Editorial»
PRGF, an opportunity for Nepal
NOV 22 - The International Monetary Fund’s Executive Board has finally approved a three-year nearly US$ 72 million Poverty Reduction and Growth Facility (PRGF) arrangement for Nepal. This arrangement is made particularly to facilitate Nepal’s reform process. The arrangement aims at improving the conditions for sustained growth and poverty reduction on the basis of sound macroeconomic policies, better prioritisation and enhanced efficiency in government expenditure, structural reforms in major sectors of the economy, and improved governance. The IMF has agreed to support Nepal under the PRGF programme keeping in mind the reform initiatives undertaken during the last few years. Despite challenge of insurgency and political instability, Nepal has not only obtained loan assistance under this programme but has also been privileged to be a beneficiary of the positive attitude of donor communities. The approval of this programme is also an indication to the Nepali authorities and other concerned ones that the donor communities particularly the Breton Woods institutions -- IMF and World Bank-- are willing to assist any country if it has commitments for reform and dedications to implement those commitments.
PRGF’s approval requires a sincere implementation of reform programmes as included in Nepal’s Poverty Reduction Strategy Paper (PRSP). Maintaining macroeconomic stability, continuing financial sector reform and implementing structural reform are the main agenda of the ongoing reform initiatives.
Macroeconomic stability can be maintained only when the fiscal policy could be devised on a sound and sustainable basis. Though the government is working for this, both the sources and uses’ aspects of the fiscal management have been suffering from disturbances for the last few years. The regular expenditure has been recorded higher than the development expenditure keeping the latter below from the level of budget allocation. This is indeed not a good indication from the perspective of sound and sustainable economic development. Likewise, there is the lack of a wider spectrum of revenue base. The current revenue base may be narrowed at any time if the internal economic activities are hampered continuously due to the deteriorating law and order situation. However, the effective implementation of tax policy along with
the strengthened administrative mechanism, careful prioritisation of spending and the efforts to enhance the efficiency and effectiveness of development spending are expected to maintain the macroeconomic stability. The government has to be highly careful and selective in this regard. A small deviation from these guidelines could be detrimental to the economy as a whole.
Continued implementation of financial sector reform is another agenda of the reform process. A modern, efficient and independent central bank has become a primary objective of the financial sector reform programme. The legislative reform has already been placed through the new Act, which has empowered Nepal Rastra Bank as an independent and strong central bank. Further, the ongoing NRB re-engineering programme is expected to be instrumental in developing NRB as a sound, efficient and well-managed central bank. Likewise, the legislative reforms to strengthen commercial banks and efforts to develop the financial system as a whole through an integrated and consolidated approach have already been placed. The promulgation of Debt Recovery Act, establishment of Debt Recovery Tribunal and the tightened criteria for blacklisting loan defaulters should have encouraged professional bankers also by creating a sense of responsibility on the part of the borrowers. The ongoing structural reform of the two largest commercial banks of the country is another important footstep in the area of financial sector reform. Despite these, doubt and confusion are always there whether this whole reform process could be influenced by any political clout or any other interest at the cost of the depositors. If it happens so, financial crisis, sooner or later, will be inevitable in a fragile economy.
The structural reform for higher private sector-led growth is another attribute of PRSP under the PRGF arrangement. Improving the service delivery is a key for the structural reform. Civil service reform, decentralisation and privatisation are the pre-conditions for the improved service delivery. And, the slogan of good governance can only be materialised once these instruments are placed in order. Though efforts have been made in the area of civil service reform, privatisation and in curbing corruption, these initiatives become very difficult to implement in the absence of a stable political environment. Additionally, the current situation of insecurity has posed challenges to both benefactors and beneficiaries, the major stakeholders of the service delivery mechanism. Given this, a way out should be sought to pull the country out of the current mess. Improvement in service delivery is not possible until the people’s participation is assured in the decision making process in a free and fair manner.
The recently approved PRGF arrangement has become an important opportunity for Nepal to accelerate the implementation of reform programmes. This is also an opportune time to target the deep-rooted poverty by creating a ray of hope among the common people and also strengthening ties with donor communities by showing the level of confidence and excellence that a government has to demonstrate during the crisis. Equally important is that Nepal has also shouldered a responsibility of implementing reform programmes and addressing the severity of poverty by entering into the PRGF arrangement. This arrangement should not be viewed only as an easy avenue for the government just to finance the budget deficit at a time when the economy, along with other sectors, is sure to be a victim of insurgency and political chaos if the status quo continues. Thus, the reform minded people should take PRGF as an opportunity to transform the economy.
(Views expressed in this
article are personal)Posted on: 2003-11-22 12:33
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