Kathmandu, 15 March: The International Monetary Fund (IMF) has completed the fifth review of the Extended Credit Facility (ECF) provided to Nepal. With this review, the IMF is set to disburse approximately Rs 5.81 billion (equivalent to 40.18 million US dollars) to Nepal under the ECF.
According to a press release issued on Friday after the IMF Executive Board meeting, Nepal has made significant progress despite the political instability and the disruptions caused by the floods of last October. Similarly, the IMF stated that the increase in capital expenditure, reconstruction after the earthquake and floods, flexible and concessional monetary policy, and increase in hydropower production will further support Nepal’s economic growth this year.
Nepal had availed an ECF facility worth US$395.9 million in 2022 after its foreign exchange reserves declined and its balance of payments deteriorated significantly. This facility was provided by the IMF in four installments over four years to finance the budget. The delegation, led by IMF review team chief Sarbat Jahan, arrived in Nepal in the last week of December.
Nepal’s economy is facing various challenges, including weak domestic demand, the IMF said in a statement. “The economic growth rate is estimated to reach 4.2 percent in the current fiscal year. The problems seen in the supply system after disasters such as floods and landslides will be resolved soon and average inflation will remain around the desired limit of five percent set by Nepal Rastra Bank,” the IMF said. “The government’s revenue collection efforts will support development spending and help maintain fiscal stability. However, risks such as delays in capital expenditure implementation, financial sector weaknesses, and political instability remain.”
At the Executive Board meeting, IMF Deputy Managing Director Bo Lee expressed the view that Nepal has made expected progress in implementing its economic reform program despite political uncertainty and recent flood disasters, the statement said. However, the IMF pointed out the need for policymakers to remain vigilant to maintain stability as there are multiple risks to the economic outlook.
“For financial stability, it is necessary to boost domestic revenue collection to accelerate economic growth, strengthen capital expenditure and social security,” the statement said, quoting IMF Deputy Managing Director Lee. “There is a need to further strengthen its administrative autonomy and accountability by amending the Nepal Rastra Bank Act. To reduce risks in the financial sector, it is necessary to improve the management of savings and credit cooperatives, refine financial regulation in line with international standards, and advance the loan portfolio review process.”
The IMF has pointed out the need to be vigilant in matters related to money laundering and control of financing of terrorist activities after Nepal was placed on the Financial Action Task Force (FATF) grey list. For this, it has been suggested to prioritize regulatory reforms.
“Institutional strengthening is necessary to develop an investment-friendly environment in Nepal, reduce the cost of doing business, increase good governance, and control corruption. In addition, it is essential to take initiatives to reduce the impact of natural disasters caused by climate change,” the IMF said.
