Nepal, India likely to finalise soft loan conditions soon

Kathmandu, March 23

Nepal and India are likely to finalise terms and conditions of the Rs 75 billion soft loan pledged by the southern neighbour for post-earthquake reconstruction and rehabilitation works soon.

The officials of the Ministry of Finance (MoF) and Export-Import (EXIM) Bank of India are expected to hold a meeting in the first week of April to review implementation status of projects being developed through Indian lines of credit.

The meeting scheduled to be held in the Indian capital of New Delhi will be attended by Baikuntha Aryal, head of the International Economic Cooperation Coordination Division at the MoF.

“We are hopeful that the meeting will be able to sort out all the differences and finalise terms and conditions of the Indian line of credit,” a senior MoF official told The Himalayan Times on condition of anonymity.

India had pledged to extend Rs 100 billion to Nepal for post-quake rehabilitation and reconstruction during the International Conference on Nepal’s Reconstruction (ICNR) held here on June 25. Of the total amount, Rs 25 billion will be extended in the form of grant and the remaining Rs 75 billion in the form of soft loan.

During the ICNR, Indian External Affairs Minister Sushma Swaraj had said: “This pledge (of Rs 100 billion) is over and above our existing bilateral development assistance of another $1 billion over the next five years, 40 per cent of which would be grant.”

Swaraj’s statement of that time had led many to form an idea that India was converting 40 per cent of the $1-billion soft loan, extended to Nepal in November 2014, into grant.

This notion prompted Nepal to query whether India was willing to sign an agreement on the 40-per-cent grant component during Prime Minister KP Sharma Oli’s visit to New Delhi.

“However, India said it did not mean to say it was converting 40 per cent of the loan approved in the past into grant,” the MoF official said, adding, “If India had agreed to our proposal, a deal would have been signed during the PM’s recent visit to New Delhi.”

During PM’s India visit, the two countries only signed a memorandum of understanding on utilisation of Rs 25 billion grant component pledged for reconstruction.

Although an agreement on grant component of the aid money has been signed, the two countries are yet to seal a deal on the loan component due to differences over terms and conditions of the line of credit.

“We are requesting the Indian EXIM Bank to extend credit at one per cent interest,” the official said.

Indian EXIM Bank generally extends loan at 1.75 per cent interest. However, the interest on $1 billion line of credit extended by the Bank in the past had been reduced to one per cent upon request of the government of Nepal.

“Also, Nepal is seeking a grace period of seven years on the loan, as against five years proposed by EXIM Bank,” the MoF official said. During the grace period, Nepal does not have to service the debt.

“We have also requested that the loan repayment tenure be extended to 25 years as against the Indian proposal of 20 years,” the official informed. “Above all, we have requested the Indian bank to scrap the provision which makes it mandatory for a borrower to spend at least 75 per cent of the value of contract covered by the line of credit on Indian goods and services.”

A guideline of the EXIM Bank says: “Goods and services, including consultancy services, for at least 75 per cent value of the contracts covered under these lines of credit must be sourced from India. A suitable relaxation not exceeding 10 per cent may be considered on a case to case basis for exceptional reasons, especially in case of projects having civil construction.”

Earlier, India had relaxed this provision for Nepal, enabling the country to use only 50 per cent of the value of contract on Indian goods and services. “We want this provision to be scrapped this time because we are using the money on rehabilitation and reconstruction,” the MoF official said.