46th ACU Board of Directors Meeting
Colombo, Sri Lanka / 13 July 2017
Address Delivered by Dr. Chiranjibi Nepal, Governor of Nepal Rastra Bank
Honorable Chairperson Mr. Indrajit Coomaraswamy,
Fellow Governors and Members of the ACU Board of Directors,
ACU Secretary General Mrs. Lida Borhan-Azad,
Distinguished Delegates and Observers,
Ladies and Gentlemen,
1. It gives me immense please to participate and address this 46th Annual Meeting of
Board of Directors of the Asian Clearing Union in this beautiful city of Colombo. At the
outset, I would like to extend my sincere appreciation to Governor Mr. Indrajit
Coomaraswamy and the entire team of Central Bank of Sri Lanka for the warm
hospitality extended to us and also for the excellent arrangements made for this
Meeting in Colombo.
Fellow Governors and distinguished delegates
2. Allow me now to shed some light on some current developments of the Nepalese
economy. After almost 20 years, elections for the local governments concluded
recently following the promulgation of Constitution of Federal Democratic Republic of
Nepal. The provincial and national level elections are to be held within 21 January
2018. The political uncertainty has now vanished and the economy is now ready for
high growth trajectory.
3. Most of the macro-financial data of the first ten months of 2016/17 show that the
economy is gaining traction. Nepal is the third fastest growing economy in the world in
2017 according to a report of the World Economic Forum. The economy rebounded
strongly in 2016/17 following a good monsoon, reconstruction efforts after the 2015
earthquake and normalization of trade with India. The GDP growth estimate of 6.9
percent demonstrates optimistic growth outlook at least in the short term.
4. The government is targeting a growth of 7.2 percent in 2017/18 as economic activities
are expected to expand due to increased government expenditure from the elected
local governments. Acceleration in reconstruction works will potentially increase trade
deficit further at least in the near term. Expected increase in foreign aid and foreign
direct investment will, however, be instrumental in keeping the country's balance of
payments in surplus. Decelerated growth in migrant workers' remittances is
moderating deposit growth. Going forward, bridging the gap between deposit and
credit growth is the key for reducing the financial frictions.
5. The consumer price inflation has been hovering below 4 percent since the last six
months. This is attributed to the previous year's base price effect and improved supply
situation.
6. On the external sector front, both exports and imports dropped by 17.8 percent and
0.1 percent respectively, leading to a small expansion in trade deficit by 2 percent to
USD 6.61 billion in FY 2015/16. However, exports rebounded by 9.8 percent while
imports surged by about 34.9 percent during the ten months of the current fiscal year,
further widening the trade deficit by 37.5 percent. The export-import ratio has
declined to 7.5 percent arising from high growth of imports compared to slower
growth of exports in the review period. Still, improvements in the service incomes,
grants and remittance inflows have contributed in marginal surplus in current account.
7. The overall balance of payments registered a surplus of USD 1.78 billion in FY 2015/16
and USD 504 million during the ten months of FY 2016/17. Lower current account
surplus emanating from increased imports and lower remittance inflows were the
principal contributing factors to the current balance of payments situation.
Consequently, the gross foreign exchange reserves of the banking system surged by 17
percent to US$ 10.31 billion as on mid-May 2017. Based on the trend of imports of the
first ten months of the current fiscal year, the existing level of reserves is sufficient for
financing merchandise imports of more than 13.2 months and merchandise and
service imports of more than 11.4 months.
Fellow Governors and Distinguished Delegates,
8. Monetary aggregates are within the expected level in the current fiscal year. Broad
money (M2) increased by 10.4 percent during the ten months of this fiscal year
compared to a growth of 12.3 percent in the corresponding period of the previous
year. Bank credit to the private sector grew at a rate of 16.6 percent this year. On the
other hand, deposit mobilization of depository institutions increased by 9.3 percent
during this year compared to a growth of 11.9 percent in the previous year.
9. In the fiscal sector, a higher rate of growth in resource mobilization relative to
government expenditure led to a surge in budget surplus during the review period.
The country remains low indebted, as outstanding total public debt, both domestic
and foreign, accounts for 24.1 percent of GDP.
10. Nepal's financial sector has grown by leaps and bounds since the economy was
liberalized in the 1990s. Yet, financial services have not become much effective till
date. Also, the growth of this sector has remained lopsided, as many still do not have
access to finance due to low financial literacy rate.
11. Safe, sound and self-regulated BFIs, transparent and consumer friendly banking
transactions, adoption of international best prudential norms and best supervisory
practices, mitigation of the systemic risks through advanced approach of supervision,
and ultimately safeguarding financial stability have always been the prime aims of
Nepal Rastra Bank as a regulator and supervisor.
12. NRB has taken a number of initiatives to consolidate the financial system. It introduced
Merger and Acquisition Policy a few years ago for preserve financial stability. This
policy has encouraged the merger of urban-centered institutions while according
priority to the expansion of rural branches in the underserved areas. Till now, 138 BFIs
were involved in merger and acquisition. Out of this, the license of 94 BFIs was
revoked thereby forming 44 BFIs.
13. In July 2015, NRB quadrupled the minimum capital requirements for BFIs in order to
promote financial stability, mobilize the resources needed for the long-term
development financing as well as to encourage merger and acquisition of BFIs.
14. The NRB is of the view that the expansion of the financial sector will be constrained
without the growth of the real sector. Thus, priority has been accorded to the
productive use of bank credit to the promotion of the real sector and this demands the
judicious use of credit and macro-prudential policies. As a competitive, efficient and
healthy financial system is vital for enhancing growth, ensuring economic efficiency
and maintaining macro-economic stability, a reasonable growth of the real economy is
equally important to sustain the expansion of the financial services.
15. In order to establish finance-growth nexus, NRB is pursuing the Financial Sector
Development Strategy (FSDS) that aims to further consolidate the banking institutions,
reduce the interest spread, introduce provisions on credit insurance and raise the
banking sector's contribution to the gross domestic product (GDP) to eight per cent.
Fellow Governors and Distinguished Delegates,
16. While going through the overall ACU transaction, trade routed through ACU in 2015
has declined significantly by about 9 percent while in 2016, trade increased by about
21 percent. Similarly, following the trend of preceding years, total transactions have
surged by about 19 percent during the first ten months of the current year on y-o-y
basis compared to the corresponding figure of last year. Further, trade is concentrated
primarily within a few member countries. All these facts warrant member countries to
evaluate the trend and I urge all the Fellow Governors to rethink on how we can better
serve the enshrined objectives of establishment of the ACU.
17. Since the establishment of ACU, Nepal has always been an active member. With
regard to our activities under ACU, the share of Nepal on total transactions of the ACU
member countries routed through ACU mechanism accounts for roughly 1 percent,
which has remained almost the same over the last few years.
18. In this opportune occasion, I would like to reiterate my firm commitment and belief in
the mission of our Union. Apart from improving the existing operational mechanism of
ACU to enhance efficiency of the Union, I am optimistic that this Forum would also
explore new avenues of co-operation that will further simplify the existing payment
mechanism in order to facilitate trade amongst member countries and enhance
monetary as well as technical cooperation among us.
19. Before concluding, I would like to once again express my utmost thanks to the Central
Bank of Sri Lanka for the kind hospitality and excellent arrangements rendered for this
important Meeting.
Thank you very much!