Multinational lenders like the World Bank and the International Monetary Fund can help Nepal rebuild and recover from two devastating earthquakes by cancelling some of its almost $4 billion foreign debt, campaigners said today.
The impoverished Himalayan nation is reeling from last month’s 7.8 magnitude earthquake, which disrupted the lives of around eight million people – almost a third of the population. A second quake of 7.3 magnitude struck on May 12, worsening the situation and further hampering efforts to get aid to survivors in remote regions. Over 8,500 people have died.
Nepal estimates it needs at least $2 billion to rebuild homes, hospitals, government offices and historic buildings.
Campaigners say one way of supporting its recovery efforts would be to write off some of its $3.8 billion foreign debt.
“Before the earthquakes, Nepal was one of the least developed countries in the world and paid $215 million annually in debt payments,” said Eric LeCompte, executive director of the Jubilee USA Network, which campaigns for debt relief for poor countries.”
Debt relief for Nepal means short-term recovery and long-term infrastructure stability. Strengthening infrastructure is crucial when we recognise that thousands died because buildings were unable to withstand earthquakes.”
The South Asian nation ranks 145th out of 187 countries in the United Nations Human Development Index.
It owes about $1.5 billion to the World Bank, $1.44 billion to the Asian Development Bank and $54 million to the IMF. It also owes $133 million to Japan and $101 million to China.
It paid $217 million in external debt payments in 2013, or nearly $600,000 a day, said Lecompte, citing World Bank figures.
Nepal is one of 38 countries eligible to receive debt relief from the IMF when it suffers disasters, but the World Bank has yet to set up a mechanism, he added.
An IMF spokesman said the Fund was helping the government determine its financing needs but it was too early to say whether Nepal would qualify for debt relief under its Catastrophe Containment and Relief Trust.”
We don’t have enough information yet on the full scale of this disaster. The IMF will look at all available options to help Nepal,” the spokesman said in an emailed statement.
In 2010, the IMF cancelled Haiti’s $268 million debt after a massive earthquake, and in February this year it granted Guinea, Liberia and Sierra Leone debt relief of about $100 million following the Ebola outbreak.
A World Bank official said Nepal had not requested debt relief or rescheduling and was unlikely to require it as its “fiscal position and external debt are in good shape”, but the Bank would be willing to review repayments if requested.
The Bank has told the government “we would be open to carrying out a fresh Debt Sustainability Analysis and deploy all instruments at our disposal given the scale of the disaster,” said Rajib Upadhya, World Bank Senior External Affairs Officer in Nepal.
The ADB said it did not provide debt relief but provided grants to member countries facing debt distress.
Rebuilding will place a substantial burden on Nepal, but it is expected to “maintain a reasonable fiscal balance without increasing its debt sustainability risk,” the bank said in a statement. If that risk increases, the ADB will consider providing it with a grant, it said.