‘Keep pegged exchange rate to check inflation’

The International Monetary Fund (IMF) has stressed the need to continue the pegged exchange rate arrangement with the Indian rupee to keep domestic inflation within manageable limits.

Talking to media persons after ending pre-budget consultations with the government, head of the IMF delegation Brian J Aitken said that continuation of the pegged exchange rate system had not only helped to check inflation but also discouraged capital flight to India.

In addition, inflation in the future will depend largely on the right budgetary policies, he added. He further said that the level of inflation for the current fiscal year could hover around 8 percent mainly due to the rising international prices of food and fuel.

“Maintaining the exchange rate peg, which has been crucial in keeping inflation low and stable, will require a fiscal policy that recognizes the limited resources available,” said a press release issued at the program.

Aitken also said the upcoming budget should keep the budget deficit within a comfortable range by recognizing the border of limited resources. “Responsible fiscal management during the years of conflict has given Nepal a solid platform for economic growth, and protecting the assets will require a budget that recognizes the economy's limited resources,” he said.

He also said that despite the difficult political scenario, the country could achieve a 4.75 percent GDP growth at producers' prices during the current fiscal year and predicted that outgrowth could rise further to 2.5 percent in the coming year.

He further said that heavy domestic borrowing from the market could limit the size of lending to the private sector, which could adversely affect their development, ultimately shrinking growth prospects.

Aitken also reiterated concern over huge and scarce state funds being used to make up mounting losses in the oil trade, and warned that such arrangements could push domestic borrowing to unsustainable levels.

“The ballooning loss in the oil trade is shrinking the government's expenditure capacity to invest in crucial areas like education, and there is an urgent need to find a mechanism to address the problem,” he said.
Source: eKantipur