IMF favours monetary tightening to contain Nepals falling forex reserves

div classBodysc17zpet90 cdBBJodivpBy Gopal Sharmap

pKATHMANDU Reuters – Nepal should engage in monetary tightening including rate hikes to contain dwindling forex reserves, without resorting to import curbs that could push up prices and hamper economic growth, a senior International Monetary Fund IMF official said. pdivdivdiv classBodysc17zpet90 cdBBJodiv

pThe government must address inflationary pressures and growing external imbalances, while safeguarding the economic recovery, Robert Gregory, head of an IMF team that held weeklong discussions with government officials, said in a statement on Wednesday.p

pNepal, a landlocked country between China and India, has banned luxury goods imports until midJuly to rein in capital outflows as foreign exchange reserves fell over 18 to 9.6 billion as of midMarch from midJuly – enough to last around six months.p

pFollowing a sharp rise in the cost of imports pushed by soaring global crude oil and other commodity prices after the Ukraine war, Nepals international reserves “have declined more than anticipated,” the IMF statement said.p

pHowever, a prudent budget, as suggested under its financial support programme, along with monetary tightening would help address the inflationary pressures and growing economic imbalances, the statement said. p

pConsumers in the Himalayan nation of 29 million people are facing tough times as annual retail inflation hit a fiveyear high of 7.14 in the month through midMarch, pushed up by rising fuel and food prices, while household income levels are still below prepandemic levels.p

pThe IMF team praised the Nepal governments recent steps to tackle external pressures by gradually exiting from Covidrelated expansionary monetary policy and said forex reserves were adequate for now.p

pCommenting on the IMF officials comments, Finance Ministry official Ishwari Aryal said, “they will be addressed accordingly.” p

pNepal is to take Extended Credit Facility ECF of 400 million from the IMF over the next three years, he told Reuters.p

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pp Writing by Manoj Kumar Editing by Alexandra Hudsonp

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