Nepal had recorded 4.6 percent economic growth in 2011/12. But the IMF has tagged the country´s economic outlook for 2012/13 as being ´pretty challenging´.[break]
“Spillover effects from declining growth in India (through lower export demand, weaker inward investment, and possibly less remittances), and the dampening effect of continued political uncertainty will also present further challenges to growth in Nepal,” IMF said in a article IV Consultation report that it made public on Monday.
According to the report, inflation in Nepal is already on the rise, and upward pressure on prices may further increase over the next few months.
Moreover, the IMF expressed serious concerns over the lack of political consensus on key political issues, saying that it had complicated macroeconomic management. It also laid strong emphasis on political consensus along with policy stability, easier labor environment and more effective use of external support saying they would enable the country post higher growth and progress in poverty reduction
On the financial sector, IMF reckoned serious balance sheet and other risks still remain.
“On paper financial soundness indicators show some improvement, but concerns remain about the reliability of reported data,” IMF said in the report.
Though the revision of the legal framework for bank resolution is under way and recapitalization plans have been announced and partially implemented for two insolvent state banks, significant restructuring of the financial system has yet to emerge, said the report.
It also noted that balance sheet risks from concentrated exposure to a moribund real estate market were still high.
The IMF has also expressed serious concerns over rise in financial losses at the Nepal Electricity Authority and Nepal Oil Corporation and lack of serious initiatives by the government to plug those holes.
“Recognizing the difficult political situation, IMF board encourages the authorities to build consensus to gradually adopt an automatic price adjustment mechanism, while putting in place well-targeted subsidies to protect the vulnerable,” IMF said in the report. It has also urged the government to seriously consider reform of the pension system.
IMF has also urged the government to remain firm with its commitment to sound policies and structural reforms.
“Accelerating the pace of structural reforms will be important for Nepal to address competitiveness challenges and to achieve higher and more inclusive growth,” IMF said in the report. It has also asked the government to focus on enhancing the business environment, removing infrastructure bottlenecks, increasing transparency and improving governance.
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