Press Release: IMF Executive Board Completes Second and Third Reviews Under Nepal's Three-Year PRGF Arrangement and Approves US$21.2 million Disbursement
November 13, 2006Press Release No. 06/251
The Executive Board of the International Monetary Fund (IMF) has completed the second and third reviews of Nepal's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) Arrangement which enables Nepal to draw an amount equivalent to SDR 14.3 million (about US$21.2 million) under the arrangement. Completion of these reviews will bring total disbursements under the program to SDR 28.5 million (about US$42.5 million).
The Executive Board also approved a request for waivers for the non-observance of a quantitative performance criterion related to the second review, and eight structural performance criteria related to the second and third reviews. The Board also decided to extend the current PRGF arrangement by one year to November 18, 2007.
The Executive Board approved the three-year arrangement on November 19, 2003 (see Press Release No. 03/202) for amount equivalent to SDR 49.9 million (about US$74.3 million).
Following the Executive Board's discussion of Nepal, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
"Nepal's Poverty Reduction Strategy Paper provides a sound basis for achieving higher growth and poverty alleviation and the PRGF-supported program envisages continued reform implementation in the fiscal sector, financial sector, and public enterprises. These reforms, together with durable peace and political stability, will underpin strong economic growth, a durable reduction in poverty, and help achieve the Millennium Development Goals. In this context, the recent political agreement between the government and the Communist Party of Nepal (Maoist) is encouraging.
"To maintain macroeconomic stability, the authorities' medium-term fiscal objectives are to raise the revenue-to-GDP ratio, improve the efficiency of public spending, and contain domestic borrowing. Achieving these objectives requires strengthening tax administration to reduce leakages, enhancing audit, and improving taxpayer services. Prioritization of expenditures under the Medium Term Expenditure Framework would help to raise allocations for priority sectors, increase poverty-related development spending, and strengthen fiscal transparency. A strong effort is required to improve implementation capacity at the local level so that development spending targets are achieved.
"The authorities envisage a continued implementation of financial sector reforms as a key element of the PRGF-supported program. These reforms include improvements in the legal and regulatory framework, strengthening Nepal Rastra Bank, and restructuring of troubled commercial and development banks. Strong efforts will be put in place to increase loan recovery from large, willful defaulters to improve the financial condition of the ailing commercial banks.
"Public sector reforms focus on reducing losses of the Nepal Oil Corporation (NOC) and resolving accumulated supplier's credits. In addition, the transparency and efficiency of the oil sector will be improved with the preparation of NOC audited accounts in accordance with international standards and the adoption of the Petroleum Sales and Distribution Act.
"Notwithstanding difficult circumstances, it is encouraging to note the authorities' commitment to reforms and their established track record of policy implementation," Mr. Kato said.