Nepal's economy remains stable despite security problems

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Page 85

Political turmoil and conflict in Nepal reduced growth in 2005, but, according to the IMF's annual economic review, inflation was moderate, the overall fiscal deficit was significantly lower than budgeted, the current account and overall balance of payments remained in surplus, and international reserves were adequate.

Financial soundness indicators also improved somewhat, thanks to banking sector reforms.

The IMF's Executive Board commended the authorities for maintaining macroeconomic stability in a difficult environment but noted that the country is at a critical juncture, as political uncertainties and the ongoing insurgency continue to dampen economic growth. Executive Directors encouraged the authorities to address key constraints on growth, maintain macroeconomic stability, and reduce poverty.

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Directors welcomed efforts to mobilize revenue, prioritize expenditure, increase social sector spending, and limit domestic budget financing. They encouraged the authorities to improve tax administration further. Directors also emphasized the need to increase fiscal transparency, improve public expenditure management, and address donor concerns about the quality of spending. To these ends, they suggested broader coverage of off-budget activities and more comprehensive reporting of...