“The Executive Board of the IMF on May 28 approved the support. This has enabled the immediate disbursement of the full amount,” IMF has said in a press release. [break]
The disbursement has been approved as per the request of the government of Nepal, which has been hardly hit by the recent global economic downturn with some time lag. The country is currently going through a significant decline in exports, a sharp slowdown in remittances and a worsening of economic confidence.
These have together contributed to deteriorate the current account balance and a decline in international reserves as well as a liquidity crunch in the banking sector.
The RCF for Nepal is aimed at addressing external and financial risks and helping catalyze possible donor support, the release stated.
Under the RCF, IMF provides a rapid and flexible financial assistance for low-income countries that face an urgent balance of payments (BoP) need without any explicit program-based conditionality or review. Financing under the RCF carries a zero percent interest rate, has a grace period of five-and-a-half years, and a final maturity of 10 years.
The release further notes that the IMF Executive Board has also concluded the 2010 Article IV consultation with Nepal. Following the Executive Board´s discussion on Nepal, Naoyuki Shinohara, deputy managing director and acting chair, stated that Nepal is facing considerable external and financial risks.
“The external shock mainly exposed the country´s structural weaknesses, its reliance on remittances, and the build-up of risks in the financial sector,” he said, adding that the IMF-supported government´s policy program is aimed at addressing these risks and stabilizing international reserves.
At the core of the program are a tight monetary and fiscal policy stance to support the exchange rate peg, which remains country´s anchor for macro-economic stability, and efforts to improve financial sector soundness.
Nepal Rastra Bank too has taken steps to tighten monetary policy by raising the Standing Liquidity Facility (SLF) rate. It has also introduced measures to limit banks´ liquidity risk and exposure to the real estate sector, and imposed a partial bank licensing moratorium, among others.
“The authorities´ program is strong and well focused. If fully implemented and provided the external situation improves as envisaged, it is expected to restore Nepal´s macroeconomic stability and lay more favorable conditions for higher growth and poverty reduction,” the release quoted Shinohara as saying.
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