CIT's 36th anniversary: Finance minister calls for mobilisation of liquidity into productive sectors

KATHMANDU: Finance Minister Rameshore Prasad Khanal has said that available liquidity must be mobilised into productive sectors to focus on national capital formation. He made the remarks at the 36th anniversary programme of the Citizen Investment Trust (CIT) in Kathmandu today.

Minister Khanal said there is a need to invest in production-oriented sectors at a time when interest rates in the banking system have fallen and liquidity is sufficient, and he emphasised that idle capital must be channelled into productive sectors.

He said projects requiring large infrastructure and long-term investment should be taken forward, and that processes have been initiated to increase investment in projects such as Budhigandaki Hydropower Project through the public–private partnership (PPP) model.

Khanal warned that the conflict in the Middle East could affect Nepal’s supply chain and lead to problems such as price rises, which will require special attention in the coming days.

“Currently, the balance of payments and current accounts are in surplus, and government revenue has also increased compared with the last fiscal year,” he said. “Many economic indicators are showing improvement. Now is the time to create an environment where capital reaches the hands of investors.” He urged that laws on alternative finance mobilisation be drafted quickly and said taxes currently applied to various retirement funds should be reconsidered.

The finance minister stressed that lower taxes should be applied to similar types of income and social security amounts. Noting that many government-owned institutions often face problems, he said CIT has achieved professional success. On recovery of loans provided by CIT to Nepal Airlines Corporation (NAC), Khanal said appropriate alternatives should be sought based on government policy guarantees.

Minister Khanal added that CIT must be cautious about risk management when investing and that it is necessary to issue long-term bonds for the asset–liability management of various retirement funds.

During the programme, CIT Chairman Tulashi Prasad Ghimire said CIT has been playing an important role in promoting high and sustainable economic development. He called for expanded investment in productive and infrastructure sectors and noted that CIT is successfully implementing various savings schemes.

Likewise, CIT Executive Director Parbat Kumar Karki said it is necessary to diversify CIT’s investments and that collected funds have been invested across various sectors. He said about half of CIT’s portfolio is currently held as fixed deposits in banks and financial institutions (BFIs), approximately 22% is in loans and advances, and the remainder is invested in shares of various organisations.

Karki warned that because about half of the investment is in BFIs' fixed deposits, the decline in interest rates is likely to affect CIT’s profits and that there is a risk of falling income if diversification is not achieved. He urged increased investment in infrastructure and productive sectors prioritised by the government, and said CIT has expanded its branch network to all provinces and increased the use of digital technology in service delivery.

Karki said CIT aims to provide sustainable returns by strengthening internal governance, transparency and updated accounting systems, and that it is developing into a capable institution able to invest in large projects. He noted some overlap between the work of CIT and the Social Security Fund (SSF) and said clarity is needed in that regard.

Informing that about Rs 22 billion has been invested in NAC and that difficulties have been encountered in recovering that amount, Karki said that, since the loan was provided under government guarantee, initiatives are being taken for its management.

Similarly, Nepal Bankers’ Association (NBA) President Santosh Koirala said CIT’s investments should be diversified for long-term, secure returns and urged CIT to expand into various financial instruments, including bonds, rather than remaining limited to fixed deposits.

Koirala noted that interest rates sometimes rise sharply and sometimes fall, so a range of instruments should be used to safeguard long-term investments. He said the banking sector has collected about Rs 7,700 billion in deposits, while around Rs 5,800 billion is in loan investments, and that the expansion rate of the banking sector in the current fiscal year has been limited to around 3.9%. He added that banks have recently faced challenges in recovering distributed loans.

(With inputs from RSS)