KATHMANDU: Maha Prasad Adhikari’s tenure as the Governor of Nepal Rastra Bank (NRB) comes to an end on April 6. As the head of NRB, Adhikari was responsible for shaping Nepal’s monetary policies, ensuring financial stability, and promoting economic growth.
However, as his departure nears, he leaves behind an economy grappling with instability, a frustrated business sector, and a banking system burdened by bad loans.
His tenure was marred by policy inconsistencies, financial sector mismanagement, and political controversies, leading many to question whether his leadership did more harm than good.
Adhikari assumed office in a period of crisis, just as the Covid pandemic was beginning to impact Nepal’s economy. In the early years, his policies focused on economic recovery, but as time passed, his leadership became increasingly criticized for its failure to maintain economic stability.
His name has also been entangled in controversy, including allegations of political bias and fake academic credentials. As discussions begin about his successor, many are left wondering whether Nepal’s financial system will be able to recover from the failures of the past five years.
Struggling economy left behind
Business leaders, investors, and economists have voiced frustration with the economic conditions under Adhikari’s tenure. Over the past five years, Nepal’s economy has suffered from sluggish growth, high inflation, declining private sector confidence, and financial sector vulnerabilities.
Critics argue that the central bank’s monetary policies lacked vision and consistency, creating uncertainty and instability in the market.
Economist Anil Raj Bhattarai noted that Adhikari’s leadership started with high hopes, but in the latter years, his policy decisions became increasingly reactionary and disconnected from the realities of Nepal’s economy.
Business leaders, especially those in the industrial and trade sectors, expressed disappointment over the lack of a favorable investment environment, leading to a slowdown in both domestic and foreign investments.
“There is no real progress in the economy,” Bhattarai said. “Governor Adhikari started off well, but in the last two years, his policies have been reactionary and have failed to address the fundamental issues.”
As a result, Nepal’s private sector has struggled to expand, with rising costs of borrowing, declining access to capital, and restrictions on imports hampering economic activities. The dissatisfaction among the business community grew stronger as Adhikari tightened monetary policies, making it difficult for businesses to access loans and grow their operations.
Inconsistent monetary policy
During his initial years in office, Adhikari focused on expansionary monetary policies to help Nepal recover from the economic devastation caused by the Covid pandemic. The Monetary Policy for fiscal year 2020/21 introduced measures such as low-interest loans and refinancing facilities, aiming to inject liquidity into the economy.
These policies initially appeared effective. The base rate of banks dropped from 8.50% to 6.86%, private sector credit growth soared to 26.3%, and the Nepal Stock Exchange (NEPSE) soared up to 2,883.4 points from 1,362.4 point, doubling market capitalization.
However, the surge in liquidity flowed into unproductive sectors, particularly the stock market, real estate, and imports, rather than fostering industrial growth and job creation.
Recognizing the overheating of the economy, Adhikari abruptly shifted to a contractionary monetary stance in fiscal year 2022/23. This move led to a sharp rise in interest rates, making borrowing significantly more expensive.
The stock market, which had benefited from the loose monetary policy, plummeted, wiping out billions in market value. Imports were heavily restricted, disrupting businesses that relied on imported raw materials.
The rapid shift in monetary policy left businesses struggling. Former NRB Governor Dipendra Bahadur Chhetri criticized the central bank’s inconsistent approach, saying that investors and businesses need predictable policies to plan their activities.
“The central bank’s inconsistent policies created uncertainty in the market,” Chhetri said. “Investors and businesses need predictability, but that was lacking.”
Adhikari’s failure to implement a gradual transition from loose to tight monetary policies led to liquidity stress, capital flight, and a decline in consumer confidence. Instead of achieving financial stability, Nepal’s economy found itself in a deeper crisis.
Neglecting the banking sector
Another major failure of Adhikari’s leadership was his weak regulatory oversight of the banking sector. The banking system experienced an alarming rise in non-performing loans (NPLs), with some institutions reporting over 42% of their loans turning bad.
The crisis reached its peak when Nepal Rastra Bank was forced to take control of Karnali Development Bank in December 2024 after it collapsed under financial distress.
The deteriorating health of the banking sector led to severe liquidity shortages, forcing banks to halt lending, further slowing down economic activities.
Former NRB Executive Director Nar Bahadur Thapa noted that the central bank was too slow in addressing the problems that were clearly visible for months.
“There were clear signs of distress in the banking sector, but the central bank was slow to act,” Thapa said.
Nepal was also placed on the Financial Action Task Force (FATF) grey list for the second time under Adhikari’s tenure, raising concerns about weak anti-money laundering controls and financial crime prevention.
This has damaged Nepal’s international reputation and affected foreign investment prospects.
Microfinance crisis and public protests
Another crisis unfolded in Nepal’s microfinance sector, where predatory lending practices and excessive interest rates pushed thousands of borrowers into crippling debt.
The distress caused by the microfinance institutions sparked nationwide protests, with victims demanding loan waivers and government intervention. Several cases of borrowers committing suicide due to mounting debt were reported, prompting the government to take notice.
Although NRB formed a seven-member committee in March 2024 to study the crisis, its response was largely reactionary rather than preventive.
Prakash Raj Sharma, Chair of NIC Asia Microfinance, argued that Adhikari’s failure to address the issue early on led to the escalation of protests and social unrest.
“Governor Adhikari failed to implement sustainable solutions for the microfinance sector. Temporary policy tweaks won’t fix the core issues,” he said.
Political controversies
Adhikari’s tenure was also overshadowed by political controversies and allegations of fake academic credentials. A key controversy was his alleged affiliation with UML under the name M. Adhikari, raising questions about whether his policy decisions were influenced by political connections.
Under Section 21 of the Nepal Rastra Bank Act, 2002, a politically affiliated person cannot be appointed as Governor. The revelation of Adhikari’s past political involvement triggered widespread criticism. Furthermore, in April 2022, the Pushpa Kamal Dahal-led government attempted to suspend him, citing lack of coordination between NRB and the Finance Ministry. However, a Supreme Court ruling reinstated him, allowing him to complete his tenure.
Legacy of a tarnished tenure
As Adhikari prepares to exit Nepal Rastra Bank, he leaves behind a weak and struggling financial system. While his tenure saw the successful merger of banks and the expansion of digital financial services, these achievements are overshadowed by the economic instability, banking crises, and controversies that defined his leadership.
His inconsistent monetary policies disrupted businesses and investment confidence, while his failure to regulate the financial sector led to severe liquidity stress and banking collapses. The placement of Nepal on the FATF grey list further reflects his inability to enforce strong regulatory measures.
As the nation awaits the appointment of a new Governor, the biggest challenge will be to restore stability, rebuild trust in the financial system, and implement long-term reforms to prevent similar crises in the future. For now, Mahaprasad Adhikari’s legacy remains one of missed opportunities and economic mismanagement.
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