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 Ltd by a reputable international auditor —and to strictly enforce the moratorium on new bank licences.
It 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 neighboring 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 programmes in order to address key structural bottlenecks to achieve higher sustainable growth and promote poverty reduction. The executive board meeting on November 4 has discussed on Nepal’s Article IV consultation during its October 19 visit.
IMF to reinstate Nepal
KATHMANDU: International Monetary Fund (IMF) that shut down its Nepal office a year ago will reinstate Resident Representative´s office in Nepal soon. It has started overseeing the country operations from New Delhi. After the government’s request , the IMF officials responded positively to reopen the Nepal office. The government had requested IMF to re-establish the Resident Representative office arguing that the country is in dire need of close economic surveillance and prompt policy inputs to deal with possible financial instability. Finance Minister Barsha Man Pun had requested personally when he met with top IMF officials during the annual meetings of the IMF and the World Bank Group in September.
GDP at market prices
2008-09 — Rs 988 billion
2009-10 — Rs 1,171 billion
2010-11 — Rs 1.327 billion
2011-12 — Rs 1,487 billion
GDP growth — Five per cent (Government) — 3.8 per cent (IMF)
Inflation — seven per cent (Government) — Eight per cent (IMF)