Election spending drives cash surge into market; Rs 38 billion withdrawn from banking system in five days

KATHMANDU: Intensifying election activities have begun to inject significant liquidity into Nepal’s real economy, with Rs 38 billion flowing out of the banking system into the market within just five days, according to banking sources. The surge in cash circulation is visibly stimulating short-term economic activity across multiple service and consumption-driven sectors.

As candidates ramp up campaign mobilization, cash withdrawals from banks have accelerated, loosening the excess liquidity that had been parked in the financial system amid sluggish credit demand. The fresh liquidity injection is now fueling spending in hotels, transportation, printing presses, small enterprises, and service industries, sectors that typically experience seasonal election-driven demand spikes.

Economists describe elections as a short-term fiscal stimulus mechanism, noting that campaign-related expenditures increase money velocity and consumption, even if the source of funds includes both formal and informal channels. With polling dates approaching, candidates and political parties are intensifying ground mobilization, logistics, travel, publicity, and operational expenses.

Government and Political Spending Scale

The government alone has already released Rs 19.21 billion for election management. Of this, Rs 10.39 billion has been disbursed to the Home Ministry, Rs 1.99 billion to the Ministry of Defence, and Rs 6.72 billion to the Election Commission. The allocations to security agencies are primarily directed toward election security operations nationwide.

Overall, public sector election-related expenditure is expected to approach Rs 30 billion, while political parties and candidates are estimated to collectively spend amounts that could push total election-linked outflows close to Rs 150 billion when direct and indirect spending are combined.

Market-Level Impact

On the ground, signs of heightened economic activity are becoming visible. Vehicle movements have increased in both urban and rural areas as campaign teams travel extensively. Hotels are reporting improved occupancy rates, domestic air travel demand has strengthened, and the printing industry is operating at near-full capacity due to campaign materials production.

Campaign mobilization expenses—covering fuel, logistics, accommodation, publicity materials, and local services—are dispersing money across a broad base of households and small businesses, increasing disposable cash circulation. Analysts say election spending tends to reach multiple layers of the economy, boosting consumption more widely than routine government expenditure.

Liquidity Dynamics

The banking system had been experiencing surplus liquidity due to subdued loan demand in recent months. The ongoing election cycle has now become an indirect channel for liquidity release. As cash leaves bank vaults for campaign use, money supply in circulation increases, temporarily easing stagnation in market transactions.

Financial analysts say that although the surge is not linked to productive investment, the rise in consumption-driven demand helps energize short-term economic activity, improve business turnover, and potentially support revenue collection through higher indirect taxes.

Candidate Spending and Regulations

A total of 3,406 candidates—including party-backed and independent contenders—are competing under the first-past-the-post electoral system. The Election Commission has set a spending ceiling of Rs 3.3 million per candidate, but major party nominees and competitive candidates often exceed formal limits through broader campaign structures and supporter mobilization.

Broader Economic Signal

Observers note that election cycles historically act as temporary economic accelerators, increasing cash flow, service demand, and transactional activity. While the effect is short-lived and consumption-oriented rather than productivity-driven, it helps revive sectors that have faced slow business momentum.

With large volumes of idle funds re-entering the market, revenue collection may also see marginal improvement due to increased commercial activity. However, economists caution that the stimulus effect will fade after the election period unless supported by structural investment, credit expansion, and sustained economic reforms.

For now, the election season has begun to loosen financial system liquidity and re-energize Nepal’s market ecosystem, with service industries and small businesses emerging as immediate beneficiaries of the cash-driven surge.