Gopal Sharma

KATHMANDU (Reuters). – Nepal needs to engage in monetary tightening. This includes rate rises to reduce dwindling forex reserves. Without resorting to import curbs, this could lead to higher prices and slow economic growth.

Robert Gregory of the IMF Team, who held a week-long discussion with government officials on Wednesday, declared that the government needs to address rising inflationary pressures and increasing external imbalances.

Nepal is a country bordered by India and China that has banned imports of luxury goods until mid-July. This was done to curb capital outflows. As foreign reserves dropped over 18%, to $9.6 Billion as of mid March, it’s enough to keep the country in business for six months.

According to the IMF, Nepal’s international reserve “have fallen more than predicted” after a steep rise in import prices triggered by the soaring global commodity prices following the Ukraine conflict.

According to the statement, however, a prudent and balanced budget as recommended by its financial support program, in conjunction with tightening monetary policy, would address rising inflationary pressures.

The 29 million-strong Himalayan nation is facing difficult times. Annual retail inflation reached a 5-year high of 7.14 percent in March. This was driven up by higher fuel prices and lower household incomes.

IMF Team praised Nepal’s efforts to address external pressures, including the gradual withdrawal from Covid-related expansionary monetary policy. They also stated that forex reserves are adequate at present.

Ishwari, a Finance Ministry official, commented on IMF officials’ remarks and said that “they will be dealt with accordingly.”

He told Reuters that Nepal will take the Extended Credit Facility (ECF), worth $400 million, from the IMF in the next three-years.