IMF bails out Nepal after a decline in economic activity

IMF has approved about $395.9 million credit for Nepal for mitigating and recovering from the effects of COVID-19

The International Monetary Fund (IMF) has approved about $395.9 million credit for Nepal for mitigating and recovering from the effects of COVID-19 on health and economy, protecting the most vulnerable and affected groups and supporting sustainable growth and poverty reduction. 

The IMF has approved a 38-month arrangement, with $110 million being immediately available for budget financing. This bailout follows another credit facility of $214 million in May 2020. There will be a programme funded by the extended credit which will be aligned with the government's 3R (Relief, Restructuring, Resilience) plan 

COVID-19 has hit Nepal hard with its GDP contracting by 2.1 per cent in the 2019-2020 fiscal year, with fiscal deficit rising from 4.2 per cent to 6.3 per cent from 2019 to 2021 respectively. Its current balance account has expanded to 8.3 per cent of GDP due to a sharp drop in export and tourism and service sectors.

While Nepal has optimistically given a projected economic growth of at least 6 per cent, the IMF has forecasted only a growth of 3.9 per cent, the same projection from 2020. The IMF has said that the collapse of the tourism and service sectors, which are the key drivers of growth will take time to recover.

Photo Courtesy: [Ken Nakagawa/Wikipedia Commons]