Nepal: Staff Report for the 2012 Article IV Consultation—Informational Annex

Nepal is a post-conflict state seeking to formalize democracy in a challenging environment. Significant headway toward a new state has been made since the 2006 peace accord. Progress on a range of technical issues (including public financial management, monetary policy, and financial sector supervision) has also been achieved. However, the failure of the constituent assembly to meet an end-May 2012 deadline to ratify a new constitution is a serious setback, and a major impediment to macroeconomic management and prospects for growth. The subsequent dismissal of the constituent assembly in June 2012 has left day-to-day operations in the hands of a caretaker government. New elections are notionally slated for April 2013, but will require fractured political parties to agree on an interim consensus government. In the meantime, key articles of legislation (such as the government budget) have been delayed. More broadly, the lack of a consensus government and functioning parliament appear to be dampening investment (foreign and domestic), keeping potential donor support at bay, and undermining prospects for sensitive financial sector and state enterprise reforms.


Nepal is a post-conflict state seeking to formalize democracy in a challenging environment. Significant headway toward a new state has been made since the 2006 peace accord. Progress on a range of technical issues (including public financial management, monetary policy, and financial sector supervision) has also been achieved. However, the failure of the constituent assembly to meet an end-May 2012 deadline to ratify a new constitution is a serious setback, and a major impediment to macroeconomic management and prospects for growth. The subsequent dismissal of the constituent assembly in June 2012 has left day-to-day operations in the hands of a caretaker government. New elections are notionally slated for April 2013, but will require fractured political parties to agree on an interim consensus government. In the meantime, key articles of legislation (such as the government budget) have been delayed. More broadly, the lack of a consensus government and functioning parliament appear to be dampening investment (foreign and domestic), keeping potential donor support at bay, and undermining prospects for sensitive financial sector and state enterprise reforms.

Annex I. Fund Relations

(As of September 30, 2012)

I. Membership Status: Joined 9/06/61; Article VIII, Sections 2, 3, and 4 on May 30, 1994.

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Financial Arrangements: (In SDR Million)

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VI. Projected Obligations to Fund:

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

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VII. Exchange Rate Arrangement

In February 1993, Nepal unified its exchange rate and eliminated the multiple currency practice associated with the previous dual exchange rate arrangement. In October 1997, the exchange arrangement of Nepal was reclassified as that pegged to a single currency unit from pegged to a currency composite. 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 4, 2012, the exchange rate for the Nepalese rupee (Nr) was US$1=Nrs. 82.79.

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. Staff is investigating whether this measure is also discriminatory.

VIII. Safeguards Assessments

A safeguards assessment of the NRB was concluded in May 2011. The assessment noted that the external audit mechanism needed improvement, since the audit procedures did not meet international standards. Transparency of the financial statements should be enhanced by resolving qualifications raised by the external auditors.

IX. 2011 Article IV Consultation

The Executive Board discussed the staff report for the 2011 Article IV consultation (IMF Country Report No. 11/318) on October 19, 2011. It was proposed that the Article IV consultations take place on the 12-month cycle.

X. Technical Assistance Since 2001

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XI. Resident Representative

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

Annex II. Relations with the World Bank Group

(As of October 8, 2012)

A. Partnership in Nepal’s Development Strategy

Nepal is passing through a momentous and prolonged political transition following a 10-year violent conflict that ended in 2006. This transition entails multiple interrelated processes: maintaining peace through the integration of armies; rehabilitation, truth and reconciliation; power sharing between the major parties; and developing a new constitution. The constitution, which was supposed to lead to a major restructuring of Nepal into a federal state, has recently experienced a setback as the Constituent Assembly failed to deliver the new constitution by the deadline of May 27, 2012.

The prolonged transition has eroded the effectiveness of some key institutions. However, even during the height of the conflict, state institutions by and large continued to function and innovate. Perhaps paradoxically, the country even produced impressive results on various levels: Nominal Gross Domestic Product (GDP) per capita has doubled from US$350 in 2006 to US$735 in 2011. The percentage of people living below the international poverty line (people earning less than US$1.25 per day) has halved in only seven years. At this measure of poverty, the percentage of poor people declined from 53.1 percent in 2003/2004 to 24.8 percent in 2010/2011.

Net Primary Enrollment in schools has increased from 81 percent in 2002 to 94.5 percent in 2010. Gender parity has been achieved in primary education, but full caste inclusion is still outstanding. The Gender Parity Index for secondary school net enrollment has also increased from 0.87 (2007) to 0.98 (2010). The Maternal Mortality Rate declined from 538 in 1996 to 380 per 100,000 live births, earning Nepal the MDG Millennium Award in 2010. The Infant Mortality Rate dropped from 79 in 1996 to 39 in 2010. At least one-third of deliveries are now in the presence of trained health workers. Full immunization coverage rose from 43 percent in 1996 to 87 percent in 2011.

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 encouraged Nepal’s decentralization efforts to achieve more effective delivery of public services and has played a pivotal role in supporting the transfer of public schools to community management. Along with other donors, the Bank is actively supporting Nepal’s well-formulated, ten-year primary education reform program through the ongoing School Sector Reform Project (SSRP). This Sector Wide Approach (SWAp) brings together GON and 12 development partners – of which 9 partners pool their resources with those of the GON, and 3 development partners who support the program directly. The Second Higher Education Project supports (a) enhanced quality, efficiency and relevance of higher education through a set of systemic reforms, and incentives to selected institutions; and (b) improved access for academically qualified students from disadvantaged groups in (i) higher education and (ii) higher secondary education. 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 technical and vocational education and training system in Nepal.

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 health 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 attitudes and practices known to improve nutritional outcomes of women ofreproductive age and children under the age of 2. Changes in attitudes and practices would address the key risk factors for child malnutrition and create demand for nutrition related services and products. T he supply of these services and products will be provided through existing public sector and donor-funded programs, the private sector and, to a limited extent, financed through the Project.

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. The Bank is also strongly engaged in the energy sector where, however, progress continues to be slow. The Power Development Project aims to develop the country’s hydropower potential to meet electricity demand, improve access of rural areas to electricity services and promote private sector participation. However, the project will have to close by the end of calendar year 2012 with 45 percent of commitments remaining undisbursed. 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.

To address issues arising from rapid urbanization in Nepal, IDA also provides support to improve municipal governance, including municipal services, through the Urban Government and Development Program: Emerging Towns Project.

To support rural development, the Nepal Irrigation and Water Resources Management Project aims to improve irrigated agriculture productivity and management of selected irrigation schemes, and enhance institutional capacity for integrated water resources management. At the same time, project finance is supporting decentralization to improve service delivery by promoting grassroot-driven, bottom-up planning and community-based management. The Modernization of Rani Jamara Kulariya Irrigation Scheme aims to improve irrigation water delivery to, and management in, the command area. The Rural Access Improvement and Decentralization Project (RAIDP) helps to improve governance and service delivery for rural infrastructure, while at the same time promoting agricultural and rural economic growth, and generating employment through direct project investments in rural transport infrastructure. The Rural Water Supply and Sanitation Project aims to improve rural water supply and sanitation sector institutional performance and mainstream the “Board” (Rural Water Supply and Sanitation Fund Development Board) approach into the Government’s system. It also supports communities to form inclusive local water supply and sanitation user groups that can plan, implement, and operation drinking water and sanitation infrastructure that delivers sustainable health, hygiene, and productivity benefits to rural households.

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 and 25 districts supported by the project. To address the food insecurity issues, a Social Safety Net Project is under implementation. It addresses the short and medium term implications of the global food crisis for the country by strengthening the agricultural production and safety net mechanisms on a broad scale. The objective is to ensure access to food and basic needs for vulnerable households in the short term in food insecure districts.

Recognizing that Nepal’s development agenda is closely intertwined with peace building, a Peace Support Project is under implementation. The project aims to contribute to the peace process by providing interim cash transfers and services to conflict-affected groups.

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.

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. 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). This framework has applied since FY04 to the prioritization of the development budget to ensure efficient budget allocations for priority projects.

Areas of shared responsibility

The Bank and the IMF continues to provide assistance in the overall management of the country’s macroeconomic aggregates. The Bank and the IMF 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, the Bank and the IMF continue to provide policy advise and technical assistance.

C. World Bank Group Strategy and Lending Operations

Given the transitional nature of Nepal’s situation the World Bank Group prepared an Interim Strategy Note covering fiscal years 2012 and 2013, which was discussed by the Bank’s Board on September 15, 2011. It proposes development programs that are consistent with the government of Nepal’s Three-Year Plan.

Nepal has been selected as a pilot country to implement an enhanced joint strategy to leverage IDA and IFC resources and realize synergies. The strategy reflects considerable continuity, building on programs with successful track records that are adapted to local conditions. It also emphasizes greater selectivity, focusing on areas considered vital to Nepal’s development and complementing programs supported by other development partners.

Supporting the government of Nepal’s overarching goal to build a peaceful, prosperous and just Nepal, the strategy is organized around three “pillars” that emerged during consultations within the Bank Group and with the government, donor partners, and key stakeholders.

The first pillar intends to enhance connectivity and productivity for growth. The second focuses on reducing vulnerabilities and improving resilience. The third pillar concentrates on promoting access to better-quality services. Governance, accountability, gender equality, and social inclusion are themes that run across all three pillars.

Within each of these pillars, the strategy identifies specific areas where the Bank Group can make a difference. For IDA, these include roads, food security and livelihood vulnerability, education, health, urban services, and disaster management. For IFC, these include improving access to finance and investment climate, trade facilitation, lending to Small and Medium Enterprises, and trade finance facilities for local banks. IDA and IFC expect to work together on power development, agriculture, and climate change.

FY12 Lending Program: In FY2012, IDA approved US$143 million in new commitments, including the Modernization of Rani Jamara Kularia Irrigation Project (US$43 million), the Sunaula Hazar Din Multi-Sector Nutrition Project (US$40 million), the Bridges Improvement and Maintenance Program (US$60 million).

Bank Assistance Program in Nepal: The Nepal country portfolio includes 18 IDA funded projects with a net commitment value of about US$1.3 billion. We also oversee implementation of 17 Trust Funded recipient-executed operations (US$170 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 U.K.’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.

Strong IFC/private-sector engagement in the creation of the Nepal Business Forum is facilitating public-private sector dialogue and pragmatic problem-solving. Other areas of attention have included analysis of migration and remittances trends, medium-term public expenditure management, assessment of the investment climate, financial sector risk management, and implementation of the Right to Information and food security and nutrition challenges. In addition, teams have disseminated information on international experience on specialized topics (such as fiscal decentralization and civil service transition) at the request of Constituent Assembly committees and other government bodies.

Other areas of analytic focus include water resource management, where the Bank team is working with the Water and Energy Commission Secretariat to establish a geo-referenced water resources information system, develop river basin models, build capacity within the GON for river basin modeling, and support the formation of a Trans-boundary Waters Cell. A recently completed Ganges Strategic Basin Assessment built a knowledge base and promoted an open, evidence-based dialogue on the shared opportunities and risks of cooperative management of the Ganges River Basin. Analytical support to understand governance issues in the forestry sector and support to the REDD Readiness Plan preparation are under way.

Other ongoing IDA/IFC work is laying the foundation for carbon-based trading and financial support from the Pilot Program for Climate Resilience and other climate investment funds. Joint work on disaster management (in collaboration with the United Nations, Asian Development Bank (ADB), Red Cross and others) is expected to lay the basis for future program support from the Global Fund for Disaster Risk Reduction. In partnership with the government and other donors, the Bank continues to provide advice on ways to improve existing social protection systems and on the design of a national social protection framework.

Table II.1.

FY11 IDA Projects

(Amounts in US$million)

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Activities of the International Finance Corporation (IFC) in Nepal

Investment Services: IFC’s committed investment portfolio in Nepal stood at US$27 million as of March 2011, consisting of three power generation projects, one airline, one tourism project, one microfinance institution, one Financial Sector ICT service company, and four trade finance facilities. In FY2011, IFC provided four trade finance facilities (for US$9 million in total) and signed one additional facility (of US$5 million) under IFC’s Global Trade Finance Program to date. In FY2010 and FY2009, IFC committed US$14 million and US$15 million, respectively, including IFC’s first power investment in Nepal in a decade (for US$6.5 million), IFC’s first ever investment in microfinance in Nepal (for US$0.3 million), a US$10 million long-term debt in aviation as well as GTFP trade facilities. After having a low level of activity during FY2002-FY2007 due mainly to the conflict, IFC re-opened an office in Kathmandu in January 2008 with the objective of scaling up both investment and advisory operations. IFC’s program successfully rebounded, focusing on increased access to finance and infrastructure, as well as support to help improve investment climate.

IFC Advisory Services: IFC is engaged broadly in four areas, including investment climate, financial market and access to finance, sustainable business, and Public-Private Partnerships (PPPs) and has been more active in the former three areas thus far. IFC’s work on Investment Climate Reform Project (ICRP) began in Nepal in 2007. In FY11, IFC, with funding support from DFID, embarked on a new three-year ICRP that consists of three mutually-reinforcing components: (i) Public Private Dialogue (PPD); (ii) Regulatory Reforms; and (iii) Special Economic Zones (SEZ). Through this program, IFC has assisted with the establishment of Nepal Business Forum (NBF). As a Public Private Dialogue (PPD) mechanism, NBF helps the government set up reforms at the national and sub-national level. IFC’s Financial Markets and Access to Finance (A2F) advisory work focuses on financial infrastructure, sustainable energy financing and SME lending, microfinance, credit information bureaus, secured transaction registries and support to long-term lending institutions. IFC increasingly plays a key advisory role in diverse areas, including credit bureau and collateral registry, sustainable energy and water finance project, microfinance project, SME finance project, and in particular “Payments, Remittances and Securities Settlement Systems (PRSSS)”. Furthermore, IFC is providing advisory support to promote sustainable business practices in the private sector, helping to strengthen environment, social and governance aspects and SMEs through linkages to IFC’s investments. In the area of climate change, IFC, in partnership with the World Bank and ADB, is implementing the Strategic Program on Climate Resilience (SPCR) and Scaling up Renewable Energy (SREP) projects in benefit for the private sector in Nepal.

Going forward, IFC will seek to continue the programs aligned with the three strategic pillars of IFC’s regional South Asia Strategy which include: (a) Inclusive Growth; (b) Climate Change; and (c) Regional and Global Integration. IFC continues to focus on investment climate to lay the ground for attracting investments, access to finance and financial sector development to promote efficient and innovate ways of financial access, and infrastructure strengthening to facilitate people’s access and economic development. Building on its global and regional experiences, IFC remains interested in providing support for the development of PPPs in Nepal. IFC will also seek to leverage the co-location of the IFC and World Bank offices, aiming for greater collaboration and interaction in Nepal, particularly in the areas of financial markets, infrastructure, climate change, and business enabling environment.

Annex III. Relations with the Asian Development Bank

Country Program

The Asian Development Bank (ADB) began lending to Nepal in 1969. As of 31 December 2011, Nepal has received 156 loans/grants—123 sovereign ADF loans ($2,731.082 million), 5 non sovereign loans ($58.64 million), and 28 ADF grants ($827.915 million) totaling $3,617.637 million. Sectors covered through ADB loans and grants are agriculture and natural resources; education; energy; finance; law, economic policy and public sector management; multisector; transport and communication; water and other municipal infrastructure services. The portfolio of active sovereign ADF loans and grants as of 31 December 2011 consists of 42 loans and grants with an overall net amount of $1,418.94 million.

The assistance program for 2011 comprised six projects with a total of $116.0 million in ADF grants and $154.0 in concessional loans. The programs and projects include the Electricity Transmission Expansion & Supply Project (loan $56.0 million and grant $19.0 million); High Mountain Agribusiness & Livelihood Improvement Project (grant $20.0 million); Decentralized Rural Infrastructure & Livelihood Project (Additional Financing) (loan $18.0 million and grant $7.0 million); School Sector Reform Program (grant $65.0 million); Capital Market and Infrastructure Capacity Support Project (grant $5.0 million); Kathmandu Valley Water Supply Improvement Project (loan $80.0 million).

Technical Assistance

As of 31 December 2011, ADB has approved technical assistance projects totaling $162.69 million. There are currently 45 ongoing TAs including JFPRs as of 31 December 2011 amounting to $43.65 million. 23 projects and 11 TAs which are about 55% and 27%, respectively, of the Nepal portfolio, are currently being administered by the Nepal Resident Mission.

Private Sector Operations

ADB firmly supports the need for private sector involvement and development of a strong local private sector for the long-term economic growth of Nepal. Prudent investment in the energy sector is felt elemental and is a priority focus for ADB to address the looming power crisis of the country. At the end of 2011, cumulative approvals for 4 private sector projects in Nepal amounted to $58.64 million.

Sovereign Loans and Grants by the Asian Development Bank, 1968–2011

(As of 31 December 2011)

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Annex IV. Statistical Issues

Economic and financial data are generally adequate for surveillance, with scope for improvement especially in fiscal (external financing) data, more detailed price statistics, and the timeliness and quality of balance of payments data. Nepal provides core data to the Fund and releases data in government and central bank publications. It has been a participant in the General Data Dissemination System (GDDS) since May 2001. Metadata were initially posted on the Dissemination Standards Bulletin Board in May 2001 and last updated in January 2009.

Real Sector Statistics

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. A 2011 STA mission revealed that on the expenditure side, no separate estimate of change in inventories is made, and inventories plus statistical discrepancy is treated as a residual, which has risen over time to more than 13 percent of GDP. This raises serious doubts over the reliability of other categories of final expenditure, particularly household final consumption and capita formation. On the activity side, while benchmark estimates are assessed to be robust, weaknesses arise due to low quality of extrapolators and lack of benchmark surveys in key areas such as construction and trade. Previous STA missions in 2005 and 2006 (with AsDB assistance) provided support to the development of quarterly national accounts (QNA) and the rebasing of the annual national accounts to 2000/01 from 1994/95. CBS is now considering rebasing national accounts to 2004/05 or 2010/11, for the reference year 2013/14 or 2014/15. QNA from the activity side have been prepared for 2004/05 to 2010/11, and publication is expected this year, two months after the end of the first quarter of 2012/13. High frequency indicators are generally lacking; a quarterly manufacturing production index exists but updates are not available since Q1 of 2010/11.

The Nepal Rastra Bank (NRB) compiles the consumer price index (CPI), with 2005/06 as base year. Survey work to revise the CPI basket is underway, expected to be completed in 2013/14, in order to produce a new CPI series by 2015/16. The new survey will include more commodities and is expected to yield a more representative basket, as the previous survey was carried out during the armed conflict, which may have affected survey responses. 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). 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 2001 Government Finance Statistics (GFS) in 2011, an important step forward. Meanwhile, treasury single account (TSA) has been rolled out to 60 districts including Kathmandu, which allows for more timely and accurate fiscal data reporting and monitoring. However, a number of fees collected outside the budget and the operations of local governments are not reported in the annual budget, monthly reporting of development spending often excludes amounts directly paid by donors, and there is no compilation of the government’s balance sheet in accordance with IMF’s GFS 2001. Government finance statistics are regularly reported for publication in the Government Finance Statistics Yearbook, but not in the International Finance Statistics.

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 companies1, NRB now publishes an expanded broad money survey, which is a significant step forward.

There is room for improvement in the reporting of interest rate data. 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.

Following up on recommendations of a 2011 STA mission NRB has resumed reporting monthly monetary data in the format of SRF 1SR for the central bank and SRF 2SR for commercial banks; and resume reporting monthly monetary data in the format of SRF 2SR covering the entire ODC sector.

External Sector Statistics

The NRB compiles and disseminates balance of payments statistics in conformity with the fifth edition of the Balance of Payments Statistics Manuel (BPM5), but does not compile statistics on the international investment position. Overall the quality of BOP data is weak and net errors and omissions remain large2. Trade data compiled separately by the NRB, the Customs Department, and the Trade Promotion Center (overseas trade only) exhibit discrepancies. Export and import price indices are not published.

A 2010 STA mission identified key shortcomings in BOP statistics, including: (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. The report makes specific recommendations to improve the quality of BOP line items. For example, trade data should be reconciled with main trading partners India and China, and coverage of trade should be expanded to include undeclared imports and exports using border surveys. Remittance data, which relies on bank reporting, should be verified in the short run with money transfer operators and counterparts, and in the long run be based on an enumeration of migrants in different destinations.

The STA mission also found that adequate data exists to produce annual and quarterly IIP statistics, subject to improvements in the quality of direct investment data.

MoF does compile data on total grants received by the government and private sector from donor agencies, and a new Aid Management Platform (AMP) has been in use since last year, which should help improve reporting of foreign aid. However, coordination between Foreign Aid Coordination Division (FACD) in Ministry of Finance (MoF) and the Balance of Payments Division (BOPD) in NRB on external grants appears to be weak, complicating estimation of foreign financing.

Nepal—Table of Common Indictaors Required for Surveillance

(As of October 5, 2012)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds. Interest rates of commercial banks are reported in the monthly monetary update, whereas official interest rates are reported weekly as well as monthly.

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. Domestic debt is reported monthly and external debt is reported on annual basis.

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


Latest data provided by authorities for July 2012 indicated that 16 percent of private sector deposits are accounted for development banks and finance companies.


In 2011/12, errors and omissions were 20 percent of the current account balance. In previous years, this has been as high as nearly 40 percent.