Govt, IMF to discuss aid under Extended Credit Facility (ECF)

KATHMANDU, FEB 05 -

Under IMF’s Extended Credit Facility, Nepal can get soft loans worth US$ 85-105 million at 0.5 percent interest rate

The Ministry of Finance and International Monetary Fund (IMF) are scheduled to hold final talks on Sunday about soft loan to Nepal under IMF’s Extended Credit Facility (ECF).

In response to Nepal’s request to provide it loans under ECF, an IMF team is currently here to assess Nepal’s economic situation to decide whether to provide aid to the country. The team has already held discussions with officials of the ministry and Nepal Rastra Bank (NRB).

There will be a final discussion between the ministry and IMF team on Sunday, according to a senior ministry official. They will discuss about Nepal’s macro-economic situation, including the status of foreign exchange reserve, external borrowings, fiscal balances and terms and conditions for the aid.

Under ECF, Nepal is entitled to receive 95-125 percent of the quota allocated for it. This means the country can get soft loans worth US$ 85-105 million from IMF at 0.5 percent interest rate. “Nepal may receive the loan by the end of the current fiscal year,” said Finance Secretary Rameshwor Khanal. Before sanctioning the loan, both Nepal’s Cabinet and IMF headquarters should take a final decision in this regard. The aid will be used to keep the Balance of Payment (BoP) positive, manage foreign exchange and continue reform programmes.

The IMF has urged Nepal to privatise two public-sector banks—Nepal Bank Limited and Rastriya Banijya Bank—after implementing financial reform measures, stop issuing new banking licences and increase price of petroleum products and electricity. Nepal is unlikely to accept preconditions regarding price hike of petroleum and electricity, given the current political scenario, according to a senior ministry official.

In the wake of huge BoP deficit that had touched Rs 23 billion mark last year, the government had requested IMF to provide it loan under ECF. ECF succeeds the Poverty Reduction and Growth Facility (PRGF) as IMF’s main tool for providing medium-term support to low-income countries.

Assistance under an ECF arrangement is provided for a three-year period and is extendable up to two more years. After the expiration or cancellation of an ECF arrangement, additional ECF arrangements may be approved.

IMF was also waiting for the formation of new government to extend the aid under ECF. With the election of new prime minister, IMF will be comfortable to submit the aid proposal to its board, according to the ministry official.

The IMF has already provided Nepal loans worth around US$ 42.5 million under its Rapid Credit Facility (RCF). RCF is a flexible financial assistance for low-income countries facing an urgent BoP need. It does not require any explicit programme-based conditionality or review.

Nepal’s BoP deficit stands at Rs 3.3 billion as of the first five months of the current fiscal year, according to NRB. “Given the continuous deficit in BoP, it has been necessary to take loans under ECF,” said Keshav Acharya, chief economic advisor at the ministry. “As interest on such loans is cheaper, taking the loan now will be a wise move.”

The NRB can deposit the loan amount in other institutions that offer high interest rates. “There is no loss for the country in taking loans under ECF,” said a senior ministry official. Nepal’s continuous involvement in IMF programmes will also help it get aid from other international agencies such as World Bank and Asian Development Bank easily. These two institutions usually seek IMF’s advice on Nepal’s macro-economic situation and repayment capacity before taking any decision on aid.

Posted on: 2011-02-05 08:49
Source: http://www.ekantipur.com/2011/02/05/business/govt-imf-to-discuss-aid-under-ecf/329136.html