Organizing a press conference on Friday, IMF mission led by its senior official Alexander Pitt made public its official assessment of the country´s macro economic situation.[break]
Thomas J Richardson, a mission member, however, said degree of economic growth depends on the progress in capital investment in infrastructure sector -- especially on roads and hydropower sectors.
On the back of minimum utilization of remittance to boost economic activities, Richardson also suggested that the earning of Nepali migrants should be channelized to productive sectors.
The team held consultation with Finance Minister Shankar Prasad Koirala, Governor of Nepal Rastra Bank Yubraj Khatiwada and other senior government officials during the visit that started on September 26.
The mission also estimated that weakening value of Nepali currency against US dollar has put pressure on price of food commodities.
“Inflation pressures are rising due to the depreciation of Nepalese rupee (against dollar) and continued strong credit growth,” IMF said in a press statement.
The mission also indicated that key risks to the economic outlook emanate from recent developments in India - the major trading partner and closest neighbor of Nepal.
“In near term, the rupee depreciation is raising price pressures and exacerbating the already high losses of the state-owned Nepal Oil Corporation (NOC),” reads the press statement.
Richardson suggested that NOC should adopt the automatic price adjustment of the petroleum products as practiced in the southern neighbor.
The mission also said that protracted slowdown in India is likely to bring adverse effects on the economic growth.
Richardson also expressed dissatisfaction over the current subsidy policy, stating that it has failed to serve needy people or poor of the remote villages and highly benefiting the rich people in urban areas.
“The government should have spent the money on essential sectors like education, health and hydropower instead of subsidizing the fossil fuels,” he added.
The mission also voiced concern over the mounting financial risk due to practices of same person being banker and entrepreneur. “One cannot become both banker and entrepreneur, as it creates a situation of conflict of interest,” he added.
The mission has also reinforced its previous conviction that Nepali officials should maintain existing peg of Nepali rupees with Indian rupees.
“The peg continues to benefit Nepal in view of its close economic relationship with India. Moreover, the recent depreciation creates an opportunity to benefit from enhanced international competitiveness,” the statement said.
IMF, WB to conduct FSA in Nepal
Meanwhile, IMF, in collaboration with World Bank is conducting Financial Sector Assessment (FSA) in November for a comprehensive and in-depth analysis of Nepal´s financial sector.
Talking to Republica, Richardson said that IMF is conducting first ever financial assessment in Nepal. “A team of experts will arrive here in November for FSA,” said Richardson.
FSA is a key instrument of IMF´s surveillance and provides input for consultation.
According to him the assessment will also include Financial System Stability Assessment that provides technical notes, including additional background information and analyses, and detailed assessments of standard of financial sector in Nepal.
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