Invest In Capital Market

Invest In Capital Market

Siddhi B. Ranjitkar

Ultimately, Finance Minister Dr. Yubraj Khatiwadha opened up his eyes and saw the capital market was so lovely and so good for the public investment. Immediately after taking office, he publicly had said that the stock market was the most unproductive one and the people needed to invest in the productive sector of the economy sending the stock market down to the bottom, and it never had recovered since then; however, instantly after he spoke in favor of the capital market in Kathmandu on September 17, 2019, the stock market improved, and the prices of shares went up slightly; however, it would take some time to recover from the injury. He took one-and-a-half year to understand the capital market. He is now on the correct path of the economic development in the final year of his term in office, as he was elected to the National Assembly only for two years. It is better late than never.

At the public function held to mark the 58^th anniversary of the Provident Fund in Kathmandu, Finance Minister Dr. Yubraj Khatiwadha urged the public funds to invest in the capital market saying it is the golden opportunity, and it has been just the time to invest in the capital market; however, the prevailing laws don’t permit the Provident Fund to invest in the capital market; so, it needed to invest in the infrastructure development; as the Civil Investment Fund did other public funds also could invest in the second market, the news published on the front page of the “Artha Bazaar” supplement to “gorkhapatra” on September 18, 2019 stated. It was so nice that the finance minister finally appreciated the capital market.

Thanks to his knowledge of the laws pertaining to the Provident Fund, Dr. Khatiwadha refrained from urging it to invest in the capital market rather asked it for investing in the infrastructure development. It has been already doing so giving the loans to the Nepal Airlines Corporation to buy aircrafts on the security the State had provided with. It had invested in the hydropower development again on the State security. It had not invested in the infrastructure development so far to my knowledge. Infrastructures meant mainly the roads and highways. Probably, the Provident Fund had no faith in the State taking up the infrastructure projects and then completing them as schedule given the current situation of the so many roads and highways not completed not only on time but also never completing. Probably, the Provident Fund did not want to sink its capital in the never-ending infrastructure projects even though it would provide loans only on the State security.

As soon as he took office in 2018, Dr. Khatiwadha told the reporters that the stock market was unproductive; the folks should not invest in this market rather needed to invest in the productive sector. What was the productive sector, everybody asked. The manufacturing or the agriculture was only the productive sector probably for the finance minister, who brushed aside the stock market as the unproductive one, and nobody needed to invest in it.

The stock market went down, and could never recover. Probably, the stock market lost the people’s trust; consequently, the investors must have looked for other productive sector, must have gone elsewhere, as the finance minister suggested. The stock market could never recover from the free fall. It could not contribute to the economic growth rather it dragged down the economic growth. The finance minister took more than one-and-a-half years to realize this fact, and finally he probably came to understand that if he needed to achieve the target of the economic growth the capital market would be one that would help him to do so.

The economic growth was 7.9 percent in the fiscal year 2016 (2073), the so high economic must be have been possible because of the fast reconstruction of the private houses the earthquakes tore down in 2015. The reconstruction activities had caused high demands for labor, and construction materials, and then in turns the demands for other daily needs items fueling the economic growth, and it went down to 6.3 percent in the fiscal year 2017 (2074), as the private reconstruction activities had slowed down and the State had not taken up the reconstruction activities smartly.

At the same time, Dr. Khatiwadha as a finance minister publicly told that the stock market was unproductive, so, instead of investing in the shares taking loans from banks, rather invest in the productive sector, understandably in the manufacturing sector. The free fall of the stock market dragged down the economic growth. It was very hard for the finance minister recoup the economic growth, and the economic growth hardly reached 7.1 percent against the target of 8 percent in the fiscal year 2018 (2075) that also adopting the different method of calculating the economic growth.

Now, in the final year in office, Dr. Khatiwadha probably realized that the stock market must be one of the pillars of the economic growth, and down grading it would not work to achieve the desired economic growth. He had set the economic growth target for the ongoing fiscal year 2019 (2076) at 8.5 percent. That was too high for the disastrously low efficient public administration, most of the economists said. However, the finance minister had to set such a high economic target following the Fifteenth Five Year Plan the National Planning Commission had prepared for the Oli administration to implement.

The finance minister had increased the agricultural subsidy from NPR 6 billion in the FY 2018 (2075) to NPR 9 billion in the FY 2019 (2076) ostensibly for enhancing the agricultural production, which would surely contribute to achieve the economic growth. However, the news published on the second page of the “Artha Bazaar” supplement to “gorkhapatra” stated on September 25, 2019 how the farm subsidy was misused. The news stated that a cooperative had taken NPR 1.2 million for buying 12 dairy cows, and the signboard had it that 12 dairy cows were purchased; however, the provincial account committee found only six calves in Gorkha while in a mission to monitor. This is only a sample story of how the farm subsidy was misused in its entirety.

At the same event of the anniversary of the Provident Fund, Dr. Khatiwadha said that the banking sector and the financial institutions had been making profits, the economy had been making progress, the political stability was maintained, the problems of tax had been sorted out, and the rule of law had been improving; like the Civil Investment Fund other funds also needed to invest in the second market, according to the news published on the front page of the “Artha Bazaar” supplement to “gorkhapatra” on September 18, 2019. The picture the finance minister painted had been so rosy; the common folks liked to believe him but it had not been so in the mundane world.

The monetary policy for the fiscal year 2019 (2076) the Nepal Rastra Bank: Central Bank of Nepal made public in its Article 102 (e) stated that the commercial banks had to issue mandatory debentures for NPR worth 25 percent of their paid-up capitals as the measures of the forced mobilization of liquidity until the mid of July 2021 (end of Ashad 2078). It was surely for the commercial banks to have more liquidity. However, Chairman of Nepal Bankers’ Association Gyanendra Dhungana said that the main purchasers of such debentures would be pension fund, investment fund, and insurance companies, as the individuals would not be attracted to such debentures. He said so while speaking at the discussion about the monetary policy the “gorkhapatra” had held and published it on its fifth page on July 29, 2019. Thus, the central bank was trying to bring the liquidity those various public funds and insurance companies had held to use for the commercial purposes through the banks.

Again in its Article 84, the central bank in the monetary policy stated that a policy arrangement would be made for the common folks having gold to deposit in the bank deposit as savings. Participating in the same discussion the “gorkhapatra” had held, Deputy Governor of Nepal Rastra Bank: Chintamani Shivakoti said that nobody could buy and sell raw gold in Nepal so most of the gold are in the jewelry form, then, what the government could do with such gold in jewelry, he questioned. He also said that the countries such as The Philippines, and Korea had used the gold people had deposited after the revolution for building their respective war-torn countries, but Nepal has no such a situation.

In the Article 81 of the monetary policy, the central bank stated that banks and financial institutions while collecting deposits, a deposit collected from a single institution should not exceed 10 percent of their total deposits in the Nepalese currency. Obviously, the central bank was for not making banks and financial institutions dependent on a single or a few depositors. Pension fund, investment fund and insurance companies probably have to divide their deposits to various banks and financial institutions following this provision made in the monetary policy.

The monetary policy in its Article 80 stated that an arrangement would be made for banks and financial institutions enable to collect deposits from the foreign depositors and non-resident Nepalis; however, such deposits should be in foreign currencies at least for two years, and then one hundred percent of such deposits should be lend in the Nepalese currency.

Speaking at the same discussion about the monetary policy, Deputy Governor Shivakoti said that non-resident Nepalis brought one billion rupees in one year and then the next year they went with two billion rupees; so, they should deposit money in dollars otherwise the bank would have problems.

As soon as the monetary policy was released, the stock market went downhill as did when the finance minister presented the annual budget for the current fiscal year 2019 (2076). So, the stock market had been very sensitive to the budget and naturally to the monetary policy, too. Both the finance minister and the monetary policy of the central bank had been not so friendly to the stock market.

The common folks liked to see the finance minister achieved the economic growth of 8.5 percent in the current fiscal year anyway. Everybody in the country wanted to assist the finance minister in his mission to meet his economic growth target. However, the project implementation had not taken off, as it should be to achieve such an ambitious target of the economic growth.

If we were to believe in the news on the front page of “Artha Bazaar” supplement to “gorkhapatra” published on September 21, 2019, then the Oli administration had achieved the limited development expenditure to a single percent during the first two months of the current fiscal year; the development expenditure had been only NPR 5.13 billion, which was only 1.17 percent (actually 1.26 percent) of the NPR 408 billion allocated to the development for the ongoing fiscal year. It would surely not assist in achieving the high economic growth

Another news on the last page of “Artha Bazaar” supplement to “gorkhapatra” published on September 22, 2019 stated that the revenue collection at different southern custom office had gone down by 25 percent during the first two months of the current fiscal year because of the import from India and overseas countries had been low even at the time of the important festival season.

The finance minister might be happy with the reduced import, as it would positively contribute to the huge trade deficit to some extent at least but at the same time he might be unhappy, too because the State revenue was reduced, too, as the State revenue came from mainly the custom duties means the tax on the imported goods.

The most dangerous signal the low import had given is the economy is slowing down. Probably, the economic activities must have been gone down, too, as the imports included the raw materials, machinery and tools, construction equipment, and so on that are required for the fast economic growth. It would surely and severely hit the high economic growth target the finance minister had set for this fiscal year.

Probably, the finance minister has only a few months in office, as he was elected for two years only. During the last few months in office, he had at least appreciated the role of the stock market and the capital market for meeting the economic growth target. In the past, he had been totally against the stock market since he took office, and he had almost shaken the stock market that could not recover from the free fall. Currently, thanks to the current positive stand of the finance minister on the capital market, the stock market has been doing better than what used to be but not stable, yet because it had been so badly hurt by the previous statement of the finance minister.

Asian Development Bank in its “Macro Economic Update 2020” projected the economic growth for Nepal at 6.3 percent for the fiscal year 2019 (wrongly stated 2020 because it is the fiscal year 2019 means the current fiscal year 2076/77), and also stated that the economic growth continued to depend on the monsoon rains, and the monetary policy positively impacted on the economic growth, the news on the front page of “Artha Bazaar” supplement to “gorkhapatra” published on September 29, 2019 stated.

Finance Minister Khatiwadha has not made any comment on the Asian Development Bank’s projection of the economic growth for Nepal. The finance minister in his budget speech made for the fiscal year 2019 (2076/77) had set the target of the economic growth for Nepal at 8.5 percent for the fiscal year 2019.

Clearly, the finance minister was going to fail in his economic growth target. How could an expert economic allow himself to fail in setting the economic growth target? Every economist probably even the finance minister knew that the economic growth of 8.5 percent was too high for the administration so endemic with corruption to achieve. However, the finance minister had to set such a high economic growth because the National Planning Commission had set it for achieving the economic growth the politicians had targeted.

September 30, 2019