The Executive Board of the International Monetary Fund (IMF) today approved a disbursement of SDR 35.6 million (US$49.7 million) for Nepal under the Rapid Credit Facility (RCF).1 This financial support will help the country address the urgent balance of payments and fiscal needs associated with the rehabilitation and reconstruction efforts in the aftermath of the powerful earthquake that occurred on April 25 causing widespread damage and devastation.
The Executive Board’s approval enables the disbursement of the full amount, which represents 50 percent of Nepal’s quota in the IMF. At the request of the authorities, the money will be disbursed as direct budget support to the Ministry of Finance’s account at the central bank of Nepal.
Following the Executive Board’s discussion of Nepal, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, issued the following statement:
“Many lives were lost as a result of the April and May earthquakes, and the damage to homes, buildings, infrastructure, and agriculture was extensive, with the total cost of the earthquakes estimated at about US$7 billion or about one-third of GDP. The overall economic impact is expected to be far-reaching in both the short and medium terms, and manifested in a slowing of potential growth, rising inflationary pressures, widening fiscal and current account deficits, and increased debt levels.
“Sizable aid pledges received from multilateral and bilateral donors in the context of the June 25 International Conference on Nepal’s Reconstruction, amounting to about US$4 billion of grants and concessional loans, will be disbursed over the next five years to help finance the reconstruction effort. The Nepali authorities remain committed to maintaining fiscal and debt sustainability, and the high concessionality of the aid will help to ensure that Nepal’s risk of debt distress remains low.
“Strengthening public financial management will be key to the swift and effective implementation of reconstruction efforts, and enhancement of the quality of public investment. To address the persistent under-implementation of the capital budget, the authorities are simplifying administrative procedures for capital spending and have established a National Reconstruction Authority (NRA) to speed up reconstruction in the country’s districts that were affected the most by the earthquakes. Moreover, strong coordination between the NRA and the annual budget process will help to promote effective use of earthquake relief funds. Enhanced donor coordination, additional capacity building support and the Fund’s continued provision of technical assistance in public financial management will help to underpin the authorities’ reconstruction efforts.
“The authorities will continue to strengthen financial regulation and supervision, and carry out reforms designed to mitigate risks that have been amplified by the earthquakes. The development of contingency plans would complement this. The authorities will also continue to implement policies and programs to improve financial inclusion.
“Structural reforms will remain key to overcoming persistent challenges, with a view to accelerating the recovery and fostering a more durable growth. In this regard, greater emphasis is needed on reforms designed to enhance competitiveness and strengthen the business climate in key priority areas—such as transportation and energy, education and training, and SME access to finance—to help set the stage for the next phase of Nepal’s growth and development.”
The RCF (http://www.imf.org/external/np/exr/facts/rcf.htm) provides immediate financial assistance with limited conditionality to low-income countries with an urgent balance of payments need. In this context, the economic policies of a member receiving RCF financing are expected to address the underlying balance of payments difficulties and support policy objectives including macroeconomic stability and poverty reduction. Financing under the RCF carries a zero interest rate, has a grace period of 5.5 years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.