Opinion | Nepal’s liquidity paradox
Summary
Nepal faces a paradox of surplus bank liquidity alongside credit stagnation due to structural economic issues, risk aversion, and weak investment confidence despite low interest rates.
Key Points
- Nepal's banks have a historic surplus of over Rs1.1 trillion in loanable funds but the real economy struggles to get credit.
- High and volatile interest rates since the pandemic have eroded borrower confidence, discouraging investment.
- The liquidity trap reflects deeper structural constraints like poor infrastructure, lack of bankable projects, and coordination failures.
- Nepal needs a development-oriented monetary policy and targeted refinancing strategies similar to China and South Korea to channel liquidity into productive sectors.
