source: Editorial, republica

As the major political parties make progress in the peace process, a faint flicker of hope for completion of the Herculean tasks of writing a new constitution and ending the ever-lengthening peace process has appeared on the political horizon. However, no sooner does one hole come closer to getting patched up than another springs into view, this time in the economic sector. The health of major sectors of the economy has been worsening in recent weeks, throwing up strong signs that the economy is lurching toward a downward trajectory.

Undoubtedly, the sudden imploding of the reality sector in late 2009 is the main cause of many of the ills that Nepal’s improvised economy is now facing. According to estimates, the meltdown in the sector has frozen capital worth around Rs 120 billion, much of which came from banking. As a result, almost all vital sectors of the economy have now started to experience the negative consequences, besides dampening the prospects for housing-dependent industries like brick and cement.

The latest victims of the collapse in realty are the banks. Their overall profits during the first quarter of the current fiscal year have decline by 23 percent compared to the same period last year. Many CEOs of leading banks admit that they have already used up all their ammunition to ensure timely servicing of past outstanding loans, and chances are slim that they will be able to see any repayments from the reality sector in the coming quarter.

Swelling loan loss provisions in first quarter statements are a clear indication of the difficulties that financial institutions are having in getting their loans repaid. As a result, the profits of the one of the most prolific sectors of Nepal’s economy are likely to plunge to ground level in the coming year.

Similarly, the shrinking of general demand, mainly due to the squeezed purchasing capacity of consumers, has also emerged as a major concern. A series of news reports highlighting waning sales, ranging from ready-made garments to retail business, has emerged of late.

We do appreciate a number of measures taken by both the government and the central bank to revitalize the economy in recent months. However, we believe this treatment has not been enough to cure the economic ills. It was like giving an aspirin when the need was for surgery.

We urge the government and the central bank to take concrete steps to ensure a gradual revival of the realty sector. Make no mistake, any attempt to revive the economy without taking care of the sluggishness in the realty sector is doomed to fail in its goals

source:Editorial, Republica, 24 Nov 2011