FSR AT RISK FOLLOWING NBL MANAGEMENT ROW
The World Bank (WB) has threatened to suspend all assistance related to the financial sector reform project, as well as the proposed budgetary support, if the government doesn't restore the ICCMT management team at Nepal Bank Limited (NBL) by the end of August.
In a strongly worded letter sent Thursday (July 26) to the finance secretary, the major financer of the reform project said that it intends to suspend the right of the borrower (Nepal government) to make further withdrawals of assistance unless the management contract with ICCMT, an Irish/Scottish consulting firm, is extended for a six-month period, reports The Kathmandu Post.
The consulting firm that had been handling the management of troubled Nepal Bank Limited (NBL) for the last five years unilaterally terminated the management contract on July 22, citing inadequate cooperation from the central bank. Thursday's letter signed by the country director at the WB Nepal office has also alleged that Nepal Rastra Bank (NRB) failed to create a conducive environment for the operation of the NBL and has asked for decisive action satisfactory to the WB to restore the operational autonomy of the NBL management team.
In the face of increased interference by NBL's board and unions in the day-to-day operation of the bank, NRB has not taken necessary measures to ensure effective control over NBL as required by the agreement signed in June 2004, said the letter.
The WB has recommended convening a meeting of all parties, including the finance ministry, NRB, the consulting firm and the WB before the departure of the one remaining consultant. According to sources, Peter Ward, chief credit manager, is scheduled to leave Nepal on July 28. WB has also made it clear that following a six month extension for ICCMT, the government is free to hire a professional management team for NBL, foreign or local, but with at least one expatriate as either CEO or chief credit manager. However, the team needs to have qualifications and terms of reference acceptable to the WB and should be hired as per the procurement procedures agreed between Nepal and the WB, said the letter.
If the WB decides to suspend the assistance, it will immediately affect US$ 100 million reform projects at NBL and Rastriya Banijya Bank (RBB) and reengineering at NRB. In addition, a proposed grant assistance worth US$ 30 million aimed at enhancing Access to Finance will be an immediate victim. Likewise, the much-needed budget support for the current fiscal year will also become uncertain. The budget for the current fiscal year has anticipated receiving up to Rs 100 million in budget support. WB and DFID have extended Rs 7 billion for Financial Sector Projects and the government has utilized Rs 5.52 billion as of mid-March, 2007. Out of the total utilized, Rs. 3.89 billion (70 percent) was spent on Voluntary Retirement Schemes (VRS) at the two banks - NBL and RBB.
Meanwhile, on Friday (July 27), the NRB appointed a new management team at the NBL. The three member team is led by NRB director Dr. Binod Atreya and includes Laxmi Prapanna Niraula and Numnath Poudel.
In another development, the Finance Ministry has written a letter to the Office of Attorney General requesting for quick settlement of the case against Bijaynath Bhattarai. Following the filing of case of corruption against him by the Commission for Investigation of Abuse of Authority (CIAA), Bhattarai remains suspended from his position as Nepal Rastra Bank (NRB) governor.
CHINA TO GIVE RS 13 BILLION LOAN
China has offered concessional loan of Rs 13 billion to Nepal. It has also agreed to provide Rs 1 billion grant assistance. At the 10th meeting of Nepal-China Inter Governmental Economic and Trade Committee in Kathmandu, on Tuesday (July 24), the two sides discussed conditions of the loan.
"We have accepted the loan but we have still not finalized about the conditions," said a senior Finance Ministry official.
Meanwhile, reports add that China has agreed to provide about Rs 432.5 million grant to Nepal for the construction of Syafrubesi-Rasuwagadhi road, which will open the second trading route with the northern neighbor. China has also agreed to provide logistic support for the constituent assembly elections scheduled for November 22.
Finance Secretary Vidhyadhar Mallik and Chinese assistant commerce minister Wang Chao signed the accord on behalf of their respective governments. Under the economic and technical cooperation, China has also agreed to provide mobile container and X-ray installation at the customs points.
The visiting Chinese assistant minister said that China would continue its support to Nepal in its socio-economic development endeavors. "New foundation has been laid for strengthening economic and technical cooperation between the two countries. For this, the meeting has been highly successful in identifying new areas of cooperation," he added.
Talking to the media persons, finance secretary Mallik informed that various matters related to trade, investment, economic and technical cooperation as well as other subjects of mutual interests were discussed during the meeting. "The Chinese delegation has assured us to look into all issues and requests of Nepal," he said. China has agreed to form a joint committee led by chief of customs of Nepal and Tibet to finalize on a proposal tabled by Nepal to grant duty free access to 498 export commodities to the Chinese market. According to him, China has taken positively Nepal's request to double the annual technical and economic cooperation being provided to Nepal.
China provides about Rs 800 million grant to Nepal every year. Likewise, Nepal also asked for China's support in major infrastructure development projects including the construction of outer Ring Road, regional airport in Pokhara, Upper Trishuli 'B' and extension of railway up to Nepal border, said Mallik.
"In the investment front, the Chinese delegation enquired about visa processing, land acquisition and investment climate here in Nepal. They have floated an idea of setting up a joint venture bank for the investment in mega projects," he said.
