Washington, DC:
A staff team from the International Monetary Fund (IMF) led by Robert
Gregory conducted hybrid missions to Kathmandu, Nepal from October 20-29,
November 17-18, and November 30-December 2, 2021 to discuss a 38-month
program under the Extended Credit Facility (ECF).
At the conclusion of the mission, Mr. Gregory issued the following
statement:
“IMF staff have reached agreement with the Nepali authorities on a 38-month
program that could be supported by IMF resources of about US$400 million
under the Extended Credit Facility (ECF). The staff-level agreement is
subject to IMF management approval and Executive Board endorsement, which
is expected in the coming weeks, and which is contingent on the
implementation by the authorities of prior actions and fulfillment of all
relevant Fund policies.
“The COVID-19 pandemic has taken a heavy toll on Nepal’s economy, severely
impacting people’s heath and livelihoods. GDP contracted in 2019-20, and
Nepal suffered a devastating second wave in 2021, which interrupted a
gradual recovery in economy activity. The authorities responded
proactively, with polices to strengthen prevention, containment, and health
management as well as measures help the poorest, mitigate job losses, and
support businesses. Emergency financial assistance from the IMF and other
development partners helped close financing gaps and supported mitigation
measures, but important fiscal and external financing needs remain over the
next few years.
“The IMF-supported program has three main objectives:
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Mitigate the COVID-19 impact on health and economic activity, and protect
vulnerable groups, including by making room in the budget for health,
social assistance, and job support, while enhancing fiscal transparency and
governance.
-
Preserve macroeconomic and financial stability, including by maintaining
a prudent fiscal stance, preserving reserve adequacy, and strengthening
financial sector regulation and supervision.
-
Support a reform agenda that leads to sustained growth and poverty
reduction over the medium-term, including by implementing cross-cutting
institutional reforms that improve governance and reduce corruption
vulnerability.
“Fiscal policy in the early part of the program would accommodate spending
to address health needs, support the economy, and protect the most
vulnerable, but fiscal deficits would gradually decline once the health
crisis wanes. The fiscal deficit trajectory under the program will help
stabilize public debt, while also accommodating the authorities’ commitment
to further enhance social safety nets to support poverty alleviation. The
program supports a comprehensive fiscal structural reform agenda—with both
revenue mobilization and public financial management reforms—as well as
measures to increase fiscal transparency.
“Recognizing the importance of preserving the stability of the financial
system to help support growth and mitigate economic scarring from Covid-19,
the program follows a carefully sequenced strategy to further strengthen
financial sector regulation and supervision, while also enhancing the
autonomy and accountability framework of the Nepal Rastra Bank (NRB).
“The trajectory of the COVID-19 pandemic in Nepal and globally is extremely
uncertain and will continue to weigh on the economic outlook. As
projections remain subject to significant uncertainty, it will be important
to identify contingency strategies in case these risks materialize. The IMF
staff team looks forward to continuing the close engagement with the Nepali
authorities and support their efforts in achieving the program’s
objectives.
“The staff team met with the Minister of Finance, Mr. Sharma, Finance
Secretary, Mr. Marasini; Governor of the Nepal Rastra Bank (NRB), Mr.
Adhikari; and other NRB and senior government officials. Staff also had
productive discussions with representatives of the private sector, and
development partners. The IMF staff team is grateful to the authorities for
the candid and constructive discussions and their hospitality while in
Kathmandu.”
