The World Bank will assist Nepal in every possible way to effectively manage the Covid-19 crisis : Faris Hadad-Zervos

Kathmandu. World Bank country manager Faris Hadad-Zervos has informed that the bank will assist Nepal against covid 19. The assistance will be provided under World Bank Growth Development Policy.

USD 160 billion will be allotted for promoting economic development of the least developed countries in the next 15 months. He also expressed World Bank’s complete commitment to work with the government to uplift the livelihood of the people and assist in their income. The World Bank predicts that Nepal will be able to meet the growth rate set prior to the pandemic in the next 3 years despite facing difficult circumstances.

Here is the edited part of the interview between executive editor of Lokpath.com, Lavesh Pyakurel and World Bank country manager Faris Hadad-Zervos.

How are you observing the situation of Covid19 pandemic across the globe, and Nepal in particular ?

COVID-19 is one of several emerging infectious diseases (EID) outbreaks in recent decades that have emerged from animals in contact with humans, resulting in major outbreaks with significant public health and economic impacts.  Other country experience shows that without strong containment and mitigation measures, even high capacity health systems can be overwhelmed and life can be tragically lost. 

Other country experience also shows that this is not inevitable and with strong country action, it is possible to ‘bend the curve’ limiting the spread of the disease, particularly among the most vulnerable, that will save lives.  We see Nepal making these difficult decisions, while using this time to build up the health systems capacity for testing, tracing and treatment as it should be doing. 

Across the globe there has been mounting human toll and global economic fallout triggered by the COVID-19 pandemic.  We expect to see a sharp economic slump in each of the South Asian Region’s eight countries, caused by halting economic activity, collapsing trade, and greater stress in the financial and banking sectors. The SAR countries, including Nepal will need to take steps to curb the health emergency, protect its peoples, especially the poorest and most vulnerable, and set the stage now for fast economic recovery. 

As you are aware, almost all sectors are in a standstill, and not operating, what will be the likely result after the lockdown is lifted and, the scenario of economic sector ?

Once lockdown restrictions are loosened, the focus should be on expansionary fiscal policies combined with monetary stimulus to keep credit flowing in the economy.  But, this should be done gradually and in a way that maintains fiscal prudence and macro-fiscal sustainability. 

The focus should be on targeting those people and groups that are worst hit by the freeze on economic activity. These spending measures should be temporary so they can be rolled back when the economy has recovered.  Also, there should be close coordination with international financial partners to avoid unsustainable long-term debt levels and fiscal deficits.

It is now clear that service sector mostly tourism and remittance are found hard hit, what will be the impact on our economy in the short term, medium term and long term?

In the short term, we expect a sharp contraction in growth (due to the lockdowns and travel restrictions).  An even more severe contraction of growth is possible should there be a widespread outbreak of the pandemic within Nepal. Because of this uncertainty, we have projected a range of growth rates for FY20 (2.8 percent in the baseline and 1.5 percent for the downside scenario) and FY21 (2.9 percent in the baseline and 1.4 percent in the downside scenario). 

These scenarios depend on how quickly the pandemic breaks out and whether it is quickly contained or is long and drawn out.  In either case, we expect a gradual recovery over the next 3 years to reach growth levels that were projected prior to the pandemic (from FY23 and beyond).  Looking beyond the pandemic, there may be an opportunities to further stimulate, as for example by expanding digital technologies for payment systems and distant learning to unlock remote areas of the country. 

Financial sector is very critical to the economy of Nepal as this sector is ultimately being hit once the borrowers face difficulties in paying back their loans, do you have any plans to protect this sector through some sort of financing instruments jointly with the private sector and the government in this crisis? 

The World Bank’s Finance for Growth Development Policy Credit will be supporting actions by the government that will significantly strengthen the financial sector capacity to manage the impact of the crisis and support the recovery stage.

This includes (i) improved financial institution supervision and better monitor the portfolio risks carried by financial institutions; (ii)  support to new risk based approaches to counter the additional threats of financial crimes and fraudulent activities that can arise out of this crisis; (iii) disaster risk financing options to transfer risk and crowd-in more private sector/insurance financial products to address crises including pandemics and epidemics; (iv) new measures to extend cost efficient access to credit through fintech innovations including digital payments systems, improved credit reporting and the use of alternative forms of moveable collateral.

Work also ongoing to crowd-in more international finance and other measures including additional risk sharing and liquidity measures that can be taken to support lending to MSMEs.

IFC, the private sector arm of the  World Bank Group is providing fast-track financial support to private companies to sustain economies and protect jobs during this period of significant global uncertainty.

• IFC’s Board on March 17 approved $8 billion in fast-track financing to help companies affected by the outbreak. IFC increased the amount by $2 billion from the originally announced $6 billion at the request of clients for additional support.
• The IFC response is part of the World Bank Group’s $14-billion fast-track financing package.
• This will help companies continue to operate, and workers continue to receive paychecks, during this challenging moment for economies around the world.

In Nepal, IFC is already working on a couple of transactions with commercial banks including one new bank client so that businesses can access working capitals; concerted efforts will be made to execute these transactions at the earliest. Similarly, IFC is closely working with the Central Bank and Ministry of Finance for necessary approvals to provide local currency funding to two microfinance development banks.

All efforts will be made to conclude these two transactions at the earliest given the rural reach of these institutions. In addition to these institutions, IFC is closely engaging with other portfolio bank clients for any funding they may need.

Is there a plan to provide grants to revive the troubled economic sectors in Nepal from the World Bank ? If yes, what will the tentative plans from the donor like World Bank? 

As agreed with the government, the World Bank will be supporting the government’s effort to revive the troubled economic sectors.  We will be restructuring most of the Bank-financed projects with a big focus on providing grants to the poor and vulnerable people and families, including those who are unemployed or have lost their livelihoods due to the impact of COVID-19. Projects which have emergency components (e.g. earthquake housing reconstruction) will be mobilized immediately upon government’s request to support response activities.  

In addition we have a project supporting the Ministry of Home Affairs’ Social Security Allowances program which provides cash transfers to some of the most vulnerable such as senior citizens, single women, and those with disability. The project can be mobilized to ensure that these vulnerable groups receive an emergency cash grant.  

We are also supporting the Ministry of Labor, Employment and Social Security in the implementation of the Prime Minister’s Employment Program. We had planned to support 100,000 people to get work over the project period. We may front load this, so many more can benefit from this program in their time of need.  The project also supports the unemployed to be mobilized in delivery of public services at the local level. This could include paying the unemployed to work as part of the local government’s  efforts to raise awareness, monitor COVID-19 activities and responses.

What will be your suggestions to the government to move ahead effectively in addressing health and economic problems of Nepal? How the private sector can really cope-up with this pandemic and sustain their businesses in the long run?

The government has already moved quickly with a number of immediate policy measures (through Ministry of Finance, Nepal Rastra Bank and others) to support the vulnerable, MSMEs, etc. and to stabilize the banking sector. They have also moved early to call together the World Bank, IMF, ADB, AIIB and UN to support the recovery agenda.

These are very important steps that show that the government is thinking early about addressing the short and long-term impacts of the pandemic on the economy. Moving forward it would be extremely critical to work closely with the private sector to define and implement a joint effort to kickstart the economy. This requires regular engagement and a practical way to share information and put in place quick policies to pilot the economy out of the storm.

Do you think that development aid to the LDC like Nepal would decrease in the coming years due to the weakening economies in the developed world? 

It is hard to tell at this point. Things are changing by the day, and we are going through a period of unprecedented flux. It is reasonable to assume that many developed countries will shift attention and resources to their own countries. However, there continues to be a lot of bilateral engagement in the countries, and Nepal is no exception.

The bilateral agencies in Nepal continue to be very engaged and committed to the country’s development. Also, the multilateral development institutions such as the World Bank Group, Asian Development Bank, AIIB, IMF and all regional development banks are fully engaged and will bring the full extent of their resources to fight not only the coronavirus epidemic but its human and economic impacts.

The World Bank alone committed a first tranche of $14 billion globally to address the immediate health needs of COVID-19. From this amount, the WB has made $29 million available in Nepal for equipment, medicines, and all needs to battle COVID-19. In addition, the World Bank Group is freeing up $160 billion over the next 15 months to support stimulus and recovery plans throughout the world, particularly in LDCs.