Deepak Shrestha is a renowned businessman in Nepal, currently serving as the Vice President of the Nepal Chamber of Commerce, the country’s oldest and most prestigious chamber, established 75 years ago. Shrestha is also the chairperson of Nepatop Organisation, one of Nepal’s leading manufacturing and corporate conglomerates. The group specialises in construction materials, plastic water-storage tanks, pipes and fittings, and UPVC doors, with factories operating in Nepaltar (Kathmandu) and Nuwakot.
Established in 1999, Nepatop Organisation has grown and expanded significantly over the years. The HRM Nepal caught up with Shrestha to discuss the prevailing challenges in the economy, his diagnosis and treatment of these issues, and potential future economic scenarios based on an analysis of two major frameworks: fiscal and monetary policy. Excerpts of the interview are provided below.
Q: The Nepali economy is currently undergoing a prolonged slowdown. How would you characterise the current state of the economy?
A: The existing challenges of the economy evolved from the Monetary Policy 2022/23. Nepal Rastra Bank (NRB)’s attempt to control working capital within a two-and-a-half-month window exacerbated negative externalities in the business sector. Instead of applying the brakes so forcefully, the central bank should have minimised the use of working capital gradually if borrowers were using it excessively from banks and financial institutions (BFIs). However, the policy was introduced all of a sudden, capping the working capital threshold at 20% of the annual transaction volume. If an adequate timeframe of three–four years had been given to maintain that cap, the scenario would have been entirely different.
I think the government was anxious about the overheating of the economy, which exerted severe pressure on foreign exchange reserves. Right at that time, Sri Lanka had gone bankrupt and forex reserves were sharply depleting in Bangladesh, which provoked Nepal to apply cautiously tight policy measures. However, that approach undermined Nepal’s ground reality. Other restrictive policies were introduced to curb imports, such as a 100% cash margin provision for Letters of Credit (L/C) and import restrictions on certain goods categorised as luxury items. This not only hit government revenue but also adversely affected broader economic activities. Furthermore, interest rates soared to 15%-16%, hitting borrowers hard and impacting a wide range of business clusters, from retailers to large industry owners.
Following the lifting of pandemic travel restrictions, the outmigration of Nepali youth seeking employment opportunities abroad increased, and the outmigration of students rose significantly after the Covid-19 pandemic. Consequently, one-third of the country’s population has migrated abroad for jobs, higher studies, and other voluntary reasons. Consumption has dwindled alongside this youth outmigration, and simultaneously, the working-age population in the country is dropping. On top of that, the government’s capital and development expenses have remained consistently slow for several years. The prolonged slowdown in the economy is the accumulation of all the problems I have mentioned above.
Q: In this scenario, could the fiscal budget 2026/27 deliver momentum to the economy, or are there underlying causes that will affect the implementation of the new government’s ambitious budget?
A: The fiscal budget 2026/27 is quite ambitious, and it has also tried to reassure the private sector. Considering the huge size of the budget deficit, nearly Rs. 650 billion in a Rs. 2,140 billion budget, the fiscal budget sets an ambitious revenue mobilisation target of Rs. 1,580 billion. Recurrent expenditure is on par with this revenue target. The revenue target can be achieved only if the Government of Nepal introduces policies and programmes that create an enabling environment for entrepreneurs, and economic activities must be propelled in a vibrant manner. The government should focus its efforts on implementing the policies advised by the private sector.
Q: What are those policies to be implemented by the government?
A: The private sector from the very beginning has been repeatedly asking for financial penalties for financial mistakes and errors, unless someone has committed a serious financial crime. We are not asking for financial penalties for intentional and severe financial crimes, which absolutely require treatment as criminal offences. However, the government must demarcate the line and should not treat all financial errors under the umbrella of criminal offences.
The current approach of detaining first and listening later is discouraging the business community. Once the business community loses confidence, it will be difficult to rebound, and the economy will suffer for a long time. Given that the private sector contributes 80% of the country’s GDP, 85% of jobs, and 70% of capital formation, it is obvious that they deserve good treatment from the state.
However, Nepali society has been emerging as a tyrannical society that enjoys criminalising others and distorting their reputation and prestige by weaponising the media and social media. The same applies to almost all segments of society unless the victims are themselves or their near and dear ones. The private sector in the country is like a milking cow. The government can collect milk (revenue) only if the cow is treated well by providing proper grazing opportunities, fodder, feed, and grass.
Q: It means the growth target of 7%, the revenue target, and other key targets set by the budget won’t be achieved if private sector confidence is not restored?
A: Entrepreneurship is all about taking risks and succeeding through the best use of one’s talent, skills, networks, and technology, among other resources. Not everyone who embraces entrepreneurship succeeds. There is always a high chance of failure too. During the long course of an entrepreneurial journey, one might commit a mistake due to the ambiguity of the law or a lack of proper understanding, which is simply not a crime. The nature of these mistakes or legal violations must be addressed through a spectrum of soft to tough penalties, starting from moral suasion, summoning and warnings, financial penalties, and others.
If the factors deterring investment are fixed and investors’ confidence is restored, the target of 7% growth is not overly ambitious, and the revenue collection target could also be achieved. We achieved 7% growth straight for three years after 2016/17, strongly supported by post-earthquake reconstruction. In the present context, to achieve 7% growth, private sector credit growth needs to increase by 20%. However, a large number of businesses, around 1.5 lakh enterprises, including both large corporations and SMEs, are currently blacklisted or disqualified from availing credit from BFIs. The stringent provisions of blacklisting should be reviewed to facilitate borrowers in building their capacity to pay back their loans.
Q: Credit growth remained sluggish at 5.3% this fiscal year. Do you think that the private sector has that much appetite to consume such a large volume of credit?
A: The command and control by the government could discourage the private sector. Government agencies and regulators should be facilitators to the private sector, considering its contribution to the economy. The private sector cannot flourish under the oppressive behaviour of state agencies and regulators. Recently, a delegation from the Nepal Chamber of Commerce had a meeting with the finance minister and communicated this message.
We would also like to request Nepal Rastra Bank to minimise overcompliance, as banks have been seeking numerous documents citing regulatory compliance. Common people cannot avail themselves of not just business loans but also home loans. The stringent criteria for bankers can discourage them from sanctioning loans, as it could push them toward personal risk. Despite pious intentions, all businesses cannot succeed. Some might fail because of various reasons. In this view, the loan sanctioning official shouldn’t be made responsible for the default of the credit. BFIs are flushed with liquidity, but they are not in a condition to sanction loans due to these stringent provisions, which require facilitation.
Q: The working capital guidelines were deferred for a few years. The revised provisions allow borrowers to avail of up to 40% of their annual transactions based on the nature of their businesses. Why is the business community still not satisfied with these provisions?
A: The working capital guidelines have been softened a bit compared to the version that was initially introduced. We are not saying that rampant lending should be allowed. The misuse of loans must be curtailed. A loan issued for a particular business cannot be used for another. However, the regulator should have controlled it gradually over a certain period of time. Instead, the NRB tried to enforce the 20% working capital cap (of annual transaction volume) within a very short window of two and a half months, in a way, like the forced landing of an airplane halfway to its destination, which exacerbated the problems in the economy. The NRB should have introduced such guidelines in consultation with the private sector.
Moreover, blacklisting provisions are exceptionally stringent in Nepal. If we look at India, borrowers are blacklisted only if they default consistently for three years. We would like to request the government and Nepal Rastra Bank to protect businesses. It is already difficult for banks to manage the collaterals and assets of borrowers. If any projects are delayed due to certain circumstances, BFIs do not consider restructuring and rescheduling, citing regulatory compliance. We have requested the Nepal Rastra Bank governor for a flexible moratorium or regulatory forbearance to protect enterprises. Currently, the restructuring facility is granted only to contractors, which is inadequate. In terms of document-related compliance, if a borrower actually reads the conditions on a loan application form, no one would ever take a loan from a BFI.
Furthermore, in partnership businesses, personal guarantees (PG) should be taken in accordance with the share structure of the company. If a company has 15 partners, banks take a 100% PG from all 15 individuals. Consequently, if one partner is blacklisted, all partners in their other separate businesses also get blacklisted. Additionally, we have to carry out third-party verification. If we obtain a loan over Rs. 250 million, the borrower must undergo a third-party stock verification every three to six months. A single verification costs Rs. 1.5 lakh or more, which increases the cost of doing business. If someone avails a loan of Rs. 500 million or more, all details of the borrower are published on the website of a credit rating agency.
On top of that, tax offices demand all documents just to provide a tax clearance certificate, where they mention the transaction and tax amounts, and this information becomes public from the ward office to everywhere across government departments. Another major challenge that entrepreneurs are facing right now is the increased premium of insurance. Insurance premiums have increased threefold over the last five years. Although we can consider that risk coverage is wider compared to the past, insurance against riots is mandatory now. Furthermore, every insurer has their own interpretation regarding machinery insurance.
Q: The NRB had given the restructuring and rescheduling facility during the Covid-19 pandemic. The NRB has said that such facilities cannot be granted for a long time. What is your take on it?
A: The nature of some industries is unique, and they generate revenue only in the last quarter of the fiscal year. Their cash flow management can be problematic because they have to produce and maintain stock during the rest of the time to supply and generate revenue in that final quarter. The policies designed to curtail the misuse of loans are generalised, overlooking the uniqueness of these specific businesses. Those who misuse loans must be penalised, but the policies shouldn’t put everyone in the same basket. Policies brought in to restrain the culprits should not include all innocent operators in the same group and create difficulties.
The NRB has extended authority to banks to provide restructuring facilities based on the borrowers’ practical needs, but the BFIs are reluctant to provide this restructuring facility due to the increasing policing role of the state.
Q: It is said that the government has defaulted on contractors’ payments, subsidised agricultural loans, and subsidised crop and livestock insurance. What happens to the market when the government itself becomes a defaulter?
A: Normally, a default by the government is never imagined. However, at the Nepal Chamber of Commerce, we have been hearing such grievances regarding delays in the transfer of subsidised premiums for crop insurance through the Nepal Insurance Authority. Non-life insurers are reluctant to issue insurance policies for crops and livestock because they have a sizable amount to be reimbursed by the government. A similar situation is happening with banks regarding subsidised credit in agriculture.
Q: It is said that the BFIs are flushed with liquidity, and nearly around Rs. 1,200 billion can be mobilised as loans. However, the funds remain idle due to low credit demand. The government has stated that it will raise Rs. 400 billion as domestic debt in FY 2026/27. Why is the private sector not lured to mobilise low-interest credit at the moment?
A: There have been regulatory and supervisory policies and guidelines to minimise risk in banks and financial institutions. However, if banks are unable to lend for a longer period of time, their income will dwindle and vulnerability will increase. More than that, the BFIs have to worry about entrepreneurship development and private sector expansion as financial intermediaries. The entrepreneurs are taking the entire risk. There is no saviour behind them like Nepal Rastra Bank is for the banks.
The government is going to raise debt of over Rs. 400 billion, and the NRB has been paying 2.75% interest to depositors to safeguard them. The lowest band of the interest rate corridor is considered the deposit rate by the central bank. At the moment, banks have no expenses on these deposits.
Q: Banks have been alleging that entrepreneurs are not taking credit despite the low interest rates?
A: The situation right at the moment is like someone choking you and asking you to swallow food. If all entrepreneurs lack complete integrity, that does not mean they are criminals either. Banks have been treating borrowers the way feudal lords or loan sharks used to, mortgaging everything the borrowers own. If enterprises cannot sustain themselves and the private sector remains weak, banks will not be able to sustain themselves either.
Nepal Rastra Bank and the BFIs have to understand that a 100% success rate cannot be guaranteed for every loan to become a good loan. In cases of default, bankers should not be criminalised either. In project-based lending, the entire loan cannot be covered with collateral backing. A project loan is sanctioned based on machinery, stock, and personal guarantees, among other assets. If any borrower is blacklisted, their entire bank accounts are suspended due to that personal guarantee.
Q: What are your key demands for the monetary policy of 2026/27?
A: We have urged the central bank for facilitation regarding document requirements in loan applications and approvals. Moreover, to promote Nepal’s tourism, the monetary policy should increase the threshold of cash that travellers can carry with them.
Furthermore, gold has always been considered a major asset in Nepali society. Purchasing, selling, and keeping gold as a reserve asset has been in practice since the early days and is rooted as a Nepali tradition. On one hand, the government announces plans to develop Nepal as a tourist destination, but on the flip side, the diaspora Nepali community has been facing trouble at customs when travelling to Nepal with their ornaments. Many of them travel to their motherland to participate in various functions, but customs officials seize their items or force them to pay customs tariffs for even 25 grams of gold. This has negative consequences for tourism. The government must facilitate their ability to bring in ornaments on the condition that they take them back upon their return.
Q: Despite a stable government, policy predictability and low interest rates being considered the major preconditions for the private sector, what is hindering the private sector from building confidence in this situation?
A: We are optimistic about the government’s policies. At least we have a stable government with a clear roadmap. However, the execution of development projects is a precondition to increasing aggregate demand. The execution of development projects has a multiplier benefit in the economy. The construction sector creates demand for construction materials and industries, creating jobs and causing demand to surge.
Government expenses on development projects are crucial for capital formation. In addition, the government should promote Nepali products, at least in government procurement. Though Nepali goods could be a bit expensive due to the high cost of production, the government should take the initiative to use Nepali goods to promote Nepali industries and production units. If the government promotes Nepali production, Nepali industries will gradually become competitive with the advantage of scale after a certain number of years.
Q: Do you mean to say that policymakers have ignored pluralism and are largely influenced by elitism, introducing policies like those in Europe and the United States of America while overlooking our ground realities?
A: Policymakers must understand the ground realities. If the government formulates policies for the private sector based on the recommendations of foreign consultants and development partners, the facilities delivered by the government should also be on par with those of developed countries. Currently, private sector umbrella organisations are either not consulted at all, or consultations with them are taken only as a formality in policymaking.
Q: Why are the government leadership, bureaucracy, the courts, security agencies, the media, and the public at large anti-private sector? In your observation, why is negativism rooted in Nepali society against profit, entrepreneurs, and the private sector as a whole?
A: We are not an entrepreneurial society. The private sector is a partner to the government and society. Businesses pay taxes to the government, provide jobs to households, and uplift livelihoods. It is an open secret that the private sector is profit-oriented. We are in business to make a profit because our firms and companies cannot sustain themselves without it. Entrepreneurs take risks to make a profit. When the private sector does business, makes profits, pays taxes, provides jobs, and contributes to macroeconomic stability, I do not understand why anyone would be negative toward it. The government should provide guidance and facilitation to the private sector, as it contributes to expanding the country’s Gross Domestic Product.
Just as the government tries to attract FDI, an equal effort should be made to protect domestic investors and entrepreneurs. We have urged the government to secure our investments, introduce a private sector protection act, implement laws, policies, and guidelines within a specific time horizon, and incentivise the use of domestic products, at least in government agencies, to substitute imports.
Moreover, when industrialists purchase the required land as allowed by law, they are not permitted to sell that land if they fail to operate the industry and shut down. Consequently, a large amount of funds remains idle in the land, and industrialists have to suffer. If they were allowed to exit by settling their dues through the sale of assets, they could make a new beginning. The current provision of blacklisting three generations should also be revised. On the other hand, policies and laws should be formulated by looking into ground realities, regional perspectives, spatial balance, and inclusion, so that they are executable in all parts of the country rather than being enforceable only in the major cities.
Q: The government has announced a wide range of reforms, including scrapping antiquated laws. How credible are these announcements?
A: The government has tried to address the private sector’s voice in the fiscal budget of 2026/27, and we appreciate the government’s announcement to facilitate the private sector and improve the investment climate. Scrapping antiquated laws and several other reform initiatives, like revisions to the income tax slabs and scrapping the excise on Nepali products announced in the budget, have been on the private sector’s wish list for a long time. The government has scrapped the excise duty on around 360 Nepali products. However, the government introduced other taxes on these products that restrict their competitiveness. The private sector’s voice should be duly considered in policymaking.
Entrepreneurs themselves are consumers. They wish that consumer goods in the market could be purchased at an affordable, competitive price. The private sector is not against the implementation of a maximum retail price (MRP). However, the process is flawed. The way the government has enforced MRP at the customs points has discouraged the private sector. MRP, as per its terminology, is a retail price. The price can be labelled before distributing the goods to the retail stores from where consumers buy them.
An attempt to label MRP at the customs points slows down all the clearance processes of goods from customs on time and increases the costs for traders. Considering the size of our economy and the volume of our imports, it is difficult to find dedicated suppliers in foreign countries. In this view, difficulties in finding suppliers for the special packaging of Nepal-bound goods could affect our imports. Therefore, declaring MRP at customs points is not practical, as traders cannot even envisage the logistics costs accrued due to delays at the ports, transit and customs clearance durations, as well as transport durations to bring goods to the warehouses. On one hand, we are talking about using technology, yet in imports, we are introducing a primitive system, even when the prices of commodities and services can be easily traced via the internet and other tools.
Q: At the end, banks have been facing difficulties in managing assets associated with their non-recovered loans, and the government is going to establish an asset management company to manage these assets. In your opinion, what should be the governing structure and operational modality of that asset management company?
A: The fiscal budget has announced the establishment of an asset management company (AMC), which must be governed by a board represented by Nepal Rastra Bank, representatives from banks, and the private sector, and operated under a company model. However, the private sector has not been consulted regarding the governance and operational modality. Recently, banks have been allowed to lease these assets.
