IMF

IMF Survey : With Global Help, Nepal Focuses on Recovery

August 4, 2015

  • $50 million loan to help Nepal overcome devastation of April earthquake
  • Country faces large reconstruction challenge
  • IMF ready to continue providing policy advice, technical assistance, financial support

The International Monetary Fund has approved a request from the Nepalese authorities for a loan of $50 million to help the Southern Asian country overcome the devastation caused by April’s massive earthquake.

A laborer carries brick from a damaged building.  Nepal is rebuilding with overseas support  (photo: Jack Kurtz/Zuma Press/Corbis)

A laborer carries brick from a damaged building. Nepal is rebuilding with overseas support (photo: Jack Kurtz/Zuma Press/Corbis)

POST-DISASTER RECONSTRUCTION

The money, which was disbursed from the IMF’s Rapid Credit Facility, will be sent directly to the Ministry of Finance’s account at the country’s central bank, and will be lent at the Fund’s concessional interest rate (currently zero percent), with a grace period of five years.

Nepal is still struggling to overcome the effects of the country’s worst earthquake in more than 80 years. The 7.8 magnitude quake which struck the historic district of Gorkha in Nepal, about 47 miles northwest of Kathmandu, was followed by almost 300 more aftershocks. Almost 9,000 people were killed, 2,300 more were injured, and hundreds of thousands have been left homeless.

An estimated 8 million people have been affected by the disaster. Many cultural and architectural heritage sites were heavily damaged. Poorer, rural areas have been more adversely affected than towns and cities due to the inferior quality of the houses.

Policies to support the recovery

Strengthening public financial management will be key to the swift and effective implementation of reconstruction efforts. The authorities are simplifying administrative procedures for capital spending, and have established a National Reconstruction Authority (NRA) to speed up reconstruction in the country’s districts that were the most affected by the earthquakes.

Strong coordination between the NRA and the annual budget process is needed to promote effective use of the earthquake relief funds. Enhanced donor coordination, additional capacity building support, and the IMF’s continued provision of technical assistance in public financial management will help to underpin the authorities’ reconstruction efforts.

The damage and economic disruption caused by the earthquake could affect the loan portfolio of banks, microfinance institutions and cooperatives, particularly in rural areas where borrowers lost lives and livelihoods.

To bolster the resilience of the financial sector, the authorities are committed to improving the quality of regulation, supervision, and transparency to levels closer to international norms, and continuing efforts to improve access to formal financial services.

Help from development partners

The authorities’ efforts are being supported by technical assistance from several development partners, including the U.K. Department for International Development, the World Bank, and the IMF.

This follows a successful international donor conference held in Kathmandu on June 25 where the Nepalese authorities presented the results of a Post-Disaster Needs Assessment (PDNA) carried out under the leadership of the National Planning Commission.

Following the gathering, the country received pledges of external support for the reconstruction effort, in the form of grants and loans, to the tune of around $4 billion.

The aim of the PDNA was to assess the impact of the disaster, and define a recovery strategy, including funding implications, for the restoration of livelihoods, the economy and services, and the rehabilitation and reconstruction of housing and infrastructure. The PDNA estimates the damages and losses at $7 billion, or about one third of GDP.

Swift IMF support

Immediately after the earthquake, the IMF’s Managing Director, Christine Lagarde, promised to send an IMF team “at short notice to help the government assess the macroeconomic situation and determine any financing needs.”

An IMF mission arrived in Kathmandu two weeks after the earthquake to assess the disaster’s macroeconomic impact.



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