IMF Mission for the First Review of the Poverty
Reduction and Growth Facility
In November 2003, the Executive Board of the International
Monetary Fund approved a three-year Poverty Reduction and Growth Facility (PRGF)
program in support of the10th Plan/Poverty Reduction Strategy Paper (PRSP) of His
Majesty’s Government of Nepal (HMGN). The loan totals approximately US$70 million on
concessional terms and is to disbursed in seven equal tranches over 2003-2006. The first
tranche of $10 million was disbursed last November. A second tranche of $10 million is
expected to be disbursed later this fiscal year as HMGN continues to implement reforms
committed in the 10th Plan and supported by the PRGF (these have been made public by HMGN
on the IMF website: www.imf.org).
An IMF mission headed by Mr. Hisanobu Shishido visited Nepal
during March 2-15 to review performance over the first six months of the PRGF program, and
discuss HMGN’s economic reform plans for 2004/05. The mission found that there had
been good progress against the background of a difficult political and security situation.
Pending the completion of a few outstanding actions, the second disbursement of the PRGF
could thus be considered by the IMF Board sometime in May, 2004. The main findings of the
mission are:
Achievements to date
Macroeconomic
performance in 2003/04 is in line with program objectives. All the macroeconomic targets
for January 2004 have been met. Agriculture and manufacturing have done well despite the
insurgency, and there has been a rebound in tourist arrivals. For the year as a whole,
real GDP growth is now expected to exceed 3.5 percent. Consumer price inflation is
projected to remain at around 4.75 percent on average. Although the trade deficit has
widened, robust remittances have kept international reserves at comfortable levels.
The fiscal
program is largely on track. Revenue and regular spending have been in line with the
budget targets. However, development spending has been lower due in part to security
problems. HMGN is making efforts to improve project implementation, and, as a result,
development spending is expected to rise in the second half of the year.
Progress on many
structural reforms has been encouraging. Tax and customs administration is being improved
, and the debt recovery framework has been strengthened through a debt recovery tribunal
and new blacklisting provisions. Strengthening of the Nepal Rastra Bank (NRB) continues
with rightsizing, improving human resource policies, and strengthening monetary and bank
supervision operations. On the banking sector, RBB and NBL are improving their financial
position through efforts to recover bad debts, cut costs, and computerize operations.
State enterprise reform has continued with the sale of Bhaktapur Brick Factory and
preparation for privatization/liquidation of some other loss making firms.
However,
intensified efforts are needed to enhance debt recovery from willful defaulters;
reinvigorate civil service reform; and address losses incurred by Nepal Oil Corporation.
Reform Agenda for Poverty Reduction and Growth for
2004/05
The medium term
macroeconomic framework remains largely as projected in the 10th Plan/PRSP and included in
the PRGF. Real GDP growth in 2004/05 is expected to be around 4? percent, subject of
course to political and security developments. Fiscal objectives are to raise revenue,
improve the efficiency of public spending, and reduce domestic borrowing. The Fund looks
forward to further discussions on the revised macroeconomic and fiscal framework for
2004/05 in the coming months.
The poverty
reduction reform agenda to be supported by the PRGF in 2004/05 is expected to largely
build on the efforts to date. Among key reform actions are: (i) strengthen a large
taxpayer office and implement a customs modernization plan; (ii) further strengthen the
NRB’s supervision, and monetary and reserve management; (iii) enhance debt recovery;
(iv) restructure development banks; (v) continue privatization/liquidation of loss making
state enterprises; and (vi) improve competitiveness through more flexible labor market
legislation. At the same time, public accountability is expected to be enhanced through
increased fiscal transparency, a better performing civil service, and continued
anti-corruption efforts.
The IMF plans to
provide HMGN with technical assistance to implement some of these reforms, and is working
closely with the World Bank, Asian Development Bank and other donors to support the
government’s efforts in these areas.
(Excerpts of the press statement by the
IMF Resident Representative Office in Nepal) |
