Nepal was expecting to receive the second installment in May 2022, but the Washington DC-based global lender delayed the second tranche of $ 395.9m in loan to Nepal till February 2023, stating that the country is yet to fulfill the obligations.
The IMF had approved the $395.9m ECF for Nepal in January 2022 of which the Himalayan nation had already received the first installment of $110m. The funding was approved to assist Nepal’s Covid-19 response in mitigating the pandemic’s impact on health and economic activity, protect vulnerable groups, preserve macroeconomic and financial stability, and support sustained growth and poverty reduction. Issuing a press statement, the IMF said that the ECF arrangement had helped mitigate the impact of the pandemic and global shocks on economic activity and aims at protecting vulnerable groups, preserving macroeconomic and financial stability, and supporting sustained growth and poverty reduction. “The program is also helping to catalyze additional financing from Nepal’s development partners,” the statement reads. Even though the import restrictions helped to stabilize the declining foreign exchanges, the measures contributed to the reduction of the government’s revenue sharply in the current fiscal year forcing the government to cut funding for various development projects. The IMF praised Nepal for making continued progress with the implementation of the ECF-supported program despite a challenging global and domestic environment last year, including the impact of Russia’s war in Ukraine. “The Nepali authorities have taken decisive actions to maintain a stable macroeconomic environment in the context of the post-Covid-19 recovery and global shocks. The much-needed monetary policy tightening last year, together with the gradual unwinding of covid support measures, helped moderate credit growth and lower inflation,” the IMF said. “While reform implementation has been slower than expected, in a difficult environment, the Nepali authorities remain committed to their economic reform program,” the statement quoted Bo Li, Deputy Managing Director and Acting Chair of IMF as saying. “Maintaining momentum on governance reforms is critical to cement recent gains in fiscal transparency,” said Bo. “Fiscal consolidation and further structural reforms are needed to support medium-term fiscal sustainability. Revenue mobilization, advancing fiscal federalism, addressing fiscal risks, and strengthening public investment management are important measures.” The IMF has also pointed out the asset quality of the Nepali financial system. Bank asset quality, according to the IMF, has deteriorated as higher lending rates depress borrowers’ repayment capacity. In fact, Nepal has committed to evaluating the situation of Nepal’s large 10 banks through external auditors to receive the ECF funding. A Nepal Rastra Bank (NRB) official had earlier told the Annapurna Express that Nepal Rastra Bank would foreign auditors to identify the exact status of 10 commercial banks following the completion of the latest first and second review of the ECF-supported program. “The NRB is prioritizing the asset quality of banks, including through regulatory initiatives to ensure appropriate classification of loans, and is focused on advancing the financial sector reform agenda,” the IMF said. “Measures to improve the autonomy and accountability framework of the central bank and strengthen the AML/CFT framework and its effectiveness remain crucial.”
