Statement at the conclusion of the IMF mission to Nepal

  • Nepal’s post-COVID economic recovery continues. However, the global economic impact of the war in Ukraine is exacerbating existing vulnerabilities and impacting Nepal’s import-dependent economy, increasing inflation and decreasing international reserves.
  • The authorities have expressed their determination to face these external pressures by gradually exiting the extraordinary expansionary monetary policy linked to Covid and by preserving international reserves. Further monetary tightening and a prudent fiscal year 2023 budget will be needed to preserve macroeconomic stability.
  • Progress has been made over the past few months in advancing the structural reforms envisaged under the Extended Credit Facility (ECF) which was approved in January 2022. Discussions will continue in the coming weeks with a view to reach a staff-level agreement for consideration by the IMF Executive Board. of the first examination under the FEC.
  • Kathmandu – May 4, 2022: An International Monetary Fund (IMF) team led by Robert Gregory visited Kathmandu from April 24 to May 2, 2022 to conduct discussions on Nepal’s first ECF review with the IMF. [1]At the end of the visit, Mr. Gregory made the following statement today in Kathmandu.

    “Amid declining COVID cases and a highly 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. However, inflation rose and imports continued to rise rapidly, with existing imbalances exacerbated by the impact of the war in Ukraine on commodity prices, in particular increasing the cost of oil imports. Although they currently remain sufficient, international reserves have declined more than expected when the ECF was approved.

    “The team welcomed the authorities’ determination to take measures to address the decline in international reserves and the rise in inflation. The increase in key rates implemented in February was a welcome first step towards unwinding the current accommodative stance of monetary policy. The team stressed the need to tighten monetary policy further, including by raising interest rates. Combined with the gradual unwinding of COVID support measures in the banking system, this approach should make it possible to cope with the decline in international reserves without the need to resort to import restrictions which could exacerbate inflation. and hamper economic growth.

    “The team also discussed the need for a prudent budget for FY2023, consistent with that envisaged under the IMF-supported program. Combined with tighter monetary policy, this policy mix would help make in the face of inflationary pressures and growing external imbalances, while preserving economic recovery and debt sustainability.

    “The team welcomed the progress made in implementing the authorities’ structural reform agenda. Discussions will continue in the coming weeks with a view to reaching a staff-level agreement for consideration by the IMF Executive Board of the first review under the ECF.

    “The team is grateful to the authorities for the open and constructive discussions. The team met with the Minister of Finance, the Hon. Mr. Janardan Sharma, Governor of Nepal Rastra Bank Mr. Maha Prasad Adhikari, Deputy Chairman of the National Planning Commission Mr. Biswo Nath Poudel, Auditor General Mr. Tankamani Sharma Dangal, Financial Secretary Mr. Madhu Kumar Marasini, Secretary revenue Mr. Krishna Hari Pushkar, the Comptroller General of Finance, Mr. Suman Raj Aryal, other senior officials, development partners and business representatives.

    [1]The Extended Credit Facility (ECF) provides financial assistance to countries experiencing protracted balance of payments problems. It supports countries’ economic programs aimed at moving towards a stable and sustainable macroeconomic position compatible with strong and sustainable poverty reduction and growth. The ECF can also help catalyze additional foreign assistance.

    /Public release. This material from the original organization/authors may be ad hoc in nature, edited for clarity, style and length. The views and opinions expressed are those of the author or authors.View Full here.