Himalayan News Service

Kathmandu, March 12:

Following the approval of aid to Nepal by the International Monetary Fund (IMF) to the tune of $70 million every year for three years, under the Poverty Reduction Growth Facility (PRGF) in September last year, an IMF mission led by Hisan Shishido from the IMF headquarters from Washington DC is here to discuss Nepal’s economic situation with senior Nepali government officials.

According to a ministry of finance source, IMF and the World Bank would provide aid jointly under the PRGF. In this connection, the IMF mission is holding discussions with senior officials at the ministry of finance, Nepal Rastra Bank (NRB) and National Planning Commission (NPC).

Major agendas of the mission are to discuss matters related to fragile political situation, revenue mobilisation situation, monetary sector’s condition, financial sector reforms, development expenditure and economic growth rate, according to a source.

IMF had agreed to provide aid on the basis of broad-based economic growth as per the Poverty Reduction Strategy Paper/Tenth Plan, socio-economic development, government reform and targeted programmes. Nepal qualified for PRGF only last year in September after three long years of intensive negotiations between IMF and Nepal government.

The IMF mission, currently in town, raised concerns over the deteriorating security situation and political instability and appreciated the initiatives taken by NRB in making the monetary policy more flexible and workable.

The current financial sector reforms funded by World Bank has not made many industrialists and businessmen in Nepal happy. There has been complaints about the achievements by the new Nepal Bank Ltd (NBL) management, led by Craig McAllister of ICC Bank of Ireland. Even the performance by the Rastriya Banijya Bank (RBB) has been under doubt. The IMF mission, say government officials, should also re-evaluate the merits of financial sector reforms.

According to government statistics, trade deficit increased by 26.1 per cent due mainly to increased imports which is amounted to Rs 19.3 billion. Current account recorded a surplus of Rs 10.7 billion, according to recently published figures of the central bank. Trade gap with other countries widened by 32.9 per cent in contrast to a decline by 16 per cent last year. However, Balance of Payments (BoP) has remained favourable by 936.9 million due to sufficient surplus in current account.

PRGF eligibility is based principally on the IMF’s assessment of a country’s per capita income and drawing on the cut-off point for eligibility to World Bank concessional lending. Loans under the PRGF carry an annual interest rate of 0.5 per cent with repayments made semi-annually, beginning five and a half years and ending 10 years after the disbursement.

IMF mission which had come to Nepal in May 2003 had set some pre-conditions for Nepal during its visit in May 2003 that included reformed-budget for the fiscal year 2003-04 and other reform measures taken by Nepali authorities in regard to the financial sector, Nepal Industrial Development Corporation (NIDC) and Agricultural development Bank (ADB/N); debt recovery tribunal and public enterprises.