1990s, the Nepalese government had acquired
an extensive portfolio of state-owned enterprises. Nepal
Government fully owned 63 enterprises, held a controlling
interest in a further 15, and had a minority share holding in
an additional 17 enterprises. The majority of these
enterprises performed poorly and failed to earn profits.
 The government First Announced its intention to initiate a
program of privatization in the Seventh Plan (1985-90).
However, it was not until-1991 that a firm commitment was
made by the newly elected government and plans laid out in
a white paper and in the 1991/1992 budget.
 A high level Privatization Committee chaired by the Minister
of Finance was established, and in this first phase of
privatization.
 The Second Phase of privatization was carried out utilizing the
provisions of the Privatization Bill, which was drafted during the
second phase but not fully enacted by Parliament.
 The Third Phase of the privatization program has been
conducted under the provisions of the Privatization Act, which
was given royal assent on 3 January 1994 through guidance of
USAID(United States Agency for International Development).
 The third phase of the privatization program came to a virtual
halt during the nine month rule of the United Marxist-Leninist
Party. USAID's long term technical assistance to the program
was terminated during this period.
 With the formation of the new coalition government in
November 1995, the privatization program was revived but has
been hampered by the lack of a Minister of Finance, who chairs
the Privatization Committee, and limited donor assistance.
Privatization Act 2050, 1994
 This act defines privatization as involving private
sector in the management of the enterprise or to
sell or lease it or to transfer government
ownership to the private sector or workers, or
the desirous groups either wholly or partially. The
main feature of the act are-
 Formation of Privatization Committee
 Powers, functions and duties of the committee
 Process of privatization
 Evaluation of Proposal
 Settlement of dispute
 Continuity of the present workers
 Liquidation of Enterprise
 Impact of Privatization
 Privatization of public enterprises have been very much in
the agenda of economic liberalization in contemporary
world specially in developing and countries in transition.
 Enhancing productive efficiency, allocative efficiency,
economic efficiency and to rescue governments from
budgetary burdens.
 Upon evaluation of private and public undertakings in Nepal
it was revealed that public enterprises were capital intensive,
better in capacity utilization, profitability and with high
economic returns compared to private undertakings.
 On various yardsticks such as price, employment and labor
productivity, product diversification, privatized enterprises
have not been successful to the level committed before
privatization.
 Privatization therefore might not be
beneficial unless it is accompanied by
competition in the market place.
 The key issue is whether such privatization
better serves the long run development
interest of a nation by promoting a more
sustainable and equitable pattern of
economic and social progress.
 The Government of Nepal has recognized
privatization of PEs as an integral
component of her economic liberalization
and open market economic policy.
 This programme in Nepal has mainly concentrated
on fulfilling the goals of increasing productivity of
industries and academies through the enhancement
of business efficiency, minimizing the financial and
administrative liabilities of the government, and
increasing extensive participation of private sector
in economic development of the country.
 Commercially, economically, and financially feasible
PEs have been handed over to the private sector.
 Similarly, the PEs, whose social and economic
justifications are found to have been no more viable
in present time to correspond to the initial goals of
their establishment, have been liquidated.
Benefits of Privatization
 The best way to rebuild weakened public
sectors.
 Stops loss making public sector from
adding to government debt.
 Raises more money for government
through taxing.
 Expands an enterprise and an industry.
 Creates more jobs and generating wealth
for the country.
Industry Policy, 2010
 Replaced the old policy of 1992.
 Comprehensive in coverage and is in line
with the principles of free market economy.
 This policy has opened up new frontiers for
joint venture activities in the country, private
sector participation has been encouraged.
 Conceptualized the provisions for women
entrepreneurs, micro, small and cottage
industries, special economic zones, 24 hour
electricity for industries, foreign direct
investment, investment board.
 Industrial policy means rules, regulations,
principles, policies and procedures laid
down by government for regulating,
developing, and controlling industrial
undertakings in the country.
 It also indicates the role of the large,
medium and small scale sector.
 The long term goal of industrial policy is
to minimize poverty through sustainable
industrial development based on public-
private cooperative partnership.
Objectives
 Increase export of industrial goods through
qualitative & competitive enhancement of industrial
production & productivity.
 Increase contribution of industrial sector in
balanced national & regional development by
mobilizing local resources, raw materials and skills.
 Establish industries as sustainable & reliable sector
by using latest technology and environment-friendly
production processes.
 Establish Nepal as an attractive investment center
of South Asia & World by developing productive
manpower & managerial capabilities.
 Protect rights of industrial intellectual property.
 Brought international rule of “No work no pay” for the overall
development of industrial sector.
 It broadly categorized Nepal’s geographical regions into 3 groups: Least
developed, Undeveloped, Under developed.
 Industries classified on nature of production and service:
1)Agriculture & forestry based- R/M derived from A & F products
2)Export oriented industries- export 51% or more of their total Production
3)Production oriented industries- produces goods by utilizing R/M
4)Energy oriented industries- generates power from water resources,
wind, solar, gas, biogas, etc
5)Mineral industries- based on metallic & non-metallic excavation & processing
6)Tourism industries- providing services to tourists
7)Construction industries- operated by construction of physical infrastructure
8)Information & communication technology Industries- using
technology for information collection, processing & broadcasting to provide information, knowledge
& communication
9)Service industries- specified industries providing services
 High Priority Industries: IT, cement, hydropower,
vehicle and motor parts, chemical fertilizer, bio-
technology and adventure tourism.
 •Priority Industries: Agriculture, forest-based,
ayurvedic and homeopathic medicine manufacturing,
mineral and handicrafts.
 •Provision has also been made for the establishment
of Industrial Protection Fund (IPF) to compensate
non-business and non commercial risk, operation of
business incubation centre, creation of special
package for the development of Karnali Industrial
Corridor and establishment of Industrial villages and
their promotion.
Commerce/ Trade Policy, 2015
 Trade policy 2015 was formulated by replacing
the trade policy 2008.
 Trade policy is a collection of rules & regulations
that are intended to change international trade
flows, particularly to restrict import.
 Every nation has some form of trade policy in
place, with public official formulating the policy
which they think would be most appropriate for
their country.
 It has taken into consideration how the
neighboring and other similar country has
benefited from the international trade.
 The purpose of trade policy is to help a nation’s international
trade run more smoothly, by setting clear standards and goals
which can be understood by potential trading partners.
 Things like import and export taxes, tariffs, inspection
regulations, and quotas can all be part of a nation’s trade
policy.
 Some nations attempt to protect their local industries with
trade policies which place a heavy burden on importers,
allowing domestic producers of goods & services to get
ahead in the market with lower prices or more availability.
 Thus, Trade policy is a accumulation of laws related to the
exchange of goods or services involved in international trade
including taxes, subsidies, and import/export regulations.
 It aims to:
◦ Promote domestic industries
◦ Manage growing imports
◦ Boost exports
 So that trade becomes an engine for the
economic development of the country.
 Nepal became the member of WTO on April 23,
2004 in order to take benefit for the
opportunities provided to least developed
countries (LDC).
 Nepal faces a huge trade deficit, due to high
imports and minimal exports.
 The major cause of this problem are:
◦ Insufficient infrastructural development
◦ Poor labour relations
◦ Weak institutional framework
◦ Poor investment-friendly environment
◦ Low FDI
◦ No match between population growth and production
◦ High remittance leading to consumption of imported
goods
◦ Post impact of earthquake and blockade
◦ Weak quality testing, authentication, labeling and
packaging
Vision:
 To achieve economic prosperity by enhancing the
contribution of trade sector to national economy
through export promotion.
Goal:
 To achieve inclusive and sustainable economic growth
through export promotion.
Objectives:
 To strengthen supply-side capacity, and minimize trade
deficit by increasing exports of value-added
competitive products and services in the world
market.
 To enhance access of goods, services and intellectual
property to regional and world markets.
 Salient Features of the Trade Policy 2015
 Role of the Government: Facilitator, motivator and regulator
 Enhancing competitive capacity of the products with comparative and
competitive advantage for export promotion
 Reducing trade deficit by strengthening supply-side capacity
 Enhancing the competitive capacity of exportable service sectors
 Reducing transaction costs by means of trade facilitation and
institutional strengthening
 Mainstreaming trade in order to establish it as a major component of
economy
 Expanding market and enhance trade capacity by means of multilateral,
regional and bilateral mechanisms and trade diplomacy
 Linking trade in goods and services to regional and global production
network by strengthening and making them competitive as well as
supplementary to each other
 Enhancing access of Nepalese products to world market by protecting
and promoting trade related intellectual property rights
 List of Export Potential Goods & Services
Goods:
 Gingers/dried gingers; large cardamom; wool and carpets;
drugs, medicinal herbs and essential oils; coffee; silk
products; sugar; tea; foot-wears; textiles; vegetables,
vegetables seeds; instant noodles; ready-made garments;
dairy products; processed leather; pashmina; floriculture;
fruits; iron and steel products; honey; pulses; cement; gold,
silver ornaments and precious stones; handicrafts;
handmade papers and paper products, etc.
Services:
 Engineering; hydropower; tourism; education; information
technology and business process outsourcing; health
services; labour services (skilled & semi-skilled)
Labour & Employment Policy, 2005
 For most people the key to escaping poverty
means having a job. Recognizing that developing
labor standards without addressing employment
would be senseless, the ILO dedicates a large part
of its program to creating greater opportunities
for women and men to secure decent
employment and income.
 To reach this goal, it promotes international
standards on employment policy which, together
with technical cooperation programs, are aimed
at achieving full, productive and freely chosen
employment.
 No single policy can be prescribed to
attain this objective. Every country,
whether developing, developed, or in
transition, needs to devise its own policies
to bring about full employment.
 ILO standards on employment policy
provide tools for designing and
implementing such policies, thereby
ensuring maximum access to jobs needed
to enjoy decent work.
 Employment Policy refers to the guiding
principles and strategy regarding the hiring
procedure of workers in an organization.
 Employment policies are normally associated
with the „labor laws‟ of a country which
monitors the organizational recruitment and
selection of people in the three categories of
skilled, semi-skilled and unskilled
respectively.
 These policies are framed with an intention
to ensure fair job prospects to the desired
candidates. They aim to control the
prevailing red-tapeism in the institutional
hiring process at different levels.
 Labour and employment policy 2005 of
Nepal has the following provision:
i. Provide opportunities for productive and
full employment to all manpower of nation
by creating investment friendly
environment.
ii. Eradicate the practice of forced labor.
iii. Practice international standards of labor in
the work place to establish good labor
relationships.
iv. Develop a system of social security
inclusive of non formal sector.
v. The labor market will be made safe, fair,
competitive and flexible.
vi. Employment and self-employment
opportunities will be increased by
developing quality multi-skilled human
resources.
vii. Equal access to employment will be
ensured for female, dalits, indigenous
people and displaced people.
viii. Child labor will be eradicated.
ix. Labor and employment administration will
be made effective, capable, fast and
efficient.
Tourism Policy, 2008
 The tourism industry is growing very rapidly
and Nepal has tremendous potential for
tourism development because of its unique
natural and cultural heritage.
 In this context, this tourism policy has been
formulated with the aims of: increasing
national productivity and income; increasing
foreign currency earnings; creating
employment opportunities; improving regional
imbalances and projecting the image of Nepal
more assertively in the international arena;
through the development and diversification
of the travel and tourism industries.
 Vision
 The vision of Tourism Policy is to develop
Nepal as an attractive, charming and safe
destination on the world map through
protection and promotion of its natural,
cultural, biological and man-made heritage.
 Goal
 The goal of tourism sector is to increase
standard of living of people by significantly
increasing the share of tourism in national
income through sustainable use of national
heritage.
 Objectives of Tourism Policy
 Develop tourism as the main basis of national
economy through its diversification, expansion,
creating self employment, and with the linkage
of eco-tourism and rural tourism.
 Develop Nepal as a one of the attractive and
major destination by promoting, searching and
preserving new and existing national heritage.
 Develop, expand and promote tourism
through easy, safe, reliable and regular air and
land transport.
 Policies of Tourism Policy
 Promote tourism industry by formulating a master
plan based on regional development concept.
 Increase the role of private sector in tourism
sector.
 More focus on partnership approach (public &
private partnership)
 Emphasize on rural tourism, community based
tourism and home stay.
 Provision of formulation of tourism coordination
committee and crisis management committee.
 Develop package programs for targeted tourist
including tourist from SARRC and BIMSTEC
countries.
 The Ministry of Culture, Tourism and Civil Aviation (MoCTCA)
has planned to organize Visit Nepal Year 2025 in place of 2020
to attract more tourists to the country because of COVID
crisis.
 During the joint meeting of the federal parliament,
President Ram Chandra Paudel announced that the decade
of the 2080s in the Bikram Samvat calendar would be
recognized as ‘the Visit Nepal decade’ and that the year
2025 will be designated as a special year for tourism.
 Nearly one lakh tourists have been visiting Nepal monthly
since the beginning of 2023. As per the latest statistics
maintained by Nepal tourism Board, Nepal recorded the arrival
of over 3.6 lakh foreign tourists in the first four months of
2023.
 To further support the recovery of the country’s tourism
industry, the President declared that timely revisions would be
made to tourism-related laws.
 Additionally, Nepal’s tourist destinations will be promoted in
the international community, and necessary infrastructure will
be prepared accordingly.
 New tourist destinations will be identified in all seven
provinces of Nepal, and each province will be transformed into
a cultural village.
 New mountains will also be opened up for climbing, and
security arrangements for climbers and tourists will be
significantly enhanced to ensure their safety.
 Moreover, President Paudel emphasized the potential of film
tourism and promised to both materialize and expand this
concept.
 Additionally, he declared that new dimensions will be added to
adventure tourism, creating more opportunities for visitors to
participate in thrilling experiences.
 MoCTCA unveiled the strategic framework designed for Nepal
Tourism Decade 2023-2032.
 As per the framework, Nepal plans to bring in 3.5 million
tourists, excluding India and those coming overland, in the next
10 years.
Nepal Tourism Decade Target
 Increasing tourist spending to $125 from the existing $48
 Creating 1 million direct jobs in the tourism sector
 Increasing the tourism sector's contribution to national GDP
to 10 percent
 Bringing the tourist numbers to pre-pandemic levels by 2024
Implementation 2023 will be the year for preparations, 2024
will be focused on Bagmati Province, 2025 on Gandaki Province,
and 2027 on Lumbini Province. In 2028, the focus will be on
Madesh Province, while in 2029, 2030, and 2031, Sudur Paschhim,
Province 1, and Karnali Province will get the focus. The year 2026
and 2032 will be marked by national-level programs.
Monetary Policy
 Monetary policy is the regulation of a
country’s money supply by the central bank
of a country or region.
 Monetary policy is one of the most
important policies to manage aggregate
demand.
 Like other policies, the primary objectives of
monetary policy is to attain the macro
economic goal or objectives such as stability,
growth, full employment, favorable balance of
payment and so on.
 Monetary policy is the process by which
the government, central bank, or
monetary authority of a country controls:
◦ the supply of money,
◦ availability of money, and
◦ cost of money or rate of interest,
in order to attain a set of objectives
oriented towards the growth and stability
of the economy.
 Monetary theory provides insight into
how to craft optimal monetary policy.
 NRB has been formulating and implementing monetary
policy for the price stability and stability of internal and
external financial sector.
 Nepal Rastra Bank (NRB) as provided by the NRB Act
2002 (2058), has been announcing monetary policy on an
annual basis since FY 2002/03.
 The NRB has been given the task of managing liquidity,
keeping the expansion of monetary aggregates within the
desired limit, and formulating and executing foreign
exchange policy.
 The NRB includes a number of policies and programs in
monetary policy to ensure financial sector stability,
payment system efficiency, and regulatory and supervisory
standards.
 Instruments of Monetary Policy
The monetary policy uses number of Quantitative and
Qualitative Instruments to achieve the objectives.

Quantitative Qualitative Instrument

Instrument  Fixing margin
 Bank rate/refinance rate requirements
 Open market operation  Consumer credit
 Variation in the reserve regulation
ratio  Publicity
 Credit rationing
 Moral suasion
 directives
Quantitative Instrument
 Bank Rate / Refinance Rate
 Bank rate or refinance rate is the rate of interest
charged by the central bank while giving loans on
the already provided loans and on the security of
bonds to the commercial banks and other
financial institutions.
 The NRB creates liquidity by providing loans on
concessional bank rates to the commercial banks
and financial institutions.
 Due to excess liquidity with commercial banks
and financial institutions, lack of proper
investment climate and continuous increase in
deposit, bank rate has not been so much effective.
 Open Market Operations
 The NRB uses open market operations as an
important tool of monetary policy. Open market
operation has been used as a means to keep
money supply within an appropriate limit.
 Under open market operation, outright purchase
and sale auctions as well as repo and reverse repo
auctions of Treasury Bills have been continued.
 Since the money and the capital market have not
been properly developed and government bonds
have not been issued as targeted, it has been
difficult to manage liquidity through open market
operations.
 Variation in the reserve ratios
 The NRB manages liquidity through
commercial banks. For this, the NRB
primarily uses compulsory cash reserve
ratio.
 Commercial banks should keep certain
percentage of their deposit with the central
bank.This is compulsory.
 Lowering of the CRR makes available
additional resources for investment to the
commercial banks. This helps to reduce the
interest on loans given to the private sector.
Qualitative Instrument
 Fixing margin requirement
 The margin refers to the proportion of
the loan amount which is not financed by
the bank.
 A change in a margin implies a change in
the loan size.
 It is used to encourage credit supply for
the needy sector and discourage it for
other non-necessary sectors
 Consumer Credit Regulation
 Central bank regulates the use of credits
by consumers to buy durable consumer
goods by influencing the amount of down
payment and the maximum amount of
repayment.
 This can check the credit use and then
inflation in the country
 Publicity
 Under It, the central bank expresses its view
based on facts and figures by using public
media.
 It influences the credit policy in the
commercial banks.
 Credit Rationing
 Under this central bank fixes credit amount
to be lent by the banks.
 Credit is rationed by limiting the amount
available for each commercial bank or fixing
the upper limit of credit.
 Moral suasion
 It implies to pressure exerted by the central
bank on the overall banking system without
any strict action.
 In involves persuasion, suggestions and
request to banks.
 Directives
 Under this method , the central bank issue
frequent directives to commercial bank.
 These directives guide commercial banks in
framing their lending policy.
Highlights of Monetary Policy 2080/81
 The policy rate has been reduced by 6.5 percent, lowering the internal
and external economic outlook from the previous 7.5 percent to 5.5
percent.
 To make the interest rate corridor effective, a system will be
established to maintain the deposit collection rate at 7.5 percent while
lowering the lending rate to 5.5 percent.
 The first housing loan limit will be increased from NPR 1 crore 50 lakhs
to NPR 2 crores.
 Based on the suggestions of banks and financial institutions, there will
be a reassessment of guidance in relation to margin loans.
 In the fiscal year 2080/81 budget of the Nepal government, there will be
a reconsideration of the provision requiring borrowers who use
loans/facilities more than a certain limit from banks and financial
institutions to obtain a permanent account number.
 There will be a review of existing provisions regarding share collateral
loans, real estate loans, and higher purchase loan-related risks.
 During the operation of consolidated businesses until Asar 2081,
microfinance financial institutions will be encouraged for mergers and
acquisitions.
 Nepali citizens traveling outside India will be provided foreign currency
up to USD 1500 twice a year, and the existing provision will be revised
to provide up to USD 2500.
 When the impact and effect of COVID-19 diminish, the existing
provision for repaying loans taken in foreign currency in Nepalese
Rupees will be removed.
 In the fiscal year 2080/81, an extended monetary distribution of 12.5
percent and a credit increase of up to 11.5 percent from banks and
financial institutions to the private sector will be propelled.
Fiscal Policy
 Fiscal policy refers to the use of
government spending and tax policies to
influence macroeconomic conditions,
including aggregate demand, employment,
inflation and economic growth.
 The TWO main tools of Fiscal Policy -Taxes and Spending.
 Taxes influence the economy by determining how much
money the government has to spend in certain areas and
how much money individuals have to spend. For example, if
the government is trying to encourage spending among
consumers, it can decrease taxes.
 A cut in taxes provides families with extra money, which the
government hopes they will turn around and spend on other
goods and services, thus spurring the economy as a whole.
 Spending is used as a tool for fiscal policy to drive
government money to certain sectors that need an
economic boost. Whoever receives those dollars will have
extra money to spend –and, as with taxes, the government
hopes that money will be spent on other goods and services.
 There are TWO main types of fiscal policy: Expansionary
and Contractionary.
 Expansionary fiscal policy, designed to stimulate the
economy, is most often used during a recession, times of
high unemployment or other low periods of the business
cycle
 It entails the government spending more money, lowering
taxes, or both. The goal is to put more money in the hands
of consumers so they spend more and stimulate the
economy.
 Contractionary fiscal policy is used to slow down economic
growth, such as when inflation is growing too rapidly.
 The opposite of expansionary fiscal policy, contractionary
fiscal policy raises taxes and cuts spending.
Major Highlights of Fiscal Policy for 2080/81
 The Minister of Finance Dr. Prakash Sharan Mahat
disclosed a budget of 1751.31 billion Nepalese Rupees for
the fiscal year (FY) 2080/81 during a parliamentary
address on the 29th of May, 2023.
 Out of the total government budget 65.2 percent has
been allocated for current expenditure, 17.25 percent for
capital expenditure and finally 17.55 percent for fiscal
management.
 The expenditure for the upcoming fiscal year will be met
by 1248.62 billion from revenue collection, 49.94 billion
from foreign grants and remaining 452.75 billion will be
generated from internal and international debt.
 The prioritized sectors of the National Budget of Nepal FY
2080/81 are agriculture, tourism and economic development.
 Although the tourism and agriculture sectors are set as
priorities, budget allocation for these sectors have remained
low making the overall notion of economic development
through development in tourism and agriculture questionable.
 58 billion budget for the Ministry of Agriculture and Livestock
 Rs. 15.56 million budget in forest and environment sector.
 Budget 8.8 billion for the Ministry of Labor and Social Security
 Revised Prime Minister’s Employment Program, 5.94 billion
budget was allocated
 Similarly the budget also focuses on building a digital and green
economy.
 Furthermore, the economic development and social
development is also prioritized by the budget.
 Special provisions have been made for infrastructure
development including mega projects such as Nijgadh-
Kathmandu fast track, Butwal-Narayangarh road completion,
Gwarkho Flyover completion, completion of Pokhara-Mugling
highway and Karnali corridor road completion.
 NRs. 1.25 billion has been allocated to promote the startup
ecosystem through venture capital and investment in startups.
 A budget of NRs. 157 billion has been allocated for social
security programs in the FY 2080/81.
 The budget of the Ministry of Physical Infrastructure and
transport has been reduced this year by thirty billion rupees. In
the transport sector, government owned old vehicle shall be
auctioned out in the first half of the FY 2080/81.
 For machinery imports in case of small and cottage industry
only 1% customs duty shall be levied. In the energy sector
programs, the government plans to provide 100% households
with electricity supply within this fiscal year.
 The government plans to increase the electricity production
capacity to 3600MW this year.
 A budget of NRs. 87.45 billion has been allocated to the
Ministry of Energy,Water Resources and Irrigation.
 In the education sector, NRs. 3.02 billion has been allocated for
scholarships at all levels.
 The total budget allocated for the Ministry of Education,
Science and Technology for the FY 2080/81 is NRs. 197.29
billion.
 The total budget of NRs. 15.56 billion has been allocated for
the development of forest and environment sector.
Liberalization

Encourages
Globalization
 Liberalization

Think
GLOBALLY
Act
LOCALLY
 Liberalization is to liberate the economy
from the clutch of the government and
provide the platform for the enhance role of
the private sector in economic activities.
 Liberalization seeks to see the transformed
role of the government from ruler to
facilitator in order to strengthen the market
forces in resource allocation.
 Liberalization usually refers to fewer
government regulations and restrictions in
the economy in exchange for greater
participation of private entities.
 Economic liberalization refers to a country
“opening up” to the rest of the world with
regard to trade, regulations, taxation, less
restrictions on both domestic and foreign
capital, open market, and other areas that
generally affect business in the country.
 Economic liberalization means freeing of
prices, trade and entry to markets from
state control while stabilizing the economy.
-World Bank
 Nepal & Economic Liberalization
 Nepal started implementing economic
reform programs supported by the
International Monetary Fund (IMF) and the
World Bank from mid 1980’s.
 These reforms programs have been focusing
on laying the foundation for sustained
economic growth and macro-economic
stability.
 The ultimate purpose is to facilitate the
transition to a more market-oriented and
private sector-led economy.
 Since the economic liberalization measures in post 1990, Nepal
have contributed to the all round development and rapid
economic growth inside the country, though economic
development in Nepal in post days remained negatively affected
by the political factor.
 As liberalized economic reforms have encouraged the
establishment of new industries or enterprises, it would
encourage the increase in volume of export items and contents,
contributing to earn foreign currency and making economy self
sustaining.
 Liberalization process has also contributed much to the
utilization of country’s existing resources and the development
of raw materials based industries, new enterprises and business/
commercial activities.
 The liberalization in Nepal has contributed to generate
employment opportunities to Nepalese in new established
enterprises, firms, industries and business houses.
 A number of financial institutions, aid services, film industries, media
houses, insurance companies and joint venture companies in
different sectors, travel agencies and man power companies were
established which have brought positive impacts in Nepalese
economy in different form including the increment in revenues and
taxes.
 Liberalization policies requires following things:
◦ Role of government as facilitator
◦ Increase role of private sector
◦ Abolishing license requirements
◦ Freedom in business decisions
◦ Removal in restriction
◦ Reduction of tax rate
◦ Simplification of foreign trade
◦ Facilitate FDI and technology transfer
◦ Current account and capital account reforms (CA-foreign exchange
convertible, Cap.AC- involving maintaining accounts in convertible currency.
Effects of Liberalization On the Financial Sector Reforms
 Despite the small size of the economy, Nepal has diversified finance
sector. The first reform program begin in finance sector was 1985,
when the country faces an economic crisis, which promoted the
government to initiate a structural adjustment program with the
IMF.
 The second program of reform was initiated in 2002 to embark on
broader economic reforms. The financial sector reforms includes
the following:
 Banking sector was open to foreign investors. NABIL was
established as the first joint venture commercial bank of the Nepal.
 Allowed to accept the current and fixed deposits on foreign
currencies (USD, Pound Sterling)
 NRB deregulated the interest rate regime and authorized
commercial banks to fix interest rates at any level above its
minimum prescribed levels.
 Restructuring of two commercial banks RBB and
NBL.
 Restructuring of two development bank ADB/N
and NIDC.
 Strengthen banking sector regulation and
accounting and auditing standards.
 Improving the regulation and supervision on non-
bank deposit taking institutions.
 Modernizing the legislative framework with a view
to reducing legislative overlap and the
segmentation and fragmentation.
Effects of Liberalization On the Capital Market Reforms
 Capital market deals with the raising capital by dealing in
shares, bond, and other long term investments. It plays an
important role in mobilizing savings and channels them in to
productive investments.
 SEBON was established by the Government of Nepal on
June 7, 1993 as an apex regulator of securities market. It has
been regulating the market under the Securities Act, 2006.
 NEPSE was created to conduct operational functions and
trading in the securities and stocks in 1993.
 The objective of NEPSE was to impart free marketability
and liquidity to the government and corporate securities by
facilitating transactions in its trading floor through member,
market intermediaries such as broker, market makers, etc.
NEPSE opened its trading floor on 13th January, 1994.
Some of the Capital Market Reforms are
 Foreigners allows to invest in the stock exchange.
 15% tax exemption for firms that issue share to
public.
 International financial institutions are allowed to
issue local currency.
 A fully automated system at NEPSE is implemented
covering trading automation and clearing and
settlement automation.
 Develop a compatible system for cross-border
trading/ listing to bring investment from foreign
institutional investors and non-resident Nepalese.
Effects of liberalization/ Emerging
Business Environment in Nepal
 Increased private investment in core
business
 Growing urban population
 Rising informed and educated customers
 Changing role of the government
 Rising economic agenda
 Use of modern technologies
 Integration to the world economy
 Shifting socio cultural values
 Shift towards service industry
 Work force diversity
Thank you