Journal Issue

Nepal: Staff Report for the 2015 Article IV Consultation—Informational Annex

International Monetary Fund. Asia and Pacific Dept
Published Date:
November 2015
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Fund Relations

(As of September 30, 2015)

Membership Status: Joined September 6, 1961; accepted Article VIII, Sections 2, 3, and 4 on May 30, 1994.

General Resources Account:

SDR MillionPercent Quota
Fund holdings of currency71.2899.98
Reserve position in Fund0.020.03

SDR Department:

SDR MillionPercent Allocation
Net cumulative allocation68.10100.00

Outstanding Purchases and Loans:

SDR MillionPercent Quota
RCF Loans64.1790.00
ECF arrangements13.9019.49

Financial Arrangements: (In SDR Million)

TypeApproval DateExpiration DateAmount ApprovedAmount Drawn

Projected Obligations to Fund:

(in millions of SDRs; based on existing use of resources and present holdings of SDRs):


Exchange Rate Arrangement

Nepal unified its exchange rate in February 1993. Since October 1997, the exchange arrangement of Nepal has been reclassified as pegged to a single currency unit. The Nepalese rupee is pegged to the Indian rupee at a rate of 1.6. Currently, all merchandise imports (except for a few goods restricted for security or related reasons) are freely available through an open general license system, with foreign exchange provided through the banking system at the market exchange rate.

As of October 16, 2015, the exchange rate of the Nepalese rupee (Nr) was US$1=Nrs. 103.79. The restriction on quantitative limits on foreign exchange for leisure travel was removed in early 2011. The Industrial Enterprises Act places a 75 percent limit on the conversion and transfer to foreign currency of salaries of non-residents from countries where convertible currency is in circulation. Since the limit applies to amounts that may be less than net salaries, it gives rise to an exchange restriction under Article VIII.

Safeguards Assessments

A safeguards assessment mission took place in September 2015 in the context of the RCF approved by the Executive Board in July 2015. The mission found that limited progress has been made in following up on recommendations made in the context of a similar evaluation in 2011. Notable positive developments include the successful implementation of a new accounting system and improved financial reporting practices. However, several functions lag behind and strong commitment from the NRB Board and senior management will be needed to modernize them; in particular internal audit and currency and vault operations. Two key priority areas were identified. First, the quality of the external audit should be brought in compliance with international standards. The NRB should engage an auditor with requisite global experience and expertise in the audit of large financial institutions. Second, the NRB’s legal framework should be enhanced to further support central bank autonomy and governance.

2014 Article IV Consultation

The Executive Board discussed the staff report for the 2014 Article IV consultation (IMF Country Report No. 12/326) on July 3, 2014. Consultations with Nepal are held on the standard 12 month Article IV consultation cycle.

Technical Assistance Since 2010

MCMMonetary Policy/OperationsContinuous
Monetary Policy Operations and Enhancing Banking Supervision2010
Bank Supervision and Crisis Management2011
Conduct Bank Diagnostics2012
Banking Supervision and Regulation2012
Migration to GFSM 20012012
Exchange Rate and Capital Account Liberalization2013
Consultation to support a three-year banking supervision project2015
FADTax and Customs Administration Reforms/Modernization2006–12
Follow up on the LTO and Customs Administration Reform2010
PFM Stocktake2010
Capacity Building Workshop2009–10
Revenue Administration2011–13
Extension of LT Treasury Advisor2011
Long Term Revenue Administration2011
Side trip of LT Advisor to Kailali, Kanchanpur2011
Side trips to Bhairwah and Palpa: implementation of TSA2011
Side trip to Gorkha, Tanahu and Kaski2011
Treasury Roadmap2011
Visiting district Lomjun-discussions with the DTCO’s and staffs relating to TSA progress2012
Visiting districts Pokhara, Kasi, Tanahu, and Sindhupal Chowk2012
Implementation of a Large Tax Payer Unit2013
Review of Tax Policy and VAT Administration2013
Public Financial Management2014
Pension reform2014
Customs Administration - Customs Reform and Modernization Strategies2015
Strengthening LTO compliance management activities2015
Strengthening capital budget management2015
Designing a comprehensive tax reform plan2015
Inland Revenue Department (IRD) Reforms—strengthening audit management2015
IRD Reforms—moving from design to implementation phase2015
Tax administration: Post-disaster review and work planning2015
Tax administration: Post-earthquake compliance and risk support2015
Tax Administration: Post-earthquake Large Taxpayer Office -Compliance risk management support2015
LEGAML/CFT National Strategy2010, 2011, 2014
Work-at-Home Assignment2011
Bank Resolution2012
AML/CFT Legal Drafting Mission2012, 2013, 2014, 2015
AML/CFT Structures and Tools2012, 2013, 2014, 2015
STABalance of Payments Statistics2010, 2012, 2014
Monetary Statistics2011, 2014
National Accounts2012, 2014

Resident Representative

Mr. Thomas Richardson has been the Senior Resident Representative since August 6, 2012, He is based in New Delhi.

Relations with the World Bank Group

(As of July, 2015)

A. Partnership in Nepal’s Development Strategy

Nepal has achieved remarkable progress. The country managed to halve the percentage of people living on less than $1.25 a day in only seven years, from 53 percent in 2003/2004 to 25 percent in 2010/2011. Several social indicators in education, health and gender have improved. In addition, growth averaged 4.5 percent per annum during 2006–2015; a percentage point higher than achieved during the conflict period. With the September 2015 promulgation of the constitution, Nepal is posed to attain higher growth with focus returning to development. The country’s vision of middle income status by 2030 is a possibility, if available resources are put to productive use.

However, on April 25, a 7.8 magnitude earthquake struck central Nepal. That earthquake and its sequence of aftershocks caused 8,700 deaths and some 25,000 injuries. Estimates suggest that the earthquakes could end up pushing an additional 2.5–3.5 percent Nepalese into poverty in 2015/16. This translates to 700,000–982,000 additional poor, directly as a result of the earthquake. A Post-Disaster Needs Assessment (PDNA), completed on June 15, placed total damages and losses to about US $7 billion and reconstruction needs to about US $6.7 billion. While development partners pledged $4.4 billion in aid during the June 2015 International Conference on Nepal’s Reconstruction, the actual implementation of the reconstruction remains a challenge. The Government of Nepal through its budget speech in July 2015 announced a reconstruction budget of NPR 91 billion (USD 900 million). However, the modalities of the fungibility, usability and expenditure of the funds towards reconstruction in the 14 worst-affected districts remain unclear. Further clarity awaits the functioning of the National Reconstruction Authority.

To start rebuilding, Nepal needs to take advantage of its economic potential and put in place the prerequisites that will provide faster, sustained and inclusive growth. It has to use available resources to productive use andto quickly make good losses from the earthquakes. Remarkably, Nepal’s economy grew steadily even during the height of conflict and economic management remained prudent. This hallmark of prudent economic management is at test more today with low capital investment that resulted in consecutive years of budget surplus.

To move to a higher growth trajectory, Nepal will have to remove bottlenecks to private and public investment in key growth sectors. The most vivid example of Nepal’s economic potential is hydropower. While the estimated potential for hydroelectricity generation in Nepal is 84,000 MW, of which at least half is economically viable, only 746 MW (less than 2 percent of the viable potential) is currently developed. Hydropower development could be a game changer for Nepal. Development of the sector would reduce load-shedding and provide major revenues through exporting electricity to India or even China.

The World Bank Group (WBG) stands ready to support Nepal’s aspirations for increasing economic growth through increased investments in key sectors while providing support to make growth more inclusive and to help equalize opportunities across groups and communities. This constitutes a major shift in World Bank Group (WBG) support away from short-term post-conflict assistance towards establishing the foundations for increased and inclusive growth. After three consecutive interim strategies in Fiscal Years (FY) 2007, 2009 and 2011, the WBG will provide more long-term support. A new Country Partnership Strategy (CPS) of WBG covers four years from FY2014–2018.

B. IMF-World Bank Collaboration in Specific Areas

Areas in which the Bank leads and there is no direct IMF involvement

The areas in which the Bank leads the policy dialogue and there is no direct IMF involvement are the social sectors, infrastructure, environment, and agriculture.

In education, the Bank has been supporting GON across the entire terrain of the education sector including school education—which also includes early childhood education and non-formal education, higher education, and technical and vocational education and training (TVET). In the school sector, it has supported Nepal’s efforts to enhance equitable access to and the quality of school education through a series of projects and programs during the past two decades, including through the ongoing School Sector Reform Program (SSRP). Using a Sector Wide Approach (SWAp), SSRP brings together GON and 13 development partners, of which 10 partners pool their resources with those of GON (Three development partners support the program directly through parallel financing and two pooling partners provide both pooled and non-pooled support). The Second Higher Reform Project, which follows the recently closed Second Higher Education Project, supports reforms in selected institutions for improving quality, relevance and efficiency of higher education, and also assists underprivileged students for equitable access. The objective of the Enhanced Vocational Education and Training Project is to expand the supply of skilled and employable labor by increasing access to quality training programs, and by strengthening the TVET system in Nepal. Under its new CPS, the WBG will continue its ongoing engagement in the education sector through a stronger focus on improving quality, enhancing equitable access, and providing skills for jobs.

In health sector, the Bank has been working closely with the government and development partners in supporting the government’s sector program since 2004 through a SWAp, similarly to its engagement in the education sector. The Second HNP and HIV/AIDS Project is assisting the Government in improving the equitable delivery of health care services, specifically by increasing access to essential health care services and their utilization by the underserved and the poor. The Community Action for Nutrition Project (Sunaula Hazar Din) aims to improve practices that contribute to reduced under-nutrition of women of reproductive age and children under the age of two and to provide emergency nutrition and sanitation response to vulnerable populations in Earthquake affected areas.

To support broad-based growth, the Bank supports investments in several key infrastructure sectors. The Road Sector Development Project provides all-season road access in select hill districts. The Bridges Improvement and Maintenance Program provides innovative financing by utilizing a new financing instrument (Program-for-Results), which links disbursements of funds directly to the delivery of verifiable results. It is the first Program-for-Results to be approved by the World Bank’s Board under IDA and supports the vision behind Nepal’s Bridge Policy and Strategy of 2004 to provide “safe, reliable and cost effective” bridges. Similarly Strengthening the National Rural Transport Project builds on from the Bank’s earlier work on rural connectivity to enhance the availability and reliability of transport connectivity for rural communities. Connectivity features prominently in the World Bank’s current CPS.

The Bank is also strongly engaged in the energy sector where, however, progress continues to be slow. The Kabeli Transmission Project aims (i) to support the addition of transmission capacity to the Integrated Nepal Power System; and (ii) to provide access to electricity and cooking fuel to communities in the area of the Kabeli 132 kV transmission line. Similarly Nepal-India Electricity Transmission and Trade Project will support construction of 400 kV high voltage backbone transmission network including receiving substation to evacuated electricity imported from India. The IDA-IFC financed Kabeli-A Hydroelectric Project will add on grid generation capacity through public private investment in a peaking run-of-river hydropower project with an installed capacity of 37.6 MW. It will also assist the Investment Board of Nepal (IBN) in improving its ability to carry out its responsibilities of facilitating the development of large hydropower projects across the country in line with applicable international performance, technical, environmental and social standards. IDA is also funding installation of 25 MW grid connected solar farm and planning and investment in loss reduction activities under the Grid Solar and Energy Efficiency Project.

To support rural development, the Nepal Irrigation and Water Resources Management Project (IWRMP) aims to improve irrigated agriculture productivity and management of selected irrigation schemes, and enhance institutional capacity for integrated water resources management. IWRMP has enabled farmers to increase crop production and cropping intensity through improvement in cropping pattern and demand based extension services. The Modernization of Rani Jamara Kulariya Irrigation Scheme aims to improve irrigation water delivery to, and management in, the command area.

After a long gap, the Bank re-engaged in the agriculture sector through the Agriculture Commercialization and Trade Project. It aims to improve the competitiveness of smallholder farmers and the agribusiness sector in selected commodity value chains in more than 25 districts supported by the project. Similarly, the Agriculture Food Security Project (AFSP) in West Nepal aims to improve food and nutrition security in the 19 remote and food deficit districts in West and far-West Nepal.

While many of the Bank’s investment/sector operations mentioned above also support social inclusion, a more direct initiative in this area that received Bank support is the Poverty Alleviation Fund (PAF). PAF channels resources to the poorest groups in rural communities by creating infrastructure, employment and income-generating opportunities.

Following the devastating earthquakes in April and May 2015, the Bank responded with the $200 million housing reconstruction project which will support rural housing reconstruction of about 20 percent of the houses destroyed in the earthquakes. The project is highly relevant and timely as there is a clear need for housing reconstruction, which was the largest single need identified in the Post-Disaster Needs Assessment (PDNA) – roughly half of the total recovery needs of all sectors. Following the June donor conference, there has been good progress to establish the technical foundation of the program. The Bank is supporting the completion of the Government’s Program Operational Manual that will define the implementation arrangements for the housing reconstruction program. Much progress has been made and most technical details have been finalized. The program has been developed through close collaboration with various government agencies, and other stakeholders.

The Bank has recently approved the Development Policy Credit (DPC) which is the second budget support program in a series of three DPCs. DPC1 was for US$ 30 million signed in June 2013 while DPC3 is expected to be implemented in FY16 with major preparatory actions being completed with support from DPC2. The overall objective is of the DPCs for the financial sector is to support the reform program initiated by the Nepalese authorities to reduce the vulnerability of the banking sector and increase its transparency. It is noteworthy that the preparatory work for DPC2 was completed against the backdrop of the devastating earthquake last April. The earthquake disaster has heightened a number of vulnerabilities and presented new challenges. With this in mind, the original planned amount of DPC2 has been increased by US$ 50 million to a total of US$ 100 million. This was done under the IDA’s Crisis Response Window to ensure the ongoing financial sector reforms are not derailed due to earthquake and to provide additional post-earthquake financing support to the Government of Nepal.

Areas in which the Bank leads and its analysis serves as input into the IMF program

The Bank takes the lead in assisting Nepal with public expenditure analysis. In addition, the Bank’s intensive dialogue and technical assistance have been supporting the reforms, including the development of a credible Medium Term Expenditure Framework (MTEF). Under the ownership and leadership of government, the Public Expenditure and Financial Accountability (PEFA) Assessment II was recently completed. This has ushered in joint government and donor partnership collaboration in penning the next PFM reform action plan, which is expected to ensure efficient budget allocations for priority projects.

The Bank and IMF have been jointly advising the Central Bank of Nepal in regulating the financial sector through a Development Policy Program that is working on its second phase.

Areas of shared responsibility

The Bank and IMF continues to provide assistance in the overall management of the country’s macroeconomic aggregates. They have assisted in debt management through technical assistance, joint Debt Sustainability Analysis and policy dialogue to ensure that the overall debt stock and fiscal deficits are within reasonable limits. To sustain the impressive revenue growth, in addition, they continue to provide policy advice and technical assistance.

The Bank and IMF also work closely together on providing support to financial sector strengthening, most recently through carrying out a joint Financial Sector Assessment Program (FSAP). WBG support to the financial sector aims to address economic risks stemming from the sector’s rapid expansion and associated distress in the banking sector. To address financial-sector vulnerabilities, the Bank has been providing technical assistance in the areas of crisis management, bank resolution and deposit insurance. A FY13 Development Policy Operation (DPO), developed closely with DFID and the IMF, helped to address some of the root causes of the sector’s difficulties. A follow-up DPO – building on the FSAP as well as a DFID-supported banking sector diagnostic – will aim to consolidate banking sector stability and pave the way for developing a more robust and inclusive financial sector.

C. World Bank Group Strategy and Lending Operations

World Bank Group support to Nepal is aligned to its twin global goals—eliminating extreme poverty and boosting shared prosperity. A poverty “lens”, developed for the new CPS, concludes that while Nepal’s progress on poverty reduction was commendable, a significant share of the population remains clustered around the poverty line. It confirms the need for WBG support to focus on removing Nepal’s binding growth constraints to allow for higher income levels. In this context the International Development Association (IDA), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) will continue to foster its ongoing collaboration to make maximum use of its joint comparative advantage. WBG efforts will be organized within two pillars. Under pillar 1, it will support increasing economic growth and competitiveness, and will focus on hydroelectric power generation, enhancing transport connectivity, and improving the business environment. Under pillar 2, the WBG will provide support to increasing inclusive growth and opportunities for shared prosperity, by enhancing the productivity of agriculture, equalizing access to health care, skills development and social protection. Cutting across these pillars, WBG activities will contribute to improving the effectiveness, efficiency and accountability of public expenditure.

WBG support will be guided by the principles of balancing risks and rewards, selectivity and flexibility. In a shift from more cautious approaches taken in past strategies, the WBG will engage in larger programs that strive for nation-wide impact. Regarding selectivity, this strategy consolidates WBG’s engagement into fewer sectors, where the Group has a comparative advantage and can leverage its financing and analytical resources for greater development impact. In addition, the WBG will maintain programming flexibility, given the politically-fragile country environment.

Within each of the CPS pillars, the strategy identifies specific areas where the Bank Group can make a difference. For IDA, these include transport, energy, education/skills, health, and public expenditure management. For IFC, these include supporting hydropower, improving access to finance, facilitate new private investments and reduce the barriers of investment in priority sectors, promote tourism and support agribusiness. IDA and IFC expect to work together on hydropower development, agriculture, and improving access to finance.

FY15 Lending Program: FY15, eight projects were delivered with a total value of IDA US$541 million and TF US$16 million, with a total delivery of US$557 million.

Bank Assistance Program in Nepal:

As of end of FY15, the Nepal portfolio consisted of 23 Active Investment Projects (which include four TF Projects above US$ 5 million – Nepal Agriculture Food Security Project, PPCR Climate Hazards, SREP Supported Extended Biogas Project and Road Safety Activity under RSDP) with net commitments of US$ 1,861.58 million (of which IDA net commitments are US$ 1,768.71 million and TF net commitments are US$ 92.87 million) and undisbursed balance of about US$962.87 million (of which IDA portion is US$887.43 million and TF portion US$75.44 million). This indicates about 52 percent undisbursed balance from net commitments. In addition, the Nepal portfolio consists of one DPC Project for Financial Sector Stability with net IDA commitments of US$100 million.

Economic and Sector Work: The World Bank Group is also engaged in analytical and knowledge dissemination exercises. It provides regular economic updates and advises the Nepalese authorities on key economic policies. It also works with partners and the government on analyzing poverty trends in Nepal. For example, with support from the UK’s Department for International Development and Denmark, the Bank worked closely with the Central Bureau of Statistics to complete the latest Living Standards Survey (NLSS 3), to provide core data on poverty trends and access to services.

IFC is supporting the Nepal Business Forum (NBF), a public private dialogue platform established by the GoN in 2010, which brings together over 40 government and private sector agencies to dialogue and review government policy and regulation towards the private sector, with the aim of improving the effectiveness, and accountability of private sector policy making, and regulatory enforcement. Given the political uncertainty and civil unrest, the NBF has been an important tool in helping the country refocuses on economic growth by facilitating constructive dialogue on constraints to investment, trade and export, and finance and credit.

Activities of the International Finance Corporation (IFC) in Nepal

Since it resumed operations in 2009, IFC’s committed investment portfolio in Nepal stood at $40 million as of March 4, 2014, consisting of power, transport, banking, microfinance, tourism, and trade finance lines. IFC invested in 14 projects (for $57 million in total) over the last ISN period (FY12 and FY13) and 6 projects (for around $4 million in total) in FY14 as of March 4, 2014 Most recently, IFC’s investments include hydropower investments, an airline expansion, and credit for trade financing. For FY15, IFC has mobilized and invested directly US$ 54 Million with investments in Hydropower, Tourism, Agribusiness and Trade finance. FY 15 is the first fiscal year where IFC was able to mobilize other funders (Canadian Climate change fund, FMO and GAFSP) for its private sector investments in Hydropower, Agribusiness and tourism.

On the advisory services side, IFC is engaged in a range of areas including investment climate, access to finance and sustainable business advisory. Besides, there is also a pipeline of advisory projects in the PPP transaction space. IFC’s advisory services has strengthened multifold, from an active portfolio of $1.3 million in FY09 (three projects) to $12.8 million as of February 2014 (10 percent of South Asia Portfolio), across 12 projects in Nepal. Some high impact ongoing programs in the country include: Investment Climate Reform Project; enhancing access to finance through strengthening the payments system and credit bureau, and improving sustainable energy finance practices; and promoting climate resilient agriculture. A strong pipeline of projects has been developed to continue the transformative work. Some of the upcoming projects include work in the Nepal hydro sector which is a IFC/World Bank joint initiative and includes support for impact investments and sector wide adoption of E&S standards; scaling up renewable energy and SME banking programs; and development of PPP transactions in critical sectors.

Going forward, IFC will seek to continue the programs aligned with the three strategic pillars of IFC’s South Asia Strategy which includes: (a) inclusive growth; (b) climate change; and (c) regional and global integration. IFC will continue to prioritize on the hydropower sector, financial sector and agribusiness. IFC’s additionality in Nepal comes through providing longer tenor financing than is available in the market, patient equity capital, crisis response products such as liquidity facilities, global and regional expertise and experience, and technical assistance to enhance areas such as corporate governance and management of environmental and social risks. IFC aims to continue to respond to client needs through facilities such as SME Venture Fund, Infraventures, transaction advice for PPPs, and risk-sharing facilities. As local currency financing is essential for companies and sectors that generate local currency revenues, including large scale infrastructure hydropower-projects, IFC plans to continue its effort in partnership with IDA, with the GON to create such instruments.

In addition, IFC’s advisory service continues to facilitate new private investments and reduce the barriers of investment in key priority sectors including tourism, agriculture, finance, and infrastructure (especially hydropower). IFC is supporting the GoN with PPP transaction advisory to assist in evaluating its priority projects through a Memorandum of Understanding with the Investment Board of Nepal. Under this MoU, IFC will provide support to the development of feasibility studies, strategic options for particular projects, development of contract documents, as well as support and capacity building to take these projects to market.

Other ongoing IDA/IFC work is laying the foundation to help Nepal transform to a climate resilient development path—consistent with poverty reduction and sustainable development goals—with financial support from the Pilot Program for Climate Resilience and other climate investment funds. IFC is working with leading agribusiness firms to improve agricultural and water management practices, introduce new technologies among smallholder farmers producing rice, maize and sugarcane to help them adapt to climate change. The objective is to expand the agriculture sector in Nepal using sustainable and replicable climate smart models in order to improve farmer resilience.

Table 1.IDA Projects(Amounts in US$ million)Nepal: Active Portfolio(As of June 30, 2015)
Project NameNet Comm Amt ($m)Undisbursed Aiut ($m)
NP: Community Actionfor Nutrition Project40.0031.63
NP: PPCR: Climate Hazards (TF>USD 5m)31.0024.30
Kali Gandaki Rehab27.2624.68
NP: Irrig & Water Res Mgmt Proj114.3039.11
NP: PAF II244.9750.50
NP: School Sector Reform Program230.0026.34
NP: Second HNP and HIV/AIDS Project129.136.12
NP: Emerging Towns Project18.577.82
NP: Kabeli “A” Hydroelectric Project46.0042.33
NP: Agriculture Commercialization & Trade60.0023.47
NP: Road Sector Development Project110.8510.78
NP: Enhanced Vocational Educ & Tmg39.6313.78
NP: Kabeli Transmission Project38.0020.00
NP: Rani Jamara Kulariya Irrigation Proj43.0021.15
NP: Bridges Program Support60.0026.10
Nepal Agriculture and Food Security Project (TF>USD 5m)46.5035.78
SREP-Supported Extended Bio gas Project (TF>USD 5m)7.907.90
NP: Strengthening National Rural Transport Project100.0083.62
NP Rural Water Supply & Sanitation Improvement72.0058.45
Nepal: Grid Solar & Energy Efficiency130.00123.76
Higher Education Reforms Project65.0063.15
Road Safety Activity under on RSDP roads(TF>USD 5m)7.477.47
Earthquake Housing Reconstruction Project200.00202.38
Total (23)1,861.58950.62
NP: Financial sector stability DPC2100.00

Relations with the Asian Development Bank

Country Program

The Asian Development Bank (ADB) began lending to Nepal in 1969. As of 31 December 2014, Nepal has received 167 loans/grants—133 sovereign ADF loans ($3,433.8 million), 5 non-sovereign loans ($52.8 million), and 34 ADF grants ($823.75 million) totaling $4,310.3 million. Nepal Country Partnership Strategy (CPS) 2013–2017, approved in October 2013 is more selective, with a bulk of the CPS resource envelope allocated to operations in energy, transport, and urban infrastructure and services, followed by agriculture and education. Five thematic priorities—gender equality and social inclusion, environmental sustainability, good governance, regional integration, and private sector development will be mainstreamed in ADB operations. The portfolio of active sovereign ADF loans and grants as of 31 December 2014 consists of 39 ADF projects and programs (24 loans amounting to $1,253.7 million and 26 grants amounting to $502.3 million) with an overall net amount of $1,756.0 million.

The assistance approved in 2014 comprised five projects with a total of $325 million in ADF loans. The projects include the SASEC Power System Expansion Project ($180 million); Additional financing to Community Managed Irrigated Agriculture Sector Project ($30 million); Additional Financing to Melamchi Water Supply Project ($25 million); Additional financing to South Asia Tourism Infrastructure Development Project ($30 million); and Third Small Towns Water Supply and Sanitation Sector Project ($30 million).

Technical Assistance

As of 31 December 2014, ADB has approved technical assistance (TA) projects totaling $184.4 million. As of 31 December 2014, there were 26 ongoing TAs amounting to $35.4 million. Twenty one investment projects and 6 TAs, which are about 54% and 23%, respectively, of the ADB’s Nepal portfolio, are currently being administered by Nepal Resident Mission.

Private Sector Operations

ADB’s private sector operations in Nepal began in 1989. As of December 2014, cumulative approvals in four projects amounted to $58.6 million.

One of the major private sector projects is the 60-MW Khimti Hydropower project, which was approved in 1996. ADB’s private sector operations will focus mainly on hydropower development, both for domestic sale and for export to India although many constraints to investment remain and further policy dialogue is required. Moving forward in the energy sector, ADB’s private sector arm will look into private sector-led investments on a case-by-case basis.

ADB’s Trade Finance Program (TFP) fills market gaps by providing guarantees and loans through partner banks in support of trade. TFP has done over 9,000 transactions supporting over $19 billion in trade and over 4,000 SMEs across the region since 2004. In 2013 alone, TFP supported $4 billion in trade through over 2,000 transactions. In Nepal, the TFP works with two banks and has supported over $69.7 million in trade between 204 transactions. In addition to filling market gaps, the TFP’s objective is to mobilize private sector capital/involvement in developing Asia. In Nepal, 51% of the $69.7 million in trade supported through the TFP was co-financed by the private sector. There are currently no outstanding guarantees for the Nepalese banks. In 2014, it supported one transaction amounting to $17,187.50.

Table 2.Sovereign Loans and Grants by the Asian Development Bank, 1968–2014(as of 31 December 2014)
Agriculture and Natural Resources746.
Industry and trade127.
Public Sector Management65.
Transport and Communication302.
Water supply, sanitation and other municipal infrastructure and services263.
Regional Cooperation0.
Total Loans2163.886.00.00.0172.8154.9154.052.3330.5325.0
Agriculture and Natural Resources0.
Industry and trade127.
Public Sector Management0.00.00.0106.
Transport and Communication0.
Water supply, sanitation and other municipal infrastructure and services0.
Regional Cooperation0.
Total Grants127.283.9109.0139.3163.5107.6116.051.545.50.0
Total Approved (Loan and Grant)2291.0169.9109.0139.3336.3262.5270.0103.8376.0325.0
Gross disbursements (Loans and Grants)1405.3108.0102.3127.1199.5111.2208.889.7159.4151.3
Technical Assistance
Total approved115.
Gross disbursement75.

Statistical Issues

As of October 15, 2015

I. Assessment of Data Adequacy for Surveillance
General: Economic and financial data are broadly adequate for surveillance, with scope for improvement especially in fiscal data (external financing), more detailed price statistics, and the timeliness and quality of balance of payments data.
National Accounts: The Central Bureau of Statistics (CBS) compiles national accounts using the methodology of the 1993 SNA. Key estimates include GDP by industry (in current and constant prices) and by expenditure categories (current prices), and gross national income and savings. Some expenditure categories continue to be affected by limited source data, particularly for household final consumption, although with the commencement of continuing annual household surveys will eventually lead to improved estimates. The CBS has plans for a major revision of the national accounts, to incorporate improved source data and methodology where possible, and to update the base year for the constant price measures from 2000/01 to 2010/11, but the timing is uncertain. Previous STA missions (latest in January 2014) assisted the CBS to develop quarterly GDP estimates, but progress has been hampered by staff turnover and limitations with source data in terms of range of data and timeliness.
Price Statistics: The Nepal Rastra Bank (NRB) compiles the consumer price index (CPI). A new CPI series with 2014/15 as base year (from previous base year of 2005/06) has been released in October based on a new household expenditure survey. Initial plans had been made to transfer the responsibility of compiling the CPI from the NRB to the Central Bureau of Statistics (CBS). A core inflation series is not published, although underlying data necessary to calculate such a series appear to be available. NRB also publishes a wholesale price index (WPI), with weights based on 1999/2000 data. Broadly, the index covers agricultural commodities (49.6 percent), domestic manufactured goods (20.4 percent), and imported goods (30 percent). The CBS has received TA to update and expand the producer price index (PPI) to include other economic sectors. Current PPI coverage is restricted to manufacturing. As well, an index of wages and salaries is compiled and published, with base year 2004/05.
Government Finance Statistics: Authorities began to compile fiscal data in accordance with IMF’s Government Finance Statistics Manual 2001 (GFSM 2001) in 2011, an important step forward. Still the budget classification needs further improvement to exclude financing transactions from the functional classification of expenditure, make a more clear distinction between revenue and transactions in nonfinancial assets, subsidies and capital payments to enterprises, and other improvements to ensure full consistency with the GFSM 2001. Meanwhile, treasury single account (TSA) has been rolled out to all 75 districts including Kathmandu, which allows for more timely and accurate fiscal data reporting and monitoring. However, a number of fees collected outside the budget, foreign aid directly paid by donors, the operations of extrabudgetary entities and local governments are not reported in the annual budget, and there is no compilation of the government’s balance sheet in accordance with the GFSM 2001. Government finance statistics are regularly reported for publication in the Government Finance Statistics Yearbook, but not in the IFS.
Monetary and Financial Statistics: Following up on the recommendations of a 2009 STA mission that NRB broaden the coverage of monthly monetary statistics to include development banks and finance companies, the NRB now compiles and publishes an expanded broad money survey, which is a significant step forward.

There is room for improvement in the reporting of data on the interest rates. At present, key policy rates including t-bill, interbank, and NRB policy rates are available, but deposit and lending rates of commercial banks are not well reported, while those of development banks and finance companies are not reported at all. It may be useful to report the prime lending rate of top 5 commercial banks, as well as average deposit rates of the same, to provide a sense of the movement over time. At present, maximum and minimum rates are reported, which remain relatively fixed over time and are not very informative.

Data on the NRB’s claims on other depository corporations (ODCs) are not consistent with the data on the ODCs’ liabilities to the NRB because ODCs’ liabilities include only refinance and repo credit from the NRB; separate data on the NRB’s deposits at the ODCs are currently not available and therefore are excluded from the ODCs’ liabilities to the NRB.
External sector statistics: The NRB compiles and disseminates balance of payments (BOP) statistics in conformity with the fifth edition of the Balance of Payments Statistics Manual (BPM5). Balance of Payments statistics present several shortcomings in terms of coverage, classification, and data sources. Key shortcomings in BOP statistics are: (i) underestimation of imports, and to a lesser extent exports; (ii) significant problems in measurement of remittances; (iii) incompleteness of data on foreign grants, making it difficult to classify current vs. capital, and official vs. private grants; (iv) absence of direct investment data; and (v) unrecorded financial flows. In February 2015, the NRB started reporting international investment position (IIP) data following the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6).

Nepal is a participant of the Japan Administered Account for Selected IMF Activities (JSA) project on the Improvement of External Sector Statistics-ESS (BOP, IIP, and External Debt Statistics-EDS) in the Asia and Pacific Region. Since 2012, NRB has been receiving technical assistance in the area of ESS. The 2013 STA mission has observed important progress in the implementation of recommendations of previous TA missions. Thus, for first time, the NRB has compiled IIP, resumed the compilation of EDS, and improved the compilation of direct investment. In the area of data source, the mission has continued redesigning the International Reporting System (ITRS), the main collection source for compiling BOP and IIP, and assisted the authorities in improving the surveys for collecting direct investment and trade credit data.

Overall the quality of BOP data has improved with the support of IMF STA technical assistance (TA) and training of the NRB staff through ESS IMF HQ and regional courses.
II. Data Standards and Quality
The country is a General Data Dissemination System (GDDS) participant since May 2001. Metadata were initially posted on the Dissemination Standards Bulletin Board in May 2001 and last updated in January 2009.Data ROSC on fiscal transparency was published in October, 2007.
Nepal—Table of Common Indicators Required for Surveillance(As of October 15, 2015)
Date of latest observationDate receivedFrequency of Data7Frequency of Reporting7Frequency of Publication7
Exchange Rates08/1510/15D and MW and MW and M
International Reserve Assets and Reserve Liabilities of the Monetary Authorities108/1510/15MMM
Reserve/Base Money08/1510/15MMM
Broad Money08/1510/15MMM
Central Bank Balance Sheet08/1510/15MMM
Consolidated Balance Sheet of the Banking System08/1510/15MMM
Interest Rates208/1510/15D and MW and MW and M
Consumer Price Index08/1510/15MMM
Revenue, Expenditure, Balance and Composition of Financing3 – General Government408/1510/15MMM
Revenue, Expenditure, Balance and Composition of Financing3– Central Government08/1510/15MMM
Stocks of Central Government and Central Government-Guaranteed Debt508/1510/15M/AM/AM/A
External Current Account Balance08/1510/15MMM
Exports and Imports of Goods and Services08/1510/15MMM
Gross External Debt2013/1406/15AAA
International Investment Position62014/1508/15AAA

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

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