As leading donors insist on renewing the Poverty Reduction Growth Facility (PRGF)– a concessional credit scheme introduced by the International Monetary Fund (IMF) with special focus on sustainable growth and poverty reduction—Nepali officials say they are engaged in series of discussions to evaluate its impact.

Finance Minister Dr. Ram Sharan Mahat (File Photo)

Finance Minister Dr. Ram Sharan Mahat (File Photo)
Talking to Nepalnews, Rajiv Upadhya, senior external affairs specialist at the World Bank country office in Kathmandu, said Nepal’s PRGF strategy was not in the track.

“Though the termination of the PRGF may not have direct impact on the country’s economy, it could have impact on other sectors and could discourage bilateral and multilateral organisations to provide further assistance to Nepal,” he said.

Upadhya, however, said further negotiations between the Nepal government and the International Monetary Fund (IMF) and World Bank would decide the fate of the PRGF.

A PRGF loan was approved by the IMF’s Executive Board in November 2003 USD 72 million to support the maintenance of stable macroeconomic policies as well as structural reforms in the financial and public sectors and in governance.

Talking to Nepalnews, Secretary at the Ministry of Finance Dr. Bhoj Raj Ghimire said a team of World Bank and the IMF was currently in Kathmandu to review the progress. “Whether to renew the contract will be decided after various rounds of negotiations,” he added.

During the meeting called by newly appointed Finance Minister Dr. Ram Sharan Mahat last month (May 17), representatives of the donor community asked the government to present detailed programmes and identify areas in which Nepal wanted to seek international support.

Country director of the World Bank in Nepal Ken Ohashi (File Photo)
Addressing the meet, country director of the World Bank in Nepal, Ken Ohashi, expressed serious concerns regarding the imminent expiry of Poverty Reduction Growth Facility (PRGF).

Speaking at the meeting, Sukhwinder Singh, representative of the IMF in Nepal, said expiry of the PRGF might have serious implications on the reform process.

Officials say there have not been periodic review of the progress of the PRGF for quite sometime now, which should be done in every six months.

One of the Brettonwoods institutions, the IMF introduced the Poverty Reduction and Growth Facility (PRGF) in 1999 thereby replacing the so-called Enhanced Structural Adjustment Facility (ESAF). Under this scheme, the countries can borrow up to 70 percent of their quota in the IMF at 0.5 percent interest rate to be repaid in ten years time out of which five-and-half years period is designated as ‘grace period.

A total of 78 countries are incorporated into the PRGF so far.

After completing the first performance review in October 2004, the IMF released the second installment of USD 10.3 million. But disappointed at the lack of progress and even regressive steps taken by the royal government during 2005-o6, the IMF withheld the PRGF to Nepal. Similarly, the World Bank also suspended its USD 70 million Poverty Reduction Support Credit (PRSC) that it had pledged to provide to Nepal annually.

Experts say resumption of credit facility from the World Bank and IMF at a time when Nepal needs huge sum to finance its reconstruction and rehabilitation activity would open doors for more international aid. Restoration of democracy and start of peace process has created a congenial environment to attract more aid in this area, they say.

“The changed scenario could now pave the way for peace and development. But the economy is in a critical stage with lot of challenges like reducing huge fiscal deficit to a manageable level, controlling accelerating inflation, reducing poverty level as well as enhancing economic activities,” wrote Rewat Bahadur Karki, former economic advisor to Nepal Rastra Bank and IMF, wrote in The Himalayan Times daily last month. “In such a situation, instead of preparing a new economic programme, the government should ask the IMF to revive the PRGF, which expires on November 18 2006, and revise the PRGF-supported programme in line with the rehabilitation and reconstruction needs. In such a transitional period the donor community, including the IMF and World Bank, should consider making the conditions more flexible,” he added.

Karki, however, did not reveal what those conditions were.

As the Finance Ministry is busy in preparing new budget for the fiscal year 2006/07, experts say early decision regarding resumption of PRGF would make congenial environment for attracting more aid. As nearly two-thirds of country’s development expenditure is financed through foreign aid, even the CPN (Maoist) leaders have said they are not against the foreign aid provided it doesn’t promote what they call “foreign capitalist and bourgeoisie class.