KATHMANDU, JUNE 26

World Bank Managing Director for Development Policy and Partnerships, Mari Pangestu has concluded her five-day visit to Nepal, reiterating the WB's commitment to support Nepal's resilient recovery from the pandemic. She had participated in high-level dialogues with senior government representatives, development partners, private sector, and youth to unpack key issues and opportunities for 'Green, Resilient, and Inclusive Development' (GRID) in Nepal. Sangay Sherpa from The Himalayan Times had caught up with Pangestu to gain her insights into the country's current economic situation and its recovery process. Excerpts:

The recently released Global Economic Prospects of the World Bank has forecast Nepal's economic growth at 3.7 per cent this fiscal year. Although 0.2 percentage points lower than the January projection, it is in sharp contrast to the government's projection of 5.8 per cent. Would you say the government's outlook is too optimistic?

I think what we can say is that the projection made by the World Bank and the government of Nepal is heading in the right direction in terms of continuous recovery. The projections are based on numbers that are available as of March 2022, whereas the government's projection was released a month later, indicating a stronger sign of recovery in all three sectors of the economy, as compared to the World Bank's projection. That is probably the main reason for the difference in the projection. However, the important thing is that both of them show signs of continued recovery.

In such a time of uncertainty, I think Nepal is one of the few countries showing a stable path of continued recovery. After facing negative growth of minus-2.1 per cent in 2019-20 and a forecast to rebound to 1.8 per cent in 2020-21, we have projected a stronger recovery in 2022-23 and 2023-24 of 4.1 and 5.8 per cent, respectively, despite the headwinds of high commodity prices around the world.

We will also continue to update our projections and incorporate the recent budget data that was released in May that will affect future projections moving forward.

The Russia-Ukraine war has dampened the recovery of South Asia and the foreign exchange reserves of a number of countries in the region, including Nepal, are under pressure.

How is the WB viewing this situation and helping to cope with these challenges? I think it has become clear that we are living in a world with multiple crises. We have COV- ID-19, climate change, and the war in Ukraine, which is leading to one of the biggest implications being an increase in food and fuel prices. And, the other dimension is this high inflation which was already increasing prior to the war leading advanced countries in North America and Europe to increase interest rates as part of their monetary policy response leading to a spike in interest payments for countries with high debt. This is also another vulnerability for many countries like what happened in Sri Lanka because of high import needs and high debt.

However, Nepal is actually one of the few countries to emerge from the pandemic with a relatively stable outlook. Given the macroeconomics of Nepal, the country is well placed to handle these challenges because public debt levels remain moderate at around 43 per cent of GDP and with enough reserves to cover over six-and-a-half months of imports.

Although there is a low risk for Nepal in terms of vulnerability to debt, the country certainly needs to watch out for the increase in imports that are going to happen because of higher fuel and food prices, which have increased the external deficit and will put pressure on foreign exchange reserves. So, the WB is providing support in terms of the types of policies that need to be in place to ensure proper management of the situation.

On the macro side, during the COVID-19, many countries including Nepal provided relaxation of financial sector regulation so you have to carefully go back to normalcy. If you do it too suddenly, it can cause a shock. In addition, the country needs to manage or reduce imports by increasing its domestic production and demand to make sure that the trade with neighbouring countries, notably India, where most of Nepal's food and fuel comes from, is safeguarded and maintained.

And of course, Nepal needs to also focus on improving its forex reserves.

I understand that remittances flow has been fairly stable but let's look at other future resources for bringing in forex. For that, we are also working with the government to support improving the investment environment in the country.

What do you think are the resilient recovery options for Nepal?

Last year, the government along with 16 development partners signed on to the Kathmandu Declaration for GRID. A lot of that is about ensuring that we address the risks that Nepal is facing from climate and turn those risks into opportunities. It is also to ensure that Nepal has a sustainable as well as a resilient and inclusive development path.

In the context of Nepal, the country has a high potential in renewable energy. To improve the productivity of agriculture, the country can adapt to electrification of transport and industry based on renewable energy which can prove to be very sustainable.

Given the potential source of hydropower in Nepal, the country also has an opportunity to export energy, reduce its dependency on fuel and earn forex. More importantly, Nepal has added benefits with the development of the hydro sector as it will also help to regulate the risks from floods, melting glaciers in monsoon and dry season, etcetera. The stored water in hydro dams can also be used for agriculture purposes.

In addition, given that 60 per cent of the country's population is still in the rural sector, transforming it is also another big direction for the GRID. Improving agriculture productivity is also another main area that can ensure food production, water management, and land management and the WB is working with the government to help ensure that the country has both adaptation and resilience as well as increasing productivity in agriculture as well the livelihoods of the people.

How is the WB supporting the GRID approach?

With our 16 development partners, we have come together to align financial and non-financial support and have allocated $3.25 billion of current support and up to $4.2 billion for a potential new commitment to the GRID objectives.

But implementation is really the key. Supporting the government with a GRID strategic action plan which is under preparation will help prioritise and manage and mobilise programmes and new resources while building on existing portfolios to deliver on GRID projects.

The government has also integrated GRID into the budget, which is a good direction. If I am not mistaken, the government has increased spending on agriculture by 32 per cent.

The WB is also already pivoting its current programmes so that it can support Nepal on GRID and we have been closely working with the government and development partners to design operations that can secure GRID benefits and outcomes and contribute to the nationally determined targets of Nepal.

The very geographic features that make Nepal ideal for hydropower generation also make it highly vulnerable to the impacts of natural disasters and changing weather patterns. What are the steps being taken to lessen the impacts?

Developing it in the right way is essential and we want to work with the government to ensure implementation of the highest level of environmental, social, and governance standards.

On hydro, Nepal's growth ambition to achieve growth is closely linked to deploying and taking advantage of its renewable resources. However, it is also true that the country has a lot of challenges in developing hydro resources due to its geographical positioning in the seismic zone, uncertain monsoons, melting glaciers, increased risks of landslides and floods and the sedimentation which develops in the rivers.

We also hope that the Upper Arun hydropower project can set the standard that can lead to the same approach being implemented in the construction of other hydropower projects.

We are having a lot of consultation with the government regarding the projects and have also conducted a feasibility study and are in the process of completing the environmental sustainability and governance (ESG) standards.

The next step will be to ensure that the government has undertaken the right policies that will be supporting the project.

We are also working closely in mobilising the finance for the project. The WB has already allocated potential financing depending on the outcome of all these processes and then mobilised other development partners to come in. We really hope this can be a good outcome and as a demonstration of how such a project needs to be done using best practices.

This is your first visit to Nepal. Do you have any impressions to share from your visit?

I have lots of impressions. I was able to closely feel the resilience of Nepal. The country has gone through a lot of transformations, including the adoption of federalism in 2015.

Nepal faced an earthquake, the impact of COVID–19, as well as climate change. Despite all these, the country has shown resilience and it was really heartening to see the reconstruction of stronger and better houses which were destroyed by the earthquake in 2015. Nepal has become a showcase for this. The interesting fact is that 30 per cent of the reconstruction process was done by women bringing in the emergence of women masons, which was new in the context of Nepal. It shows that in a crisis, there is always an opportunity to build back better, which makes me hopeful about moving forward with the GRID agenda.

I was also able to see the rich potential of Nepal's natural resources and agriculture sector.

The other thing was the culture, tourism, and creativity of the Nepalis that have a huge potential to become a source of income for the youths. I think there are a lot of things to be done in terms of encouraging investment, to build infrastructure related to electricity, digitisation, and road connectivity, among others.

Nepal, with its mountains of potential, has really surprised me. I'd like to come back in a year and see how much progress has been made. I also saw a very serious intention of the government, non-government officials, youth entrepreneurs, communities, and a lot of women leaders including the households in the region of Upper Arun.

So I think we see that we want and need to change but implementation has always been an issue and we would like to coordinate with all, including the local government.

A version of this article appears in the print on June 27, 2022, of The Himalayan Times.