Press Release: IMF Executive Board Completes Fourth Review Under Nepal's Three-Year PRGF Arrangement and Approves US$16 Million Disbursement
June 13, 2007Press Release No. 07/131
The Executive Board of the International Monetary Fund (IMF) has completed the fourth review 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 10.69 million (about US$16 million) under the arrangement. Completion of this review will bring total disbursements under the program to SDR 39.21 million (about US$59 million).
The Executive Board also approved a request for waivers for the non-observance of four structural performance criteria, including the audit of large taxpayers, the establishment of a wide-area network by the Customs Department; the divestment by Nepal Rastra Bank of its shareholdings in two financial institutions; and the audit of the Nepal Oil Corporation's 2005/06 accounts, in view of corrective actions taken by the authorities on these measures.
The Executive Board approved the three-year arrangement on November 19, 2003 (see Press Release No. 03/202) for an amount equivalent to SDR 49.9 million (about US$75 million). The first review was completed on October 20, 2004. The second and third reviews were completed on November 10, 2006, and the PRGF arrangement was extended to November 18, 2007.
Following the Executive Board's discussion of Nepal's economic performance, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
"The Nepalese authorities are to be commended for their prudent macroeconomic policies and structural reforms, which have enhanced the resilience of the Nepalese economy. Fiscal, financial sector, and public enterprise reforms, together with durable peace, remain critical to sustained high growth and poverty reduction. The November 2006 Comprehensive Peace Accord is a welcome development that augurs well for the Nepalese economy.
"Going forward, sustaining macroeconomic stability will require continued prudent fiscal policies and reforms to increase government revenue, boost social sector and infrastructure spending, and limit domestically financed budget deficits. The authorities are therefore appropriately focusing on improving tax administration, removing constraints on project implementation at the local level, and mobilizing adequate external assistance. The authorities also intend to enhance fiscal transparency.
"The pegged exchange rate to the Indian rupee has served Nepal well. Maintaining external competitiveness will require efficiency-enhancing structural reforms and infrastructure improvements. Monetary management would need to be strengthened by close coordination between Nepal Rastra Bank and the Ministry of Finance.
"Reforms are being implemented to develop and strengthen the financial sector. These include improvements in the legal and regulatory framework, strengthening of the central bank, restructuring of ailing commercial banks, and intensification of efforts to recover loans from large, willful defaulters.
"The enactment of the Petroleum Sales and Distribution Act will facilitate efforts to improve efficiency in the operations of the national oil company and the oil sector in general. Further actions are also needed, including introduction of an automatic price adjustment mechanism for petroleum products," Mr. Kato said.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.