Stick to Indian rupee exchange rate, IMF tells Nepal

June 28th, 2008 - 6:28 pm ICT by IANS  

Kathmandu, June 28 (IANS) The International Monetary Fund (IMF) has asked Nepal to stick to the current exchange rate with the Indian rupee, saying the consistent pegging had helped avert inflation and capital flight. Currently, the Nepalese rupee is worth five-eighth of the Indian rupee, with Indian Rs.100 fetching Rs.160 in Nepal.

Brian J. Aitken, deputy division chief of IMF’s Asia and Pacific department, who led a delegation to Nepal to hold pre-budget consultations with the government, has also urged Kathmandu to continue adjusting domestic oil prices against rising prices in the world market.

He cautioned that further subsidies would hit the ability to invest in development work.

“Maintaining the exchange rate peg, which has been crucial in keeping inflation low and stable, will require a fiscal policy that recognises the limited resources available,” Aitken said in a statement.

Due to rising international prices of food and fuel, the IMF is predicting eight percent average inflation.

However, Aitken said that despite the difficult political situation, Nepal could achieve 4.75 percent growth in GDP, pushed by agriculture and the service sector.

However, “the ballooning loss in the oil trade is shrinking the government’s expenditure capacity to invest in crucial areas like education”, he said.

“The introduction of an automatic pricing mechanism to allow adjustment of prices to world levels would help depoliticise the elimination of oil subsidies.”

The budget is expected to be tabled July 9 by Finance Minister Ram Sharan Mahat in the newly elected Constituent Assembly that also serves as Nepal’s caretaker parliament.

Aitken said that right budgetary policies would help fight inflation.

“Responsible fiscal management during the years of conflict has given Nepal a solid platform for economic growth,” he said. “Protecting the assets will require a budget that recognises the economy’s limited resources.”

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