Govt to request IMF to extend $50m in budgetary support

KATHMANDU: The government and Nepal Rastra Bank (NRB) will soon ask the International Monetary Fund (IMF) to extend $50 million pledged for the country in the form of budgetary support so that additional resources could be generated to finance reconstruction works.

During the International Conference on Nepal’s Reconstruction held in Kathmandu on June 25, the IMF had pledged to extend $50 million under the Rapid Credit Facility (RCF).

The RCF provides concessional financial assistance to low-income countries facing an urgent balance of payments (BoP) need. This means the money can only be used to replenish the foreign exchange reserve so that the country does not face shortage of convertible currencies, like the US dollars, while making import-related payments.

In other words, RCF can be used when BoP is in deficit and can’t be used to finance other government needs.

“But since our BoP was in surplus of Rs 101.15 billion as of mid-May, we have asked the IMF to extend the funds in the form of budgetary support,” Head of Research Department at NRB, Min Bahadur Shrestha, said.

NRB had raised this issue during a meeting held with IMF delegation led by Gerard J Almekinders on Sunday in Kathmandu.

“They were positive about it. So, we’ll now have to make a formal request by writing a letter to the IMF. We will do that within a week or so,” Shrestha said, adding, “The letter will have to be signed by both Finance Minister Ram Sharan Mahat and NRB Governor Chiranjivi Nepal.”

Once the letter is sent, the IMF will table the proposal at its board meeting scheduled for later this month.

“If the IMF board approves it, the government will start getting the funds within next few months,” Shrestha said.

RCF can accommodate both one-off disbursements to low-income countries facing an urgent financing need of limited duration and repeated disbursements over a limited number of years, says IMF’s website.

Funds extended under RCF carries zero interest rate. Facility also provides grace period of 5.5 years, meaning the country can start repaying the debt after five-and-a-half years of acquiring it. The loan will then have to be repaid in 10 years.

The IMF has previously allowed governments to use RCF to finance other needs. “It was done in Bangladesh a few years ago,” Shrestha said. “So, we are hopeful about getting the assistance in the form of budgetary support.”