The World Bank, Asian Development Bank and International Monetary Fund, as well as the other friendly nations, must recognize the financial crisis brought in Nepal by disastrous earthquakes and must unconditionally write off all outstanding external debts of Nepal.
On 15th May 2015, exactly twenty days after the 7.8 magnitude earthquake in Nepal and the third day of its 7.3 magnitude aftershock, a coalition of thirty plus organizations in the Asia-Pacific region issued a ringing call to the big international lenders, demanding total and unconditional debt cancellation for Nepal. It was highly reasonable.
Nepal is one of the world’s Least Developed Countries. According to the figures of the United Nations Development Program,Nepal’s GDP per capita stands at US $ 660, one of the lowest in the world, despite some progress made in the last four years. At the moderate rise of national entrepreneurship, the middle class was growing notwithstanding the huge labor migration. Twenty three percent of the national GDP depends on remittances. The economic growth rate remained around three percent over the last decade owing to internal conflict and resultant political tumult, and had just started going up. For example, at the start of this fiscal year in July last year, the estimated growth appeared to be touching five percent, for the first time in the last fifteen years. But the catastrophic earthquake has completely shattered the Nepalese dream of swift progress.
Nepal’s social sector indicators are even more heartbreaking. The country ranks 145thin the United Nations Human Development Index, together with several impoverished nations of Africa. Life expectancy at birth for females stands at 69.3 and for males 67.1; and this despite the steady progress made in health sector in the last decade.
The two devastating earthquakes with their hundreds of aftershocks means Nepal will have to concentrate its national attention over the next years addressing immediate needs of its people. The government can no longer afford to focus on the reform agenda.
Reducing vulnerabilities of the people living in extreme poverty has to be the priority of all. It is surprising that Nepal is expected to make continuous repayments of its external debts despite facing the tragic earthquakes that killed 9000 people, injured over 22000, and forced an additional 2.5 million population below the poverty line. The unimaginable devastation and suffering of the people of Nepal must be recognized by the creditors of Nepal as well.
Nepal today has a total external debt of US $3.5 billion, out of which it owes 80 percent to the World Bank and Asian Development Bank, with US $ 1.5 and US $ 1.4 billion respectively. Other major lenders are International Monetary Fund (IMF) and some bilateral agencies.
According to the latest data of the Ministry of Finance of the Government of Nepal, a total of US $213 million would go towards servicing these debts every year for the next three years. As a country looking for resources to rebuild its destroyed infrastructure, saving this amount of money means a lot for the people of Nepal.
In an attempt to raise US $ 7 billion needed for national reconstruction, Nepal is organizing, in its capital city Kathmandu, on 25th June, the International Nepal Reconstruction Conference. For creditors, there is no better forum than the International Nepal Reconstruction Conference to announce debt relief.
The World Bank and the Asian Development Bank guidelines on debt relief follow the IMF principles, whose Catastrophe Containment and Relief Trust (CCRT) allows access to debt relief for the countries that have undergone large scale disasters. Nepal should be able to pass this. IMF must also relieve Nepal off the conditionality of structural adjustment, making easy for other lenders willing to announce debt relief.
In the gathering to be participated by the delegates from over fifty countries and organizations, some of Nepal’s friendly countries like Norway are going to invoke the IMF’s CCRT provision to propose the total and unconditional cancellation of Nepal’s outstanding foreign debts. Other friendly countries and organizations must come forward to support this positive move. IMF has been imposing conditions around the world for tax raises, pension and social security slashes, and lay-off in public services; all this in return of the financial support it is extending to the countries in recession. It must also see the other side of the financial crisis brought in Nepal by disastrous earthquakes and must persuade Nepal’s creditors to unconditionally write off all outstanding external debts of Nepal.
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