May 11: The International Monetary Fund (IMF) has suggested policy precautions as Nepal's economy is still at risk. In a situation where external risks persist in Nepal's economy, the IMF has suggested that the monetary policy should be made more manageable instead of relaxing it. 

Jarkko Turunen, head of the Nepal mission of the IMF, during an online interaction program held on May 9, said that the risk of the external sector in Nepal’s economy has not been ruled out even though the foreign exchange reserves are increasing.

Turunen further suggested that Nepal Rastra Bank (NRB) should adopt data-based monetary policy after analysing the rising inflation.

“If the monetary policy is relaxed at a time when Nepal's imports are gradually increasing, it will cause another problem,” he added.

Currently, inflation in Nepal is above 7 percent, which is higher that the government's target.

"The increase in the price of food and fuel in the international market has not stopped. Likewise, the international economic situation has not returned to normalcy. As a result, the risk of the external sector does not seem to have ended. Therefore, easing the monetary policy can risk the overall economy,” he shared.

The IMF had earlier praised Nepal saying that the tight monetary policy has helped the country in managing the external sector and the government's steps taken through the half-yearly review of the budget would address the challenges.

“Nepal's imports are increasing, inflation is still high, as external risks are still present. So, easing monetary policy is not recommended, it will not do any good to the economy,” he added.

He shared that fiscal policy can play a key role in economic development than monetary policy.

Likewise, he emphasised on restructuring the entire financial sector rather than making the monetary policy flexible.

Similarly, he shared that the economy should adopt measures to increase revenue and make the economy viable by providing subsidized loans.

“Fiscal policy plays an important role in economic growth, and in the event that revenue is not collected as per the target, spending should be increased by mobilizing foreign resources. So, revise the revenue collection strategy and reducing the unnecessary expenses is crucial,” he opined.