KATHMANDU: The High-Level Commission on Economic Reform was formed by the Government of Nepal in October 2024 to address economic stagnation, private sector mistrust, and structural inefficiencies.

Chaired by former Finance Secretary Rameshwor Khanal, the commission included experts like Dr. Prakash Kumar Shrestha (National Planning Commission), Prof. Dr. Ram Prasad Gyawali (Tribhuvan University), Dr. Bishwas Gautam (IIDS), and Kalpana Khanal (Policy Research Institute).

Tasked with issuing timely and practical policy recommendations, the commission submitted an interim report in January 2025 and a final report to Finance Minister Bishnu Prasad Paudel on April 11, 2025.

Key recommendations include shifting from a control-based to a trust-based regulatory model, managing inflation, introducing fixed-interest home loans, liberalizing foreign investment, closing non-functional public institutions, and promoting digital transformation.

The report also addressed liquidity constraints, a savings crisis in cooperatives, and productivity issues in agriculture. It advocates institutional reforms to restore economic confidence and sustainable growth.

What are the positive and negative signs of Nepal’s economic performance over the last year, and how does this reflect the overall state of the economy?

Nepal’s economy has displayed a mixed picture in recent months, with certain positive indicators suggesting gradual improvement, while deeper challenges persist.

On the positive side, the economy has shown signs of stabilization and incremental growth. Over the past 12 months, inflation has remained relatively low, staying below 5.5%, which is a positive development for the purchasing power of the population.

Additionally, the commission stressed the importance of reducing production and business costs as a means to control inflation. For example, the commission recommended providing essential resources like electricity and land at reduced prices to ease the burden on producers and businesses.

The monthly surplus in the current account since Bhadra 2080 BS (September, 2023) indicates an improvement in the country’s balance of payments, while a surplus in remittances since Kartik 2079 BS (November, 2022) signals a strong inflow of foreign income, which supports domestic consumption and the economy overall.

Nepal’s foreign currency reserves are another bright spot, being sufficient to cover more than 14 months of imports. This strengthens the country’s financial position and offers a cushion against external shocks.

Additionally, the tourism sector has seen steady growth over the past 23 months, with increasing tourist arrivals and a rise in both domestic tourism and trade.

The energy sector has also experienced growth, and the export of information technology services is gradually improving, reflecting a diversification of Nepal’s export base.

However, despite these positive developments, the country’s economy remains fragile, and the foundation of long-term economic stability is weak. Industrial production has been in continuous decline for the past three years, signaling challenges in the manufacturing sector. The construction industry, which is a key contributor to economic activity, is contracting, and many small and medium-sized businesses are struggling, leading some to relocate.

Overall, industries and businesses across the country are facing difficult conditions, which have impeded the broader economy’s ability to thrive.

This mixture of positive growth in certain sectors and persistent struggles in others suggests that while Nepal’s economy is slowly improving, structural weaknesses remain, preventing the economy from reaching its full potential.

The slow economic growth rate and the continued contraction in key sectors indicate that the economy is not yet on a stable and sustainable path for long-term prosperity. To ensure continued progress, addressing these underlying challenges is essential.

How has Nepal’s political and economic instability affected public sentiment and the broader economy?

Nepal’s political and economic instability has deeply affected public sentiment, leading to widespread disillusionment and frustration among the population. Over the past few decades, the country has faced numerous challenges, including political upheavals, conflict, and natural disasters, all of which have contributed to the current state of public dissatisfaction.

Following the political change in 2046 BS (1990), which ushered in a new era of democracy, the country has repeatedly faced difficult situations that have dampened the hopes of the general populace. During the conflict period, millions of people were displaced, and for a decade, traveling within the country was a significant challenge due to insecurity. Political transitions and uncertainty prolonged the period of instability, and even after the conflict ended, the country faced severe energy shortages. Load shedding, lasting over 18 hours a day, became a normal part of daily life for several years, severely affecting productivity and the quality of life for citizens.

The devastating earthquake of 2072 BS (2015) added further misery, causing significant damage to the property and income of millions of families. The blockade that followed, lasting over a year, created a shortage of essential goods, exacerbating an already dire situation. People endured long lines at petrol stations, and the COVID-19 pandemic forced people to stay indoors for months, disrupting lives and livelihoods. Many who had temporary jobs in urban centers were forced to return to their villages as cities became inhospitable.

Despite these previous hardships, the current sense of disillusionment appears to be stronger than in the past. While the country has endured significant challenges before, the failure of political leaders to deliver on promises of a more stable governance system has led to a rise in public frustration.

The adoption of a more institutionalized political structure, while a step forward, has not brought about the expected improvements in political stability or economic activity. This unmet expectation of progress has fueled a general sense of anger towards political parties, leadership, and public institutions.

As a result, public confidence in the system has eroded, and economic activity has suffered. The disillusionment is evident in reduced consumption and investment, as ordinary people have become hesitant to spend or invest due to a lack of faith in the government’s ability to provide a stable and prosperous future. This widespread frustration, born from a prolonged period of instability and unmet expectations, has had a significant negative impact on both the emotional climate and economic health of Nepal, making it more difficult for the country to regain momentum and move towards long-term prosperity.

What trends in agriculture have been identified by the High-Level Commission on Economic Reform, and what do these trends indicate about Nepal’s agricultural sector?

The High-Level Commission on Economic Reform has highlighted concerning trends in Nepal’s agricultural sector, which indicate a gradual but significant shift away from agriculture as a primary profession for many households. The report underscores the increasing trend of agricultural land being left fallow, with a growing number of people disengaging from commercial farming. According to the National Agricultural Census 2021/22, these shifts are noticeable, with temporary grazing land and fallow land increasing by 45% and 95%, respectively, over the past decade.

This trend reflects a broader decline in agricultural productivity and engagement in farming as a livelihood, which is raising serious concerns about Nepal’s future food security and rural economic stability.

The commission points out that a large proportion of farming households—around 69%—consume all of their agricultural production for household use, and only about 1% of households produce goods specifically for sale.

This suggests that most farmers are not engaging in the market economy to the extent necessary to contribute to the country’s economic growth or agricultural output for commercial purposes. The lack of market integration in agriculture indicates that many farmers are producing food primarily for subsistence, with limited surplus for trade or export.

The commission also observes that the number of people involved in agricultural activities has steadily declined over the past decade. In 2021, 62% of households were engaged in agriculture, compared to 71% a decade ago.

This represents a notable decline in agricultural employment, which aligns with the broader trend of migration from rural to urban areas and the gradual shift toward non-agricultural professions.

This reduction in agricultural participation is concerning, as it signals a potential shortage of labor in the agricultural sector, which could further exacerbate challenges such as food insecurity, rising prices, and rural poverty.

The commission also identifies the increasing abandonment of agricultural land as a troubling trend. With more land being left fallow, the potential for agricultural expansion and productivity improvement is being squandered.

This, in turn, can affect the overall economic performance of rural areas, where agriculture is a critical source of income and livelihood for a majority of the population.

To address these trends, the commission recommends that the government invest in the agricultural sector to make it more sustainable and attractive to younger generations.

This could include promoting commercial farming, offering incentives for landowners to cultivate fallow land, and encouraging farmers to adopt modern agricultural practices and technologies.

Additionally, the report suggests enhancing market access for farmers, improving infrastructure such as irrigation systems, and offering financial support for agricultural businesses.

By reinvigorating the agricultural sector, the commission believes that Nepal can address both its rural economic challenges and its broader food security concerns, ensuring that agriculture remains a cornerstone of the nation’s economy in the years to come.

What are the key recommendations made by the High-Level Commission on Economic Reform to control inflation and maintain economic stability in Nepal?

The High-Level Commission on Economic Reform has presented several recommendations to the government for controlling inflation and maintaining economic stability.

The commission has underscored the importance of price stability, which it identified as a key objective for the country’s monetary policy.

In its recent report submitted to Finance Minister Bishnu Poudel, the commission provided detailed guidance on managing both inflation and the broader macroeconomic environment.

One of the central recommendations is for the government to formulate a monetary policy primarily aimed at controlling inflation.

This would involve adjusting the supply of money in the economy and closely monitoring inflation trends to ensure that prices remain within a desired limit. In the face of rising prices, the commission emphasized the need for a contractionary fiscal policy.

This would involve reducing government expenditures and lowering indirect taxes, such as sales and excise taxes, to curb demand-side inflationary pressures.

The High-Level Commission on Economic Reform has put forward a recommendation to encourage foreign investment in Nepal’s real estate sector by allowing foreign investors to purchase residential properties under certain conditions.

Additionally, the commission stressed the importance of reducing production and business costs as a means to control inflation. For example, the commission recommended providing essential resources like electricity and land at reduced prices to ease the burden on producers and businesses.

These measures could help lower production costs, making goods and services more affordable in the market. Furthermore, the report suggested a concerted effort to control black market activities, which often exacerbate inflation by distorting supply and demand dynamics.

Another significant area of focus was the efficient management of fiscal policy. The commission proposed that the government keep a close watch on fiscal expenditure, ensuring that the budgetary allocation is streamlined and well-targeted.

The report recommended that fiscal policy be adjusted in response to inflationary pressures, highlighting the need for the government to make strategic decisions regarding spending in order to avoid fueling price increases.

The report also suggested that the government address the structural issues in the economy that contribute to inflation. For instance, improving productivity, reducing inefficiencies in the agricultural and industrial sectors, and enhancing infrastructure were deemed essential for curbing cost-push inflation. By increasing the economy’s productive capacity and improving the competitiveness of Nepali products, the commission believes that inflationary pressures could be mitigated in the long term.

How does the High-Level Commission on Economic Reform recommend addressing the challenges related to Nepal’s exchange rate policy and trade deficit?

The High-Level Commission on Economic Reform has raised significant concerns regarding Nepal’s exchange rate policy and the growing trade imbalance with India. In its comprehensive report, the commission provides recommendations to address these challenges, aiming to strengthen Nepal’s currency market and improve the country’s economic stability.

One of the most pressing issues identified by the commission is the long-standing fixed exchange rate between the Nepali Rupee (NPR) and the Indian Rupee (INR). The commission suggests that the government initiate discussions and research to explore alternatives to this fixed exchange rate.

While the stable exchange rate has historically helped maintain stability in Nepal’s external sector, the report highlights that the growing trade deficit with India and the gradual opening of Nepal’s capital account could put pressure on this system.

A fixed exchange rate can make it difficult to respond to shifts in economic conditions, potentially leading to the overvaluation of the domestic currency, which harms Nepal’s export competitiveness. The trade imbalance with India is a major concern. Nepal imports far more from India than it exports, which has resulted in a significant trade deficit. This imbalance puts additional strain on Nepal’s foreign exchange reserves, as the country needs to cover the cost of imports, which could deplete its currency reserves over time.

The commission argues that the fixed exchange rate system exacerbates this problem, as it can cause the Nepali Rupee to become overvalued, making Nepalese products less competitive in international markets. To address these issues, the commission recommends a comprehensive review of exchange rate policies.

It suggests that Nepal should explore more flexible exchange rate systems or consider adjusting the nominal exchange rate to reflect changing economic conditions.

A flexible exchange rate would allow the Nepali Rupee to respond to shifts in trade balances and inflation rates, potentially helping to reduce the trade deficit with India.

Moreover, the commission advocates for a focus on improving Nepal’s export capacity. By building the necessary infrastructure, developing human resources, and enhancing productivity, Nepal can become more competitive in international markets.

Strengthening the competitiveness of Nepalese products is crucial for reducing the reliance on imports from India and other countries, which would help to alleviate the trade deficit. Promoting import substitution—producing more of the goods that Nepal currently imports—and expanding exports would not only improve the trade balance but also support long-term economic growth.

Another important recommendation from the commission is to improve the efficiency of monetary and fiscal management. Efficient management of monetary policies, such as controlling inflation and promoting productivity, can help stabilize the currency market.

The report suggests that maintaining macroeconomic stability will provide a solid foundation for currency exchange stability, preventing sharp fluctuations in the value of the Nepali Rupee that could harm trade relations and economic conditions.

Lastly, the commission proposes to prevent real exchange rate appreciation, which occurs when inflation in Nepal rises faster than in its trading partners, such as India.

The High-Level Commission on Economic Reform has proposed several regulatory measures to ensure that the property market in Nepal remains transparent and that foreign investments do not lead to misuse or negative consequences for the local economy.

To achieve this, the commission recommends maintaining low inflation, adjusting the nominal exchange rate as needed, and increasing productivity. These strategies would help ensure that the Nepali Rupee does not become overvalued, making Nepalese exports more affordable and competitive.

What is the High-Level Commission on Economic Reform’s recommendation regarding foreign investment in the real estate sector, and how does it aim to encourage foreign capital inflow?

The High-Level Commission on Economic Reform has put forward a recommendation to encourage foreign investment in Nepal’s real estate sector by allowing foreign investors to purchase residential properties under certain conditions.

Specifically, the commission has suggested that foreigners who invest more than 200,000 US dollars in the country should be allowed to buy homes or flats for residential purposes. This proposal aims to create a more favorable environment for foreign capital inflows, which could stimulate economic growth and development in Nepal.

The core objective of this recommendation is to attract foreign investors who can bring in much-needed capital, technology, and expertise to various sectors, including real estate.

By allowing them to invest in property, Nepal could incentivize greater financial involvement in the local economy, which could contribute to the overall growth and modernization of the real estate sector. This move aligns with the broader goal of fostering a conducive environment for foreign investment by offering tangible incentives, such as the ability to own property in the country.

In addition to allowing property purchases, the commission proposed that investors be able to deposit funds in a Nepali bank, providing another avenue for foreign capital to flow into the domestic economy.

The idea is that these foreign investments could be reinvested in the economy, further bolstering sectors such as construction, infrastructure, and tourism, which are crucial for Nepal’s economic development.

However, the commission has also emphasized that the government must ensure that this policy is well-regulated to prevent misuse. The recommendations specify that property purchases should be subject to certain conditions, ensuring that foreign investments contribute positively to the economy and do not lead to speculation or create inflated property markets.

This regulatory framework would help strike a balance between attracting foreign investment and safeguarding national interests.

Furthermore, the commission has recommended that only registered agencies be allowed to conduct business related to the sale and purchase of land and properties. This measure aims to ensure transparency and accountability in the real estate sector, minimizing the risks associated with land transactions, such as fraud and illegal property dealings.

By regulating property sales through legitimate, registered agencies, the government could create a safer and more organized environment for both foreign and local investors.

By regulating property transactions through registered agencies and imposing clear conditions on foreign property purchases, the High-Level Commission on Economic Reform aims to balance the attraction of foreign capital with the protection of national interests.

How does the High-Level Commission on Economic Reform propose regulating the property market in Nepal to ensure transparency and avoid potential misuse by foreign investors?

The High-Level Commission on Economic Reform has proposed several regulatory measures to ensure that the property market in Nepal remains transparent and that foreign investments do not lead to misuse or negative consequences for the local economy. These recommendations aim to create a well-regulated real estate sector that fosters both economic growth and fairness in property transactions.

One of the key proposals is that only registered agencies should be allowed to conduct business related to the sale and purchase of land and properties. This step is designed to ensure that real estate transactions are conducted through legitimate, authorized channels.

By limiting property transactions to registered agencies, the government seeks to prevent illegal or fraudulent activities that could undermine the integrity of the real estate market. These registered agencies would be required to adhere to regulatory standards, ensuring that all property deals are properly documented, taxes are paid, and ownership rights are clearly established.

This proposal also addresses concerns over land grabbing, fraud, and unregulated property deals that have been prevalent in certain areas of Nepal.

By centralizing property sales and purchases through registered agencies, the government can better track transactions, monitor compliance with the law, and ensure that property rights are protected.

This will provide a safeguard against possible misuse of foreign investment in the real estate sector, such as speculative buying or the accumulation of property by foreign nationals in a way that may not align with national interests.

Additionally, the commission has recommended that foreign investors who wish to purchase property must meet specific conditions. These include investing more than 200,000 US dollars or depositing funds in Nepali banks. These conditions are intended to ensure that the investment is substantial and contributes positively to the economy. By setting a financial threshold, the government can filter out small-scale investors who may not have a significant economic impact and focus on attracting serious investors who can make a meaningful contribution to Nepal’s development.

Furthermore, the report suggests that foreign investors must comply with rules that limit the scope of their property purchases. For instance, the commission recommended that foreign ownership in real estate should be restricted to residential properties, rather than commercial or agricultural land, to ensure that foreigners do not have a disproportionate influence over critical sectors like agriculture, which could affect the livelihoods of local communities.

Privatization would shift the responsibility for managing and improving the industries to private investors, who would have a greater incentive to ensure the industries’ success.

These regulatory measures are designed to create a more organized and transparent real estate market that minimizes risks and ensures that foreign investments benefit the country’s economic development in a responsible manner.

By regulating property transactions through registered agencies and imposing clear conditions on foreign property purchases, the High-Level Commission on Economic Reform aims to balance the attraction of foreign capital with the protection of national interests.

This approach could foster a more stable, transparent, and sustainable real estate market in Nepal, enhancing the overall investment climate.

What are the High-Level Commission on Economic Reform’s recommendations regarding the privatization of government-owned cement industries, and how would this impact the cement sector in Nepal?

The High-Level Commission on Economic Reform has proposed the privatization of two fully government-owned cement industries: Hetauda Cement Industry and Udaypur Cement Industry.

These industries have faced significant challenges, including halting production for several months, and the commission believes that selling their shares to the private sector could improve their performance and contribute to the growth of Nepal’s cement sector.

In its report, the commission suggests evaluating the feasibility of merging Hetauda Cement Industry and Udaypur Cement Industry while retaining a small portion of the government’s stake.

This partial privatization approach would allow the government to retain some control over these industries while also opening the door for private investors to inject capital, expertise, and efficiency into the operations of the cement plants. The commission proposes that the remaining shares be sold to private investors, who could bring in much-needed investment, technology, and management capabilities to revitalize the industries.

The rationale behind this recommendation lies in the fact that both cement industries have struggled to remain operational, with production halted for several months due to various challenges, including financial difficulties and operational inefficiencies.

Privatization, according to the commission, would help address these challenges by introducing market-driven practices and competition, which are essential for improving productivity and profitability.

Furthermore, the commission has proposed that the immovable property of these institutions be transferred to government ownership. This includes any land, buildings, or other assets that the institutions hold.

Privatizing the cement industries would also allow the private sector to streamline operations, reduce costs, and increase production capacity.

This would likely lead to a more competitive cement market in Nepal, which could have several positive outcomes. For one, increased production capacity would help meet the growing demand for cement, particularly in the construction sector, which has experienced steady growth.

As cement is a vital material for infrastructure and construction projects, a more efficient and competitive cement industry would contribute to the country’s overall economic development.

Moreover, by bringing private sector management to these industries, the government could reduce the financial burden associated with running loss-making enterprises.

Privatization would shift the responsibility for managing and improving the industries to private investors, who would have a greater incentive to ensure the industries’ success.

Additionally, the infusion of private capital could help modernize the infrastructure of the cement plants, making them more efficient and environmentally sustainable.

Why has the High-Level Commission on Economic Reform recommended the dissolution of five non-functional public institutions, and what does it suggest should happen to their assets?

The High-Level Commission on Economic Reform has recommended the dissolution of five public institutions—Janakpur Cigarette Factory, Butwal Thread Factory, Nepal Engineering Consultancy Service Center, National Construction Company Nepal, and Nepal Oriented Magnesite Pvt. Ltd.—due to their persistent non-functionality and inability to operate effectively.

The commission’s suggestion stems from the fact that these institutions have failed to fulfill their intended roles, and their continued existence imposes an unnecessary financial burden on the government.

The main reason behind the recommendation is the ongoing inefficiencies within these institutions, which have resulted in their inability to contribute to the economy or meet their operational objectives.

Despite being public enterprises initially established to provide goods, services, and employment, these entities have become non-viable due to poor management, outdated technology, lack of investment, and competition from more efficient private sector players. The inability to operate effectively means that these institutions are no longer capable of achieving their goals, and they continue to incur losses, which ultimately costs the government in terms of subsidies and funding.

A fixed exchange rate can sometimes lead to the overvaluation of the domestic currency, which hurts Nepal’s export competitiveness. By reviewing exchange rate policies and potentially adjusting the nominal exchange rate, the government could prevent an appreciation of the Nepali Rupee that could negatively impact Nepalese exports.

By recommending the closure of these institutions, the commission aims to stop the unnecessary financial hemorrhage caused by funding these non-functional entities.

The closure would also allow the government to redirect its resources towards more productive sectors that can stimulate growth and provide public benefits.

Furthermore, the commission has proposed that the immovable property of these institutions be transferred to government ownership. This includes any land, buildings, or other assets that the institutions hold.

These assets should then be managed by the government and repurposed for other productive uses, such as infrastructure development or allocation to other functional enterprises.

This approach would ensure that valuable resources are not left idle or underutilized but are instead put to use in ways that contribute to the country’s economic development.

The idea is to prevent public resources from being wasted on maintaining institutions that have outlived their purpose. The dissolution of these entities would not only stop the drain on public finances but also enable the government to better allocate assets towards projects with greater potential for positive economic impact.

In addition to the closure of non-functional institutions, the commission also emphasized that the government should ensure timely auditing of all public institutions and make the findings publicly available. This measure would increase transparency and accountability, helping to identify and rectify inefficiencies in other public entities.

What strategies has the High-Level Commission on Economic Reform proposed to manage inflation and stabilize the economy in Nepal?

In its recent report, the High-Level Commission on Economic Reform has provided a detailed framework for managing inflation and ensuring macroeconomic stability in Nepal. The commission’s recommendations emphasize the need for a strategic approach to both monetary and fiscal policies to control inflation while fostering sustainable economic growth.

One of the primary recommendations is for the government to formulate monetary policies that prioritize price stability. The commission underscores the importance of maintaining low inflation, which it views as critical for economic stability.

This approach suggests that the central bank should focus on controlling inflation by managing the money supply and interest rates effectively. By ensuring price stability, the government can protect the purchasing power of consumers, which is vital for maintaining public confidence in the economy.

In addition to monetary policies, the commission stresses the role of fiscal policy in controlling inflation. When prices are rising, the government should adopt a contractionary fiscal policy.

This involves reducing government expenditures and lowering indirect tax rates to curb demand pressures on the economy.

By cutting government spending, the commission believes that demand for goods and services can be moderated, helping to prevent inflationary spikes. Lowering indirect taxes, which directly affect the prices of goods and services, would also contribute to controlling price increases and reducing inflationary pressures.

The commission also suggests a variety of measures to reduce the costs of production and business activities, which can directly help control inflation. For instance, the report proposes that the government work on ensuring the availability of electricity and land at lower prices for businesses.

These two factors are critical to lowering operational costs for industries and manufacturers, which would, in turn, help stabilize product prices and prevent inflation from becoming entrenched in the economy.

Further, the commission highlights the need to control black market activities and ensure that the supply of goods and services in the market remains smooth.

Black markets often exacerbate inflation by creating artificial shortages, inflating prices, and reducing consumer access to essential goods. The government’s role in regulating the market and addressing these illicit activities is crucial for keeping inflation under control.

Another important aspect of the commission’s recommendations is the review of exchange rate policies. The report suggests that Nepal, given its long-standing stable exchange rate with the Indian Rupee, needs to explore alternatives to this fixed exchange rate in light of the growing trade deficit with India and the gradual opening of the capital account.

For the economy at large, the move towards fixed interest rates could also have positive effects. By reducing the uncertainty associated with fluctuating borrowing costs, this policy could encourage more people to invest in real estate, which would stimulate the housing market.

A fixed exchange rate can sometimes lead to the overvaluation of the domestic currency, which hurts Nepal’s export competitiveness. By reviewing exchange rate policies and potentially adjusting the nominal exchange rate, the government could prevent an appreciation of the Nepali Rupee that could negatively impact Nepalese exports.

The commission also advocates for improving Nepal’s economic competitiveness by investing in necessary physical infrastructure and developing human resources.

The ability to produce more efficiently and innovate will help businesses compete both domestically and globally, reducing reliance on imports and boosting export growth. Increasing productivity would also help reduce inflationary pressures, as more goods and services could be produced without inflating prices.

Finally, the report suggests that adopting a strategy to prevent real exchange rate appreciation is key to long-term economic stability. The real exchange rate can appreciate when inflation in Nepal outpaces that in trading partners like India, leading to a loss of competitiveness.

The commission’s recommendation to maintain low inflation, increase productivity, and adjust the nominal exchange rate, when necessary, would help prevent such an appreciation, ensuring that the Nepali economy remains competitive in the global market.

Why has the High-Level Commission on Economic Reform recommended offering home loans at fixed interest rates, and how would this benefit individuals and the economy?

The High-Level Commission on Economic Reform has recommended offering home loans at fixed interest rates for individuals with stable incomes, emphasizing the need to ease the financial burden on potential homeowners and improve access to affordable financing. This recommendation is grounded in the understanding that rising interest rates can significantly affect borrowers, particularly in sectors with delayed returns and individuals looking to buy their first home.

According to the report submitted by the commission, fluctuating interest rates increase the cost of borrowing, which in turn raises production costs and increases the financial burden on individuals and businesses.

The commission specifically pointed out that when interest rates rise, the responsibility for interest payments grows, which could be particularly detrimental to individuals in the productive sector who are seeking long-term investments, such as those starting businesses or investing in infrastructure.

Additionally, first-time homebuyers are also highly vulnerable to the effects of rising interest rates. Many of these individuals rely on home loans to make significant life purchases, and higher interest payments would make homeownership more financially challenging.

With an aging population and the increasing costs associated with providing social security benefits to a growing number of senior citizens, the government is finding it increasingly difficult to maintain the current level of expenditure.

The recommendation to offer fixed interest rates aims to provide stability and predictability for borrowers, especially those with stable incomes.

By locking in a fixed rate for a specified period, individuals would have more confidence in their ability to manage loan repayments over the life of the loan.

For example, someone buying their first home would not have to worry about sudden increases in monthly payments due to rising interest rates, which could otherwise strain their finances and make it harder to sustain long-term homeownership.

For the economy at large, the move towards fixed interest rates could also have positive effects. By reducing the uncertainty associated with fluctuating borrowing costs, this policy could encourage more people to invest in real estate, which would stimulate the housing market.

It could also lead to more investments in other productive sectors, such as manufacturing or agriculture, where high interest rates often discourage capital investment.

In this context, fixed interest rates would help align the cost of borrowing with the ability of individuals and businesses to generate returns, thereby fostering more sustainable economic growth.

The commission also noted that higher interest rates often lead individuals to borrow from informal, unregulated sources, where interest rates are typically much higher. This further exacerbates the financial burden on households and businesses, especially those in lower-income brackets.

By encouraging people to enter the formal loan sector, the government could reduce the risks associated with unregulated lending and ensure that loans are provided under more favorable terms and conditions.

Beyond the specific recommendation for home loans, the commission also emphasized the need for reducing operational costs within the banking system.

This would help increase efficiency, improve access to financing, and ensure the overall stability of the financial system. By narrowing the gap between loan and deposit interest rates and promoting policies that maintain a positive real deposit interest rate, the government could help keep borrowing costs low while encouraging people to save more through formal banking channels.

Why has the High-Level Commission on Economic Reform recommended raising the eligibility age for senior citizens’ allowances to 70, and how would this change impact the sustainability of social security programs?

The High-Level Commission on Economic Reform has recommended raising the eligibility age for senior citizens’ allowances to 70 years as part of broader efforts to ensure the sustainability and financial viability of social security programs in Nepal.

Currently, senior citizens aged 68 are eligible to receive allowances from the government, but this age threshold has been a point of contention due to its implications for public finances and the potential misuse of the allowance as a political tool.

Contribution-based programs, such as pension schemes, would allow individuals to contribute to their own social security benefits during their working years, reducing the burden on the state in the long term.

One of the primary reasons for this recommendation is the increasing financial burden posed by the senior citizens’ allowance program. With an aging population and the increasing costs associated with providing social security benefits to a growing number of senior citizens, the government is finding it increasingly difficult to maintain the current level of expenditure.

By raising the eligibility age to 70, the commission aims to reduce the number of people eligible for the allowance, which would ease some of the pressure on public finances.

Additionally, the report acknowledges that the senior citizens’ allowance has often been used as a political tool, particularly during election periods. Political parties have frequently promised to increase the amount or expand eligibility as a way of appealing to elderly voters.

This politicization of the allowance program has raised concerns about its long-term sustainability, as decisions regarding the allowance have sometimes been made without considering the broader fiscal implications.

By setting the eligibility age at 70, the commission hopes to remove the political element from the decision-making process and ensure that social security programs are designed with long-term fiscal health in mind.

The commission also recommended a comprehensive review of other social security programs run by provincial and local governments, as these programs have expanded in scope without sufficient oversight or coordination.

By streamlining and coordinating the administration of social security benefits, the government can ensure that resources are allocated more efficiently and that benefits are directed to those who truly need them.

The report suggested that using a national identification system could help target social security programs more effectively, ensuring that benefits are given to eligible citizens and reducing the potential for fraud or misuse.

Without a recovery in both savings and business activity, the broader economic conditions remain stagnant, with limited consumer demand and low investment activity.

The proposal to raise the eligibility age for senior citizens’ allowances is part of a broader strategy to restructure social security programs and make them more sustainable. The commission has emphasized the importance of expanding the scope of contribution-based social security systems, which would help reduce the reliance on government-funded allowances.

Contribution-based programs, such as pension schemes, would allow individuals to contribute to their own social security benefits during their working years, reducing the burden on the state in the long term.

The use of national identification cards to streamline the administration of social security programs would also help to reduce inefficiencies and ensure that benefits are distributed in a more targeted manner.

By linking social security benefits to a national identification system, the government can create a more transparent and accountable system, minimizing the risk of duplication or fraud.

What does the High-Level Commission on Economic Reform suggest regarding the liquidity crisis in Nepal’s market, and what are the underlying reasons for it?

The High-Level Commission on Economic Reform has raised significant concerns about the liquidity situation in Nepal’s financial system, with particular attention given to the excessive liquidity in the market that is not reaching individual hands.

Despite Nepal Rastra Bank’s efforts to withdraw billions of rupees from the banking system through mechanisms such as the permanent deposit facility and open market operations, the commission highlights that more than 700 billion rupees of liquidity remains available for investment in the banking system.

This excess liquidity, however, is not translating into accessible funds for ordinary people and businesses, which is contributing to a wider economic challenge.

The primary issue, as pointed out by the commission, is the liquidity constraint faced by individuals and businesses. While the market has an abundance of liquidity, the hands that require this liquidity, namely those of the general public and small businesses, are experiencing a severe shortage.

This is largely due to two main factors: the significant loss of savings by thousands of families in the cooperative system and the inability of small and medium businesses to recover commercial loans.

Many cooperatives, which were a source of financial security and savings for many Nepali families, have faced serious financial crises, resulting in a dramatic reduction of savings and a loss of trust in the financial sector.

This loss has severely restricted the amount of cash available for consumption or investment by ordinary households.

Moreover, the commission highlights that small and medium-sized enterprises (SMEs), which are a vital part of Nepal’s economy, are unable to recover loans they had taken out for business operations.

This has created a situation where these businesses cannot reinvest in their operations or expand, further limiting overall economic activity. As a result, demand within the economy remains weak.

Even though interest rates are low, the liquidity available in the financial system cannot stimulate borrowing because the capacity of investors, particularly those from the small and medium-sized business sector, to take on additional loans is severely restricted.

The liquidity in the system remains largely untapped due to a lack of borrowers with the financial means or confidence to access it.

To address the digital divide, the commission recommends improving internet accessibility, particularly in rural areas, by reducing fees and expanding broadband infrastructure through the Rural Telecommunications Fund and the Nepal Telecommunications Authority.

This situation reflects a disconnect between the banking sector, which holds substantial liquidity, and the real economy, where that liquidity is constrained due to structural financial challenges.

Without a recovery in both savings and business activity, the broader economic conditions remain stagnant, with limited consumer demand and low investment activity.

The commission has recommended that the government and Nepal Rastra Bank take targeted measures to address this liquidity mismatch. This could include supporting small and medium businesses in recovering from their losses, ensuring that cooperatives are better regulated and more transparent, and providing incentives for individuals to save and invest within the formal banking sector.

By ensuring that liquidity flows to where it is most needed—within households and businesses—the commission suggests that overall demand and economic activity could be revitalized, paving the way for a more balanced and sustainable economic recovery.

What recommendations has the High-Level Economic Reform Advisory Commission made to improve Nepal’s internet services and foster the growth of the IT sector?

The High-Level Economic Reform Advisory Commission has recommended several measures to enhance the effectiveness of internet services and foster growth in Nepal’s IT sector.

In its report, the commission urges public bodies and organized institutions to prioritize purchasing software exclusively from Nepali IT companies, aiming to support the local industry. It also proposes allocating at least 10% of the capital budget over the next five years for the development of physical infrastructure such as workstations and IT parks.

The commission emphasizes the importance of building a comprehensive ecosystem for the IT sector’s growth, advocating for a national strategy to drive digital transformation and incorporate emerging technologies like Artificial Intelligence (AI), robotics, and the Internet of Things (IoT).

To address the digital divide, the commission recommends improving internet accessibility, particularly in rural areas, by reducing fees and expanding broadband infrastructure through the Rural Telecommunications Fund and the Nepal Telecommunications Authority.

Additionally, the report calls for the launch of digital literacy programs to enable citizens to effectively use information technology and for strengthening cybersecurity measures to ensure high-quality IT services.

It also stresses the need for continuous electricity supply to government data centers and IT infrastructure to maximize their potential.

Lastly, the commission suggests establishing minimum standards for IT infrastructure, with policies for its standardization and certification, and identifying essential services based on citizens’ needs to ensure accessibility and efficiency in IT systems.