Liberalization of the Nepalese Economy, Capital Market Reforms

Liberating the economy from the grip of the state and creating a foundation for the private sector to play a more significant role in financial operations are the goals of liberalization. In order to strengthen the market forces in resource allocation, liberalization aims to see the government's role change from one of ruler to one of facilitator. Deregulation of markets, deregulation of prices, privatization of PEs, relicensing, and the abolition of a quota system in overseas trade are all examples of the reverse of government financial regulation.

Economic liberalization, in the words of the World Bank, "means releasing pricing, trade, and entry to markets from state control while stabilizing the economy." It is a strategy for non-interventionist development and is pursued through cutting public spending, privatizing state-owned businesses, dereglementing the economy, issuing new licenses, and eliminating government grants and subsidies to various economic sectors. The government sought assistance from the IMF and World Bank to absorb the extra liquidity, and as a stabilizing measure, an 18-month stand-by arrangement scheme was put into place. In order to alleviate supply-side bottlenecks, Nepal signed up for W/B and IMF-initiated reform programs known as Structural Adjustment Facility (SAF) and Structural Adjustment Program (SAP).The W/B defines SAF as non-project lending to support institutional and policy change initiatives aimed at altering the structure of the economy in the medium term so that it can maintain both its growth rate and the viability of its balance of payments. The loans focus on seven key areas:

• Supply side reforms: Improving the effectiveness with which market operates
• Price reforms
• Changing the value of tradable goods relative to the non-traders
• Getting the correct terms of trade between agriculture goods and industrial goods
• Reducing the size of the public sector
• Financial reforms
• Tax reforms

External Liberalization

Current and capital account liberalization are included in the external liberalization. Specifically, trade liberalization, which is promoted for increasing development through specialization, is how the current account liberalization functions. According to the argument, external trade solves the issue of a small local market and, as a result, creates more jobs and higher incomes than would otherwise be the case. Therefore, it is thought that external commerce will provide a way out of the vicious cycle of low income, low demand, low manufacturing, and poor employment.

Capital Market Reforms

In 1977, the Security Marketing Center was founded. Its principal objective was to establish a market for public securities. In order to deal with both equities and government securities, the Center was transformed into the Securities Exchange Centre in 1984. It was later discovered that these two tasks needed to be separated. As a result, the Security Exchange Board of Nepal was created to carry out the supervision and promotional duties. The Nepal Stock Exchange was established to carry out business operations and stock and security trading.

Effective securities laws, stock exchange rules, and enforcement procedures that guarantee that all issuers and investors are treated fairly and equitably are essential to the effectiveness of capital markets. It also depends on businesses giving investors timely, accurate, and trustworthy information, particularly financial reports, to enable them to evaluate the operating results and financial standing of listed companies and make investment decisions.

The Government established a policy permitting foreigners to invest in the stocks up to 25% of the paid-up capital of a listed firm in order to increase liquidity and draw international money to the stock exchange. So far, this sort of foreign finance has not proved attractive. The securities exchange will now be privatized as part of future reforms.

A separate counting and publication of NEPSE sensitive Index of Class "A" firms has been launched with the goal of providing investors with accurate information as rapidly as possible. Additionally, Nepal Stock Exchange Market LTD. has begun to release yearly reports that are based on secondary market data and include extra material for the annual general meeting. These activities are anticipated to improve the information dissemination process. The business sector has therefore greatly profited from the liberalization agenda. Particularly well off is the finance industry. Approximately 85% of stock exchange transactions are conducted through commercial banks. Less than 4% of the economy is made up of manufacturing. Commercial banks make up all 10 of the most traded firms. The financial sector has thus been able to mobilize the private investment to a great extent.

As Nepal's capital market develops, so do its securities laws and procedures. The growing turnover, market capitalization, and the number of listed businesses all demonstrate the expansion of the Nepali capital market. In this case, it is necessary to update the securities laws and regulations while taking into account the distinctive characteristics of the Nepali economy. For Nepal, a relatively small market that has not yet been connected with global markets, creating an effective market regulation that takes into account the requirements of both large and small public enterprises is particularly difficult.

Regulations

Securities regulations and listing guidelines must regulate rights offerings, tradeability, and reimbursements. Without it, rights sales are vulnerable to potential conflicts of interest between shareholder groups. For instance, in the majority of nations, the issuer excludes foreign shareholders from the right to distribute and/or trade rights. Differences in brokerage agreements give rise to new variations. In many European nations, most brokers are permitted to sell rights even in the absence of exercise or sale instructions from shareholders. Therefore, it is important that the trading of rights offers be properly planned and executed in order to prevent market manipulation and fraud.

Reference:

• linkedin.com/pulse/20140628062653-104042661-capital-market-reforms
• Pant, P. R. (2009).Business Environment in Nepal(SIXTH ed.). Kathmandu, Nepal: Buddha Academic Publishers and Distributers.
• wikipedia.org/wiki/Economic_liberalization