Rs 600 Billion Market Erosion Raises Questions Over Finance Minister Wagle and Government’s Economic Policy

Kathmandu, Nepal: The continued decline in Nepal’s capital market, weakening private-sector investment, sluggish demand for bank credit despite ample liquidity in the banking system, and growing pressure on government revenue have begun raising serious questions about the economic policies and performance of the current government. Public debate has intensified over claims that the stock market has lost around Rs 600 billion in market capitalization since the formation of the government. Although a decline in market capitalization should not be interpreted as investors having literally lost Rs 600 billion in cash, the prolonged weakness of the stock market has undeniably affected investor confidence and market sentiment.

The Nepal Stock Exchange (NEPSE) has recently fallen below the psychologically important 2,600-point level, increasing uncertainty among investors. The breach of the 2,600-point threshold on August 24 has made the market’s immediate direction a matter of growing concern. The level had previously been viewed as a significant support zone, but it is now emerging as a test of the relative strength of buying and selling pressure. The decline below 2,600 points alone does not establish that a prolonged bear market has begun, but persistent selling pressure, weak demand and declining investor confidence have raised serious questions about the underlying health of the market. Recent reporting also confirms that NEPSE dropped below 2,600 points on August 24.

The decline in the stock market cannot simply be dismissed as an individual risk faced by investors. The capital market is an important mechanism for mobilizing long-term capital for the private sector, and weakening market confidence can eventually affect the broader investment environment. Nepal is currently facing a major contradiction: banks have sufficient liquidity and interest rates have declined from their previous highs, yet businesses do not appear eager to borrow and expand investment. This suggests that the problem may be less about a shortage of liquidity and more about confidence in economic policy and expectations about future economic conditions.

The fact that businesses are reluctant to borrow despite banks having ample liquidity is itself an important signal for the government. Borrowing for business expansion is normally expected to increase economic activity, production and employment. However, uncertainty over market demand, regulatory and tax policies, and expected returns on investment has made businesses cautious. In such circumstances, simply pointing to sufficient liquidity in the banking system is not enough to demonstrate that the economy is becoming more dynamic.

Questions over this situation have increasingly been directed at Finance Minister Dr. Swarnim Wagle. Criticism has emerged in Parliament and in the broader public sphere from political groups, private-sector representatives and ordinary citizens. Among those raising concerns is Shram Sanskriti Party lawmaker Ambika Devi Sangroula, who has questioned the government’s economic performance and accused the finance minister of failing to respond adequately to problems facing the capital market and the private sector.

Critics have argued that the government should first address the serious problems confronting investment, business confidence and the stock market rather than placing excessive emphasis on publicity-oriented or populist initiatives. They contend that the government has not demonstrated sufficient sensitivity toward declining investor and entrepreneurial confidence. The criticism has become particularly pointed because the government commands a strong parliamentary majority, giving it considerable political space to implement difficult economic reforms.

Sangroula has questioned how an economist with international experience in numerous countries could fail to adequately understand Nepal’s economic realities. She has argued that the reluctance of businesses to take loans despite ample liquidity in the banking system could indicate a lack of confidence in the government’s economic policies. She has also questioned why the government has not taken stronger measures to address the decline in the capital market despite the significant erosion of market capitalization since the government took office.

There is little dispute over Wagle’s academic and international credentials. He has extensive experience in international development and economic policy. However, the current debate is no longer about his qualifications or international exposure. It is about how effectively he can translate that expertise into policies capable of addressing Nepal’s practical economic challenges. Working on economic policy in international institutions and convincing Nepalese entrepreneurs and investors to commit their capital to productive activities are two very different challenges. It is this gap between expertise and policy implementation that is now putting Wagle’s reputation to a real test.

Questions have also emerged over the implementation of the government’s current fiscal-year budget. The government presented an ambitious budget with significant revenue and economic growth targets, but concerns remain that the country’s long-standing problems of budget execution, capital expenditure and project management could make those targets difficult to achieve. Nepal’s problem has never been merely the size of its budget. A more fundamental problem has been its inability to spend allocated resources efficiently and productively.

Public procurement delays, slow project implementation, administrative weaknesses and the tendency to accelerate capital expenditure toward the end of the fiscal year have weakened Nepal’s development spending for years. Simply increasing the size of the budget without improving implementation capacity therefore offers little guarantee of stronger economic growth.

Finance Minister Wagle has also warned that Nepal’s traditional sources of foreign assistance are gradually shrinking. He has said that highly concessional foreign loans, which previously came with long repayment periods, low interest rates and extended grace periods, are becoming increasingly difficult to secure. According to his assessment, Nepal faces a challenging future as grants decline and concessional financing becomes more restrictive.

The decline in foreign assistance is undoubtedly a genuine challenge for Nepal. However, the government must also examine why the country has historically failed to make effective use of concessional resources that were already available. Wagle himself has acknowledged that weak spending capacity, public procurement problems and other institutional weaknesses have prevented Nepal from fully utilizing available development resources. Simply expressing concern over declining foreign assistance does not solve the problem. Nepal must improve its institutional capacity to use whatever resources it receives efficiently.

Wagle has argued that Nepal must increasingly mobilize private and alternative sources of capital as traditional foreign assistance declines. The government has discussed mechanisms such as hybrid annuity models, offshore bonds, diaspora investment and alternative development finance. It has also highlighted plans to mobilize capital from international markets through institutions such as the Asian Development Bank and the International Finance Corporation and channel it to Nepal’s private sector through domestic banks.

The challenge, however, is whether Nepal can attract foreign capital while domestic investors themselves are becoming increasingly cautious. Before asking foreign investors to commit capital to Nepal, the government must create an environment in which Nepali investors themselves feel that their capital is secure, productive and capable of generating reasonable returns. If domestic businesses are reluctant to expand, banks are struggling to find borrowers, and investors are losing confidence in the stock market, relying solely on foreign capital is unlikely to produce a sustainable transformation of the economy.

The current weakness of Nepal’s capital market can also be understood through the basic dynamics of demand and supply. When markets rise, new investors enter, demand increases and prices rise further, creating a positive cycle. However, after prolonged price increases, existing investors begin to sell to secure profits. If new demand weakens at the same time, supply increases and prices begin to fall. The current weakness in NEPSE can partly be understood through this interaction between supply, demand and investor psychology.

The important point is that Nepal is not necessarily facing a shortage of money. The banking system has adequate liquidity. The problem is that available liquidity is not being transformed into sufficient demand for shares, business expansion, production or employment. This indicates that Nepal’s present economic problem may be better described as a problem of confidence rather than liquidity.

Investors may be postponing purchases because they fear further declines in the market. Businesses may be reluctant to borrow because they are uncertain about demand and future returns. If this sentiment persists, liquidity sitting in the banking system could remain largely inactive rather than being converted into productive capital.

Against this backdrop, the government should focus less on attempting to influence short-term movements in the stock market and more on strengthening the structural foundations of investor confidence. Improvements in the primary issuance process, modernization of the secondary market, stronger market supervision, investor protection, prevention of insider trading and expansion of institutional investment are essential.

The appointment of new leadership in regulatory institutions may provide a starting point, but appointments alone cannot restore market confidence. Investors are now looking for measurable results rather than promises. The government’s credibility will ultimately be judged by whether its reforms actually improve the functioning of the market.

The decline of NEPSE below 2,600 points has also placed the 2,550 and 2,500 levels under closer observation. However, treating any particular numerical level as the definitive market bottom would be risky. A genuine market base is more likely to emerge when selling pressure begins to weaken, quality demand increases, market breadth improves, and long-term and institutional investors begin returning.

For investors, therefore, the more important question is not simply where NEPSE will move next. The crucial question is when selling pressure will begin to ease and when fresh demand will become strong enough to absorb available supply.

For the government, the current weakness should be treated as an opportunity for serious self-assessment. Dismissing the decline as a normal stock-market cycle or portraying critics as unnecessarily negative would be a mistake. Weak credit demand despite abundant liquidity, declining private investment, a fragile stock market and insufficient employment creation may all be different expressions of the same underlying problem: weak confidence in the economic outlook.

Wagle now faces the difficult task of demonstrating that his international economic experience can produce tangible results in Nepal. His experience across international institutions and numerous countries may be valuable, but Nepal’s economic challenges must ultimately be addressed within the country’s own political, administrative and market realities.

Investment decisions in Nepal are influenced by much more than interest rates. Political stability, policy consistency, taxation, administrative efficiency, market demand and expectations about the future all matter. If these factors remain uncertain, cheaper credit alone will not necessarily translate into higher investment.

The current government has political strength, a strong parliamentary position and considerable authority to formulate and implement economic policy. It therefore has less room than previous governments to blame every economic problem on external circumstances or the legacy of earlier administrations. With substantial political space to pursue reform, the public has every right to demand measurable results.

The contradiction facing Nepal is now increasingly visible. Banks have money, but businesses are reluctant to borrow. The government says it wants to mobilize private capital, while domestic investors are becoming increasingly cautious about where to invest their money. The finance minister speaks of economic reform and alternative sources of financing, while the stock market continues to struggle. These contradictions capture much of Nepal’s present economic reality.

Ultimately, an economy does not run on speeches, large budgets or impressive international résumés. It runs on confidence. Confidence encourages investment; investment creates production; production creates employment; and employment expands household income, consumption and government revenue. The government’s central responsibility now is to restart that cycle.

The reported erosion of around Rs 600 billion in market capitalization should therefore not be viewed merely as a number on a financial chart. Behind that number are thousands of investors worried about their savings, businesses hesitant to expand, banks struggling to generate credit demand and citizens increasingly uncertain about their economic future.

It would be premature to declare Finance Minister Wagle a failure. But it is equally difficult to declare his economic management a success when the market and private sector are still waiting for convincing evidence of recovery. The coming months will be a genuine test of his economic credentials. The government must treat criticism not as an attack but as an economic signal that deserves serious attention.

Because when NEPSE falls, it is not merely a number on a screen turning red. For thousands of Nepali investors, it represents savings, expectations and plans for the future. When an entrepreneur decides not to borrow, it is not merely a banking statistic; it may represent an investment that was never made and jobs that were never created.

The most important question for the government, therefore, is not simply whether NEPSE will recover above 2,600 or fall toward 2,550. The deeper question is whether the government can restore enough confidence for Nepali citizens to once again feel willing to invest their money, their work and their future in Nepal.

If that confidence returns, Wagle’s economic expertise will have been translated into results. If confidence continues to deteriorate, international experience, large budgets and ambitious economic announcements will not be enough to conceal public frustration.

For the government and the finance minister, the challenge is no longer merely to talk about the economy. It is to create conditions in which the economy itself begins to speak through investment, production, employment and rising confidence.