The economic crisis triggered by the COVID-19 pandemic has affected almost everyone in Nepal. Daily wage earners have lost their livelihoods, micro and small enterprises have seen up to 95 per cent fall in revenue, and three in every five employed in micro and small businesses have lost their jobs. What’s more, the inflow of remittance, a steady source of income for many Nepali households, plunged 51 per cent in April over the same month a year ago. And the government’s fiscal position has deteriorated because of the drop in revenue. To help overcome these problems, the Asian Development Bank, a Manila-based multilateral lender, has approved a concessional loan of $250 million for Nepal.
Rupak D Sharma of The Himalayan Times talked to Shixin Chen, vice-president (operations 1) of the ADB, on how the loan will be used and how Nepal can stem the rising tide of challenges. Excerpts:
The Asian Development Bank has approved a loan of $250 million for Nepal. How will the fund be utilised?
This (Tuesday) afternoon, the ADB’s board of directors approved a concessional loan of $250 million for Nepal. The loan is part of the $20-billion COVID-19 response package created by the ADB. The approval of the loan has sent a strong message that ADB, together with other development partners, stands ready to support Nepal’s government and people to cope with challenges during this difficult time. This loan is in form of budgetary support to help the government fund its COVID-19 response programme. The assistance package was drawn up after intensive consultations with the government on the impact of COV- ID-19 on health, welfare and economy.
The package will support three areas — medical and health, social protection and economic recovery.
The loan will be disbursed soon.
When will ADB sign the loan agreement with government?
That could be very soon. We will discuss this issue with the government.
Is the latest support of $250 million a part of the fund that the ADB provides Nepal every year or is it an additional support?
Despite the challenging times and the ongoing lockdown, the ADB, together with the government, will do its best to prepare projects that were originally agreed on for financing in 2020. In that sense, the $250 million budgetary support to Nepal is expected to be extra financing on top of ADB’s financial support originally requested by the government before the start of the pandemic.
Does this mean this is an additional support?
Yes, that’s correct.
Credit for budgetary support generally comes with conditions. Has ADB attached any condition to this loan?
I don’t think we have attached any conditions to this loan. This package is fully aligned with the government’s COVID-19 national relief programme.
But we want the government to make sure that it utilises the money in areas of importance, such as medical and health, social protection and economic recovery. So the implementation part is important.
Could you elaborate on how the loan will be utilised?
ADB’s funding will support the government in strengthening the country’s public health systems and mitigating adverse economic and social impacts of the pandemic. The funding will help in scaling up testing capacity to 3,000 tests per day, setting up quarantine space in all seven provinces, increasing hospital beds for treatment of COVID-19 patients, and providing incentives to health and frontline personnel responding to COVID-19. Another important area we are supporting is social protection. The lockdown has had repercussions on the informal sector and on micro, small and medium enterprises. The loan will support the government to extend its social protection programme to distribute food assistance to the poorest and vulnerable households, including women, children and elderly, and provide employment support to the unemployed, especially women, returning migrant workers and those from the poorest households.
ADB’s support will also help in recovery of affected industries, such as agriculture, energy and tourism, and entrepreneurs through better access to finance for micro, small, and medium enterprises. This is important to retain jobs and create new ones.
Could you please provide a breakdown on how the loan of $250 million be divided across three core areas that you just mentioned?
It is up to the government to decide as this is a budgetary support. But we will work with the government on distribution of money across the three areas.
As government’s fiscal deficit worsens due to COVID-19, debt will become an issue. How is the ADB viewing calls for debt relief programmes for emerging economies like Nepal?
Loans provided by institutions like ADB to Nepal are highly concessional.So, it will be difficult for ADB to participate in a multilateral debt relief arrangement, as it will likely have serious negative impact on our creditworthiness perception by rating agencies. But G-20, International Monetary Fund and bilateral creditors are working on this issue, which will provide welcome relief to countries, especially low-income ones, struggling with debt repayment.
Is the ADB considering to increase the portion of grants to Nepal to reduce the debt servicing cost or launch a public debt restructuring programme in case Nepal faces problems in repayment of existing loans?
Nepal is currently eligible for concessional loans as Nepal’s public debt appears to be sustainable. But I’d like to mention that Nepal is still eligible for grants for targeted areas, such as adapting to climate change, mitigating disaster risks, promoting gender equity and supporting regional cooperation. ADB can provide grants for these areas. Regarding debt suspension, ADB is not considering that option as it will have a negative impact on our rating.
But ADB will be happy to inject funds through budgetary support mechanism in caseof financing gap or if there is urgent need for funds.
The ADB was earlier mulling over floating local currency bonds in offshore markets to raise funds for Nepal’s private
sector. Is that possible in the present scenario as banks are likely to face liquidity problem in the coming days due to lower inflow of remittances and tourism income?
We have been discussing the issue of floating local currency bonds for a long time. The ADB is currently seeking government’s approval to issue Nepali rupee bonds in the offshore market. The government has issued guidelines for the issuance of such bonds. The ADB is holding discussion to clarify its position on issuing such bonds. We remain hopeful about issuing the bonds following the government’s approval. The bond proceeds will be used to support private sector operations in the country. We will work closely with the government on this front.
As the COVID-19 crisis deepens, challenges will only become bigger because of lower government revenue, which will further deteriorate Nepal’s fiscal position. How do you think should the country move forward?
The coronavirus pandemic is likely to prolong because a vaccine or an effective drug still has not been developed.
This will pose a challenge not only to Nepal but all the countries across the globe, as there will be restrictions in movement in the coming days as well. So, there are lots of uncertainties. This will have an impact on remittance inflows, tourism, trade and other vulnerable sectors. All this will hit government revenue and widen the fiscal deficit.
But we have seen some positive developments lately, as COVID-19 testings have gone up and the capacity of quarantine centres and laboratories has been enhanced. If the government is able to focus more on 3Ts — testing, tracing and treatment — the situation will gradually improve. This will enable the government to reopen the economy.
The crisis has exposed the harsh reality of inequality in the world where low-income countries like Nepal can’t support their citizens or businesses. What needs to be done to bridge this gap?
The government’s resources are relatively limited in low-income countries like Nepal. A part of that resource gap can be filled by international support. But what is most important here is social protection.
If the problem of inequality is not taken care of in a serious manner, risks will only increase. Here, I would like to commend the government, as its COVID-19 national relief programme has attached high importance to social protection.
As I mentioned earlier, we need to take care of the poorest and the most vulnerable groups, such as women, children, the elderly and sole breadwinners of families who have lost jobs. The ADB would like to help the government to enhance its social protection system. I know that Nepal had put in lots of efforts in this area after the 2015 earthquakes. But we need to work further in this area to enhance the system.
Lastly, will you like to add anything?
All the countries, including Nepal, are facing challenges at this time. But we need to remain optimistic. Both the government and people should work together and join hands with the international society as well. If we build our confidence, we will win this fight.
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