IMF okays $49.7m budgetary supportThe Executive Board of the International Monetary Fund (IMF) on Friday approved a disbursement of SDR 35.6 million ($49.7 million) for Nepal under the Rapid Credit Facility (RCF).
The support has been approved in line with the IMF’s announcement of supporting Nepal in the aftermath of the deadly April 25 earthquake.
It said the money will be disbursed as direct budget support, which will carry no interest and will have a maturity period of 10 years.
According to the IMF, this financial support will help the country address the urgent balance of payments (BoP) 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,” it said in a statement.
The IMF provides such support in the event of risk to the Balance of Payments (BoP) in event of natural disasters, emergencies and shocks. Although the BoP is expected to have maintained record surplus at end of last fiscal year, the situation is likely to remain vulnerable in the current fiscal year due to possible surge in imports for reconstruction purposes.
Mitsuhiro Furusawa, deputy managing director of the IMF, said although the total cost of the earthquakes estimated at about $7 billion, 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 $4 billion of grants and concessional loans, will be disbursed over the next five years to help finance the reconstruction effort,” Furusawa said. “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.”
According to the IMF, strengthening public financial management will be key to the swift and effective implementation of reconstruction efforts, and enhancement of the quality of public investment.
“Strong coordination between the National Reconstruction authority 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.”