Three credit booms in three decades ended in economic downturn
Summary
Nepal has experienced three major credit booms over the past three decades, each followed by significant economic downturns marked by deficits and slowed growth, driven by aggressive lending and loose monetary policies.
Key Points
- Nepal experienced three major credit booms during 1994-1996, 2008-2010, and 2020-2022, each followed by economic downturns.
- Each credit boom was marked by aggressive loan expansions fueled by loose monetary policies, fiscal actions, and financial liberalization.
- These credit booms led to ballooning current account deficits, depleted foreign exchange reserves, and a contraction in credit growth.
- Economic growth was negatively impacted as credit was largely diverted to unproductive sectors like real estate and stock market speculation rather than manufacturing.
