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IMF to inject fund to ease BoP deficit woes
KATHMANDU, MAY 29 -
The International Monet-ary Fund (IMF) has approved a loan disbursement of US$ 42.05 million (Rs. 3.11 billion) under its Rapid Credit Facility (RCF) to help Nepal’s balance of payment deficit that stands at Rs. 22.1 billion until the first nine months of the current fiscal year.
However, with the injection of the IMF fund, the country’s BoP deficit will still continue to remain at Rs. 19 billion. As remittance that has been slow this year could not sustain the rising imports, the country faced the BoP deficit for the first time in 26 years. Nepal’s trade deficit expanded by 58.9 percent to Rs. 238.47 billion and the country’s export has been able to sustain 16 percent of the total imports.
As the country faced serious economic crisis, Finance Minister Surendra Pandey requested the IMF to help in addressing the ballooning BoP deficit during his participation in the annual joint meeting of the IMF and World Bank. The government also took measures to cut imports of goods such as gold and silver as their imports remained key contributors to the BoP deficit.
The IMF said in a press release that its executive board has approved the immediate disbursement of the full amount.
The RCF, which provides rapid and flexible financial assistance for low-income countries that face an urgent BoP need, does not require any explicit programme-based conditionality or review, but economic policies are expected to address the underlying BoP difficulties. Financing under the RCF carries a zero interest rate, has a grace period of five-and-a-half years and a final maturity of 10 years, according to the IMF.
Senior economic advisor at the Finance Ministry Keshav Acharya said the IMF aid will be a relief to the country’s economy. “But the country will not get rid of the BoP deficit completely,” he said. “I expect the deficit to remain at Rs. 16-20 billion by the end of the current fiscal.”
According to the IMF, Nepal has been hit hard, albeit with some time lag, by the recent global economic downturn. The country is experiencing a significant decline in exports, a sharp slowdown in remittances and a worsening of economic confidence, all of which have contributed to the deterioration in the current account balance and a decline in international reserves as well as liquidity crunch in the banking sector.
The RCF for Nepal aims at addressing external and financial risks and helping catalyze possible donor support, the IMF added.
Posted on: 2010-05-30 08:29
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