ISSN No: 1608-6627
Editorial Board
Guidelines for Article Submission

Articles for Volume 16

Nepalese Capital Market: Issues and Challenges
[Prof. Parashar Koirala and Prof. Pushkar Bajracharya]

Establishment of the Nepal Stock Exchange (NEPSE) market opened an avenue to investors, both large and small, to invest in the enterprise sector and participate in the secondary market. Despite apprehensions of many, the secondary market proved to be successful, with both the entrepreneurs and the investors showing earnest acceptance and participation in the process. However, the performance of stock exchange during the latter years gives only a mixed result. The enthusiasm did not last long as, after 2000/01, both the size and trend began to shrink. The NEPSE index came down to 204 in 2002/03 from a peak of 360 in 1999/00. The transaction volume came down to about Rs 575 million in 2002/03 compared to Rs 2344 million in 2000/01. This scenario, despite increasing number of listed securities and scrips, is not a favourable situation. Generally, the problem is attributed to the prevailing politico- economic situation. No doubt, it is true to a large extent but the problem is not confined to the present situation alone. The management of the companies and the attitude of the board of directors and intermediaries are to blame a lot. The actors of financial markets are loosely tied together from legal provisions, which are not effectively implemented. As the financial institutions predominate the market, it has not been able to diversify. Increasing problems noted with the corporate governance, transparency and disclosure have seriously dented the Nepalese capital market. The Board mainly acts as a superfluous body trying to fulfill formalities rather than seriously attending to corporate governance. The result has been poor security to investors, particularly minority shareholders, who are not fully aware of the risk and return considerations. Hence, to make the stock exchange a vehicle of growth, initiatives must be taken to protect investors, improve corporate governance and make the companies operate in a conducive and transparent manner.

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Improving Macroeconomic Management: Experiences and Lessons
[Tula Raj Basyal]

The relationship between growth and macroeconomic stability is a well-established phenomenon. Long-term growth requires a higher level of investment and a stable economic environment contributes in promoting saving and investment. Good macroeconomic policies help attract foreign saving. Sound fiscal and monetary policies create a conducive climate for private investment and economic growth. So, the policymakers need to redress the problems of domestic and external financial imbalances by designing and implementing an appropriate mix of policies for achieving higher growth, lower price uncertainty, reduced external imbalances, and other macroeconomic vulnerabilities. So, the important issues facing the policymakers are designing sound exchange rate arrangement, making current account sustainable, and promoting financial and macroeconomic stability. In order to promote sound macroeconomic environment for attaining sustained economic growth, there is a need to pursue more flexible exchange rate regime and make progress toward adopting inflation targeting in addition to improving the financial sector soundness, strength and stability.

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Financial Sector Reforms in Nepal
[Ganesh Kumar Shrestha]

Financial sector is the backbone or engine of growth of any economy. It mobilizes and allocates financial resources most productively and efficiently and induces investment, increases employment opportunities and productivity, achieves growth targets and attains overall macro-economic development In a global financial system, each country has to reform its financial sector. The reform process should be properly sequenced. Nepal initiated financial sector reform in mid-1980s and HMG/N and Nepal Rastra Bank have been implementing comprehensive Financial Sector Reform Program since 2001. HMG/N has strongly committed for the reform of the financial sector ingeneral and RBB, NBL, ADB/N and NIDC in particular. Much depends on the proper implementation of the Financial Sector Reform Program. The financial sector may invite financial crisis which may easily transfer to other sectors of the economy. As such, we have to be extra cautious for the financial liberalization and reforms of the financial sector.

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The Fallout of 9/11 on Asian Economies: Policy Options
[Ravindra Prasad Pandey]

As a result of the September 11, 2001 terrorist attacks on the United States, the immediate reaction of various economists around the globe was that the Asian economies, in particular the Southeast Asian economies, would deepen, leaving no room for an early rebound from the 1997 financial crisis. However, as events developed, the global as well as the regional economic developments gave way for greater optimism towards the immediate economic prospects of these countries. The disruption of the economy following the attacks turned out to be less disruptive than originally thought as statistics show distinct signs of improvement in the global economic situation. In the regional front, most regional stock markets rallied and consumer confidence improved, boosting domestic demand. The result of the unprecedented fiscal measures and monetary stimulus such as cuts in interest rates, income tax cuts, and post-attack government spending led to the mild rebound strengthening to more or less a full-blown economic recovery since the later part of 2002.The trend continues even at a faster pace. In nutshell, the completion of completion of initiated reform agenda and maintenance of strong economic fundamentals will provide necessary policy options for the countries in the event of uncertainty in the global recovery.

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Nepal's Budgetary Exercise During the Nineties: An Assessment
[Deepak Adhikari\]

Budgetary policies of His Majesty's Government of Nepal (HMG/N) during the Nineties were directed towards economic liberalization, privatization, poverty reduction and decentralization. Policies and programs of the budget during the Nineties were essentially concerned with agriculture modernization, employment promotion, women empowerment, financial sector reform, government expenditure management, tax reform, good governance, social service and the development of basic and physical infrastructure. The budgetary policy measures adopted by the first two budgets deserve appreciation at least in terms of the direction towards liberalization though they were still inadequate in terms of achieving the desired results. Budgetary analysis reveals that HMG/N spent regular expenditure as budgeted but development expenditure and revenue lagged behind the targets. This is a gloomy fiscal scenario-- low development expenditure, high regular expenditure, low revenue collection and high fiscal deficit with high foreign loan inflows. So far, the donors have provided loans at concessional interest rates and with high gestation period. But, we can not expect the same situation to continue in the coming years in the changing world scenario where there is drying up of the flows of foreign aid and the donors are reluctant to provide concessional loans. Hence, managing national budget has become increasingly challenging for HMG/N despite its sole objective of poverty alleviation.

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Trends of Nepals Import Duties: Implications with Future Trade Liberalization
[Special Studies Division, Research Department, Nepal Rastra Bank]

Nepal is accelerating the process of trade liberalization that had commenced in the mid-eighties; this is reflected in membership of WTO, agreement of a framework for a free trade area (FTA) in south Asia and entering an FTA with BIMST-EC. Since import duties are presently an important source of government revenue, the likely impact of trade liberalization on this important revenue source has to be evaluated. The study addresses this felt need through an elasticity and buoyancy analysis of import duties over the span of fiscal year 1980/81 to 2001/2002 as well as analyzing the responsiveness of Nepals import duties through empirical regression and five year ahead projection. The paper finds low measure of elasticity and buoyancy as well as low elasticity of import duties, although five-year projections do not suggest a decline in contribution to government revenue. The prior indicate low productivity and responsiveness of the domestic tax base suggesting a need to accelerate reforms of the tax administrative system while the latter indicates that diversification of the import basket would be appropriate.

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