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The International Monetary Fund (IMF) and the World Bank Group have recently concluded their 2020 spring meetings, held in virtual format and mostly focused on the coronavirus pandemic’s impact. The global bodies urged countries to protect poor and vulnerable groups, and minimize economic and social impacts through fiscal, monetary, and financing measures. The IMF also announced debt relief for 25 countries including Nepal. Pushpa Raj Acharya of The Annapurna Express had a virtual conversation with Catherine Pattillo, the IMF’s Assistant Director to the Fiscal Affairs Department. She is also the chief of the Fiscal Policy and Surveillance Division.

The IMF has been tracking fiscal policies of various countries adapted in response to Covid-19. Which measures can countries adopt?

The objective of fiscal policy in responding to the Covid-19 pandemic is to save lives and livelihoods. Countries need to provide resources to health systems, provide emergency lifelines to households to meet basic needs, and to firms to preserve employment and wages. They need to maintain capacity that will be crucial for recovery. Protecting people from losing jobs and incomes, and viable companies from bankruptcy, will help prevent this pandemic from imposing long-lasting damage to the economy. These are not a conventional fiscal “stimulus” but rather vital emergency lifelines. 

Effective fiscal measures are those that deploy limited resources efficiently, and in a targeted, temporary, and transparent way. The April 2020 Fiscal Monitor surveys these measures. But let me provide a few examples here. 

Existing social safety nets were expanded and coverage was improved not only in advanced economies such as Germany and the US, but also in Indonesia and Senegal. Not all countries have strong social safety nets. Countries should use what is available. There are good examples everywhere. India and Kenya have used unique identification systems and digital technologies to provide cash transfers. In Bangladesh, the focus has been on in-kind provision of food and medicine.

Temporary wage subsidies, transfers to workers and firms, and paid sick and family leave are important instruments as well. They support those who are unwell and provide them incentives to self-isolate, stay at home, and take care of children. Several countries like Denmark, Korea, and Singapore have expanded these benefits.
 
Tax payment deferrals, tax filing extensions, and loans and loan guarantees provide liquidity support to cash-strapped businesses, especially in hard-hit sectors such as transport, tourism, and hospitality. The same applies to SMEs and micro businesses. These measures have been put to good use in China, Korea, Thailand, the UK, and Vietnam.

Low-income countries like Nepal have less fiscal space. How can they use their resources to expedite economic recovery after Covid-19?
 
The first priority is to save lives by fully accommodating additional health and emergency services. Countries with less fiscal space can reprioritize spending toward the health sector while safeguarding other priority social spending and vital public services. 

Second, governments need to provide temporary and targeted emergency lifelines to protect livelihoods. Direct cash transfers or in-kind provision of food and medicines are possible options. As the pandemic abates and the shutdowns end, fiscal policy can facilitate the recovery in order to achieve sustainable and inclusive growth, subject to financing constraints.

Low-income developing economies typically have less room in the budget to respond. Global efforts should support countries with less capacity, including through aid, medical resources, and concessional emergency financing. The IMF is responding rapidly to a record number of requests for financing. We have recently doubled the access limits of the IMF’s emergency financing facilities, provided through the Rapid Financing Instrument and Rapid Credit Facility. The latter is specifically for low-income developing countries.

Nepal’s relatively low debt-to-GDP ratio provides some room for policy action. In this context, the authorities should continue to actively seek additional budget financing from our development partners to support their Covid-19 response efforts. The IMF has already provided an up-front grant to pay off upcoming debt service to the Fund. We are processing the request for financing under the Rapid Credit Facility. 

What sort of fiscal stimulus would you like to recommend to Nepal?

Covid-19 is severely impacting growth in Nepal, mainly through a decline in remittances from countries in the Persian Gulf, India, and Malaysia. There has also been a contraction in tourism as well as a drop in domestic activities because of the nationwide lockdown. 

As in other countries, the immediate priority is to deal with the human and economic impact of the Covid-19 pandemic. It is important to increase health spending, strengthen social assistance, ensure adequate liquidity to the banking system, and support access to credit. The authorities are already taking these steps. 
Once the pandemic fades, it will be critical to implement a policy agenda that promotes inclusive growth while preserving financial sector and external stability as well as fiscal sustainability. A cornerstone of the agenda will be to strengthen the investment climate in Nepal. This includes implementing structural reforms that encourage high-quality public- and private-sector investment projects, in particular FDI.

The IMF has provided debt relief to 25 countries including Nepal. Do you recommend other donors do the same? 

Low-income developing countries are likely to be hit the hardest by the pandemic. Containment measures represent great disruption to economic activity and people’s lives. It will require significant emergency lifelines. Most countries, however, have very limited resources to respond. Thus, it is necessary for the international community to mobilize financial means—for example, in the form of grants and concessional loans—but also health workers, medical equipment, and supplies. 

The debt service relief provided by the IMF to 25 countries through the Catastrophe Containment and Relief Trust (or CCRT), by freeing up resources that would have otherwise been used to service debt, will help the poorest of our members to use any available resources towards vital medical needs and other emergency relief efforts. Nepal was among the group of countries to obtain this debt relief.

And on April 15, the G20 endorsed the earlier call by IMF Managing Director Georgieva and World Bank President David Malpass that bilateral creditors temporarily suspend debt service obligations for the poorest countries. More, however, is needed. A parallel initiative by private creditors would be welcomed. As IMF Fiscal Affairs Director Vitor Gaspar has said, a health emergency is a call for unity and solidarity both within and among countries.

Do you think fiscal policy should further reinforce healthcare?

Ensuring all necessary health resources are available to save lives should be the number one priority. This requires fully accommodating additional spending on health and emergency services, irrespective of fiscal space or debt positions. Governments should plan carefully to allocate increased health spending to areas that are most effective at managing any virus outbreak and identify activities that are necessary to monitor, contain, and mitigate the health impact. And as noted above, the international community should robustly support countries with limited health capacity.

How can a country harness its demographic dividend for development before its old-age population starts outgrowing working-age population? 

Nepal is currently benefiting from a demographic dividend. Its working-age population is expected to continue growing strongly through about 2025. To better harness the demographic dividend, the private sector must play a larger role in driving economic activity, and creating quality jobs. To provide a supporting environment for private investment, and to attract foreign direct investment, reforms are needed to address important gaps in the size and quality of the infrastructure network as well as streamline regulations and bureaucratic processes.

What sort of adjustments in fiscal policy is required after the corona crisis is over?

The Covid-19 pandemic underscores the need to adopt, over time, broader enhancements to tax and expenditure policies that reduce vulnerabilities and boost medium-term growth. Improving social insurance schemes and safety nets can help protect people in the face of this pandemic and future adverse shocks. Investing for the future—health care systems, education, and infrastructure—remains an important priority so that countries can make progress toward their Sustainable Development Goals. Putting these plans in a comprehensive medium-term fiscal framework is important. Once economies recover, we need to ensure progress on ensuring debt sustainability. 

How will the IMF support countries in the next phase, if the crisis prolongs?

To address ongoing needs of the countries, the IMF has $1 trillion in lending capacity. As noted above, emergency financing, other concessional financing, and debt relief for the poorest countries will substantially help them respond to this crisis.

The IMF’s policy advice and capacity development support to countries is also responding rapidly and adapting to evolving realities. We are producing a series of notes on different fiscal policy and management measures to respond to the Covid-19 crises, which you can see on the IMF website. Our Fiscal Monitor has included granular details on the types of fiscal measures selected countries are taking. We are developing new initiatives to deliver country-specific, granular “virtual” capacity development support on revenue (tax policy and administration) and spending (public financial management and expenditure policy) challenges that countries are facing during this crisis.

Covid-19 has made the world pause. Nepalis stayed home on the eve of New Year 2077 and started the first morning of the new year with no idea of when they would get back to normal life. New cases of the novel coronavirus continue to appear, adding to the widespread fear. Meanwhile, the government is taking ad hoc measures instead of coming up with a firm strategy to support the poor and sustain the national economy.

The Ministry of Finance, which is supposed to come forward aggressively with plans that can be adjusted each day depending on the scenario, doesn’t seem to have a clue of what’s happening in the economy, let alone be bothered of the impending poverty and privation. Finance Minister Dr. Yubaraj Khatiwada, who seems intent on sidelining private sector and entrepreneurship, doesn’t know what holds the economy together. If he did, the situation today would be much different.

His statements before the World Bank Group Nepal Office representatives exemplified the stupidity, insensitivity, and recklessness of his leadership at this time of crisis. He talked about vague issues that had nothing to do with fighting the broad economic impact of the pandemic.

Likewise, Prime Minister KP Sharma Oli addressed the nation last week. But he too had no message of hope for the panicked public. Rather he spent his time explaining why it’s futile to question the procurement process of health materials from China. Estimates show that globally, around 600 million people will be pushed into poverty and that certainly includes people from Nepal. Those at the bottom of the income and wealth ladder have harder days ahead. But the government is silent on what can be done to help them survive this ‘man-made crisis’.

A recent World Bank update shows South Asia sub-region’s growth falling to between 1.8 and 2.8 percent in 2020, down from 6.3 percent projected just six months ago. Although Nepal’s share in sub-regional GDP is minimal, the country’s economic growth is expected to significant slow down in 2020.

The national economy, including the agriculture sector, has come to a halt. There is no preparation to ensure availability of agriculture inputs as planation time closes in. In the event of the country’s inability to control the crisis in agriculture, the economy will be in a free-fall, driving vast numbers of farmers into absolute poverty. The government doesn’t seem to be paying attention to this critical issue.

There will be severe food insecurity in the country due to supply shock. The World Bank has warned that a rapid spread of the virus could reverse the recent positive trends in poverty and result in high levels of food insecurity and widespread malnutrition among children.

Investment, both domestic and foreign, will fall, leading to lower job creation. A large fiscal deficit will be added to public debt, directly affecting Nepal’s fiscal sustainability. Daily wage earners will be hit the hardest. Remittances will significantly decrease, impacting both forex reserve and the livelihood of those who rely on it. The informal sector, which makes up nearly 70 percent of the national economy according to same estimates, has stopped functioning.

Against this bleak backdrop, the government seems the least concerned and ill prepared to handle the corona fallout. Worryingly, the Ministry of Finance does not seem to have a clue about how to move ahead. It is not having necessary dialogues with development partners, it lacks detailed analysis and insights on what’s happening, and it has failed to undertake a rapid assessment of the economic impact of Covid-19.

Dr. Khatiwada can always argue that even the best of government plans failed in tackling the virus, just as has happened in far more developed countries. But this will be a lame excuse even as the economy teeters on the edge. Let’s hope people won’t have to start dying for the government to come to its senses.

Covid-19 has made the world pause. Nepalis stayed home on the eve of New Year 2077 and started the first morning of the new year with no idea of when they would get back to normal life. New cases of the novel coronavirus continue to appear, adding to the widespread fear. Meanwhile, the government is taking ad hoc measures instead of coming up with a firm strategy to support the poor and sustain the national economy.

The Ministry of Finance, which is supposed to come forward aggressively with plans that can be adjusted each day depending on the scenario, doesn’t seem to have a clue of what’s happening in the economy, let alone be bothered of the impending poverty and privation. Finance Minister Dr. Yubaraj Khatiwada, who seems intent on sidelining private sector and entrepreneurship, doesn’t know what holds the economy together. If he did, the situation today would be much different.

His statements before the World Bank Group Nepal Office representatives exemplified the stupidity, insensitivity, and recklessness of his leadership at this time of crisis. He talked about vague issues that had nothing to do with fighting the broad economic impact of the pandemic.

Likewise, Prime Minister KP Sharma Oli addressed the nation last week. But he too had no message of hope for the panicked public. Rather he spent his time explaining why it’s futile to question the procurement process of health materials from China. Estimates show that globally, around 600 million people will be pushed into poverty and that certainly includes people from Nepal. Those at the bottom of the income and wealth ladder have harder days ahead. But the government is silent on what can be done to help them survive this ‘man-made crisis’.

A recent World Bank update shows South Asia sub-region’s growth falling to between 1.8 and 2.8 percent in 2020, down from 6.3 percent projected just six months ago. Although Nepal’s share in sub-regional GDP is minimal, the country’s economic growth is expected to significant slow down in 2020.

The national economy, including the agriculture sector, has come to a halt. There is no preparation to ensure availability of agriculture inputs as planation time closes in. In the event of the country’s inability to control the crisis in agriculture, the economy will be in a free-fall, driving vast numbers of farmers into absolute poverty. The government doesn’t seem to be paying attention to this critical issue.

There will be severe food insecurity in the country due to supply shock. The World Bank has warned that a rapid spread of the virus could reverse the recent positive trends in poverty and result in high levels of food insecurity and widespread malnutrition among children.

Investment, both domestic and foreign, will fall, leading to lower job creation. A large fiscal deficit will be added to public debt, directly affecting Nepal’s fiscal sustainability. Daily wage earners will be hit the hardest. Remittances will significantly decrease, impacting both forex reserve and the livelihood of those who rely on it. The informal sector, which makes up nearly 70 percent of the national economy according to same estimates, has stopped functioning.

Against this bleak backdrop, the government seems the least concerned and ill prepared to handle the corona fallout. Worryingly, the Ministry of Finance does not seem to have a clue about how to move ahead. It is not having necessary dialogues with development partners, it lacks detailed analysis and insights on what’s happening, and it has failed to undertake a rapid assessment of the economic impact of Covid-19.

Dr. Khatiwada can always argue that even the best of government plans failed in tackling the virus, just as has happened in far more developed countries. But this will be a lame excuse even as the economy teeters on the edge. Let’s hope people won’t have to start dying for the government to come to its senses.

The Executive Board of the International Monetary Fund (IMF) has approved the proposal of providing debt relief to 25 countries including Nepal in light of the coronavirus pandemic.

Issuing a statement on April 14, Kristalina Georgieva, IMF Managing Director, said the debt relief for low-income countries would help them cope with the Covid-19 crisis.

In view of the severe setback to the global economy, the Bretton Woods twins— the World Bank and the IMF—are in a virtual spring meeting to gauge the magnitude of loss and prescribe fiscal and monetary stimulus to hard-hit countries.

“Today, I am pleased to say that our Executive Board approved immediate debt service relief to 25 of the IMF’s member countries under the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT),” the statement quoted Georgieva as saying. “This provides grants to our poorest and most vulnerable members to cover their IMF debt obligations for an initial phase over the next six months and will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts.”

The CCRT can currently provide about $500 million in grant-based debt service relief, including the recent $185 million pledge by the UK and $100 million provided by Japan as immediately available resources. Others, including China and the Netherlands, are also stepping forward with important contributions. Reportedly, the IMF MD has urged other donors to help IMF replenish the Trust’s resources and boost the fund’s ability to provide debt service relief for two years to its poorest member countries.

Apart from Nepal, Afghanistan, Benin, Burkina Faso, Central African Republic, Chad, Comoros, Congo, D.R., The Gambia, Guinea, Guinea-Bissau, Haiti, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, São Tomé and Príncipe, Sierra Leone, Solomon Islands, Tajikistan, Togo, and Yemen were chosen for debt relief.