Global crisis may hit Nepal, warns expert

With the global financial crisis having gripped the world by the short hairs, shortfall in remittance, dwindling budgetary support, real estate downturn and financial institution failures arising from a lack of the regulatory authority's timely intervention may lead to a crisis in Nepal.
According to an expert, "Innovative measures to combat financial institution failure may help insulate Nepal from the global financial crisis." "Over exposure of financial institutions to the real estate sector that has seen a 500 per cent rise in the last five years despite no new economic activities is an odd phenomenon," said Ravi Kumar Swami, a cost consultant and chartered accountant from India.
Though Nepal Ratra Bank has put a 10 per cent cap on the total loan portfolio of any bank, it still is huge in the context of Nepal, he said adding that the size of economy determines how resilient a country is. "Nepal also might feel the heat of the global financial crisis as Asia and particularly South Asia has started feeling it," he added.
According to a new report from Asian Development Bank (ADB), economic growth in developing Asia will slow to 5.8 per cent in 2009, down from a likely 6.9 per cent this year and nine per cent in 2007, as the impact of the global financial crisis spreads to emerging markets.
With the global economy facing a major downturn, the region's economic resilience will be tested by weakening exports and a sharp slowdown of private capital flows, according to the December issue of Asia Economic Monitor (AEM).
"The year 2009 is likely to be a difficult one for developing Asia but it will be manageable if countries respond decisively and collectively," Jong-Wha Lee, head of ADB's Office of Regional Economic Integration (OREI), said adding that swift action by policymakers to stem both the threat to the financial systems and the real economy would allow most of the region's economies to sustain a healthy if slower expansion.
AEM also recommends the region's authorities continue to improve regulation and overseeing of financial systems to strengthen transparency and accountability; enhance sound regulation and prudent overseeing; mitigate the procyclicality of financial markets; broaden and deepen financial markets to enhance resilience and reinforce cross-border cooperation.
According to a special note, "Developing Asia's Prospects in the Global Slowdown," also released by ADB today, South Asia is likely to reach 6.8 per cent growth this year and 6.1 per cent in 2009, down from 8.6 per cent in 2007.
ADB recommends policymakers step up their monitoring of local financial markets and have clear policies in place to deal with stressed institutions, provide adequate provisions of foreign and domestic liquidity so that credit continues to flow into the economy and consider a range of policies to contain the spillover effects of the worsening financial conditions and risks arising from weaker growth on regional banking systems.