Statement at the Conclusion of IMF mission to Nepal

IMF News, May 4, 2022

Source details

Mission period: April 24 to May 2, 2022.
Statement date: May 4, 2022.
Press Release No.: 22/139.
Observations:
- "Against the background of declining COVID cases, and a very successful public vaccination campaign, economic activity has strengthened, reflecting the reopening of the economy, rapid credit growth, a gradual recovery in tourism and sustained remittances."
- Inflation has increased; imports have continued to rise rapidly.
- "Existing imbalances [are] exacerbated by the impact of the war in Ukraine on commodity prices, raising the cost of oil imports in particular."
- International reserves "currently remain adequate" but "have declined more than anticipated when the ECF was approved."

The authorities have expressed determination to "gradually exit from extraordinary Covid-related expansionary monetary policy and preserving international reserves."
The mission welcomed the February increase in policy rates as "a welcome first step towards unwinding the current accommodative monetary policy stance."
The team emphasized the need to further tighten monetary policy, including by "increasing interest rates."
The mission recommended combining further monetary tightening with "the gradual unwinding of COVID support measures in the banking system" to address decreasing international reserves without resorting to import restrictions that could "exacerbate inflation and hamper economic growth."

The mission stressed the need for "a prudent FY2023 budget, consistent with that envisaged under the IMF-supported program."
Policy mix recommendation: "Taken together with a tighter monetary policy, this policy mix would help address inflationary pressures and growing external imbalances, while safeguarding the economic recovery and debt sustainability."

Progress has been made in the last few months in advancing the structural reforms envisaged under the Extended Credit Facility (ECF) that was approved in January 2022.
"Discussions will continue in the coming weeks towards reaching a staff-level agreement for the IMF Executive Board's consideration of the first review under the ECF."
ECF purpose (as stated): provides financial assistance to countries with protracted balance of payments problems; supports economic programs aimed at moving toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth; "may also help catalyze additional foreign aid."

The team met with:
- Finance Minister Hon. Mr. Janardan Sharma
- Nepal Rastra Bank Governor Mr. Maha Prasad Adhikari
- National Planning Commission Vice-Chairman Mr. Biswo Nath Poudel
- Auditor General Mr. Tankamani Sharma Dangal
- Finance Secretary Mr. Madhu Kumar Marasini
- Revenue Secretary Mr. Krishna Hari Pushkar
- Financial Comptroller General Mr. Suman Raj Aryal
- "Other senior officials, and development partners and representatives of the business community."
The team stated it was "grateful to the authorities for open and constructive discussions."

Source: Statement at the Conclusion of IMF mission to Nepal, May 4, 2022; Press Release No. 22/139.