IMF projects 3.25 per cent growth for Nepal

Sun, Nov 6, 2011 12:00 AM on Others, Others,

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KATHMANDU, NOV 6:

International Monetary Fund (IMF) has projected 3.25 per cent growth for Nepal in the current fiscal year.

IMF forecast for the current fiscal year is below the national growth projection of 5 per cent. Last fiscal year, IMF had projected GDP growth 3.5 per cent which was close to 3.7 per cent actual rate of growth achieved by Nepal.

“Real GDP growth is expected at 3.25 per cent in 2011-12, with good agriculture output compensating for subdued non-agriculture activity,” according to IMF’s report on Nepal.

The report also cautions that the forecast is subject to high degree of uncertainty, with risks on the downside chiefly owing to banking sector fragility. Inflation projection by IMF is at eight per cent while the financial authority had estimated inflation to moderate at seven per cent in the current fiscal year. An expected moderation in India’s inflation and a stabilisation of commodity prices is anticipated to ease the domestic prices of Nepal, according to the report.

IMF has identified financial sector fragility as the biggest threat for Nepali economy, at present. According to the report, maintaining macroeconomic and financial stability has become increasingly challenging for the nation in last one year with elevated financial sector risks in particular.

“Nepal needs to address the substantial risks in the financial sector with utmost priority,” suggested the report. IMF called the regulatory forbearance as unsustainable, and stressed the need to strengthen supervision, the regulatory environment, and banks’ corporate governance, while merging and improving the central bank’s emergency liquidity facilities.

IMF also advised an audit of Nepal Bank Limited by a reputable international auditor—and to strictly enforce the moratorium on new bank licenses. IMF noted that living standards in Nepal have improved markedly over the past decade thanks to increased remittances, supportive social programs, and generally prudent fiscal policy that almost halved public debt as a share of GDP. However, the absence of structural reforms needed to boost growth and enhance competitiveness is attributed by IMF as the reason for Nepal’s inability to keep pace with neighbouring countries. Moreover, country’s lengthy political transition is also not helping the economy.

The report has also signaled that IMF can lend Nepal under its Extended Credit Facility (ECF) for a strong reform programs in order to address key structural bottlenecks to achieve higher sustainable growth.

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