Kathmandu, February 28
The International Monetary Fund (IMF) staff and Nepali authorities have reached staff-level agreement on the policies needed to complete the combined first and second reviews of the extended credit facility (ECF) arrangement.
Nepal would have access to about $52 million in financing once the review is formally approved by the executive board, as per a statement issued at the end of the mission.
This would bring total disbursements under the ECF thus far to about $156.6 million, from a total of about $375.8 million.
The IMF team led by Jarkko Turunen, deputy division chief at IMF, had visited the capital from February 15 to 28 and held discussions with a broad range of stakeholders in the context of the 2023 Article IV consultation and the combined first and second reviews of the authorities' economic programme supported by the IMF's ECF.
According to the statement, following a strong post-pandemic recovery, the real GDP growth is softening and is projected at 4.4 per cent in fiscal year 2022-23, reflecting the impact of external shocks and necessary policy adjustment.
The much-needed monetary policy tightening last year helped stabilise the external position and is contributing to lower inflation, while the recent mid-year budget review is expected to address near-term fiscal risks stemming from lower-than-expected revenue growth, as per the statement.
"Cautious monetary policy remains appropriate to bring the still elevated inflation down towards the Nepal Rastra Bank's seven per cent target and to allow the economy to grow without placing undue pressure on international reserves. Discussions recognised the need to protect high-quality infrastructure expenditure and social spending.
The IMF team has said the sustainable medium-term growth will require fiscal reforms in line with debt sustainability, advancing reforms on banking regulations and supervision, reducing the cost of doing business and barriers to foreign direct investment and enhancing governance.
"Better-targeted social assistance, investing in resilient infrastructure and boosting agricultural productivity are key to reducing poverty, and addressing Nepal's vulnerability to food security risks related to climate change and natural disasters. Enhanced transparency and financial oversight of public enterprises can reduce fiscal risks while promoting their operational efficiency."
The IMF team had met with Prime Minister Pushpa Kamal Dahal, Deputy Prime Minister and Minister of Finance Bishnu Prasad Paudel, Nepal Rastra Bank Governor Maha Prasad Adhikari, National Planning Commission Vice-Chairman Min Bahadur Shrestha, other senior government and NRB officials, development partners and representatives of the business community.
A version of this article appears in the print on March 1, 2023, of The Himalayan Times.
