Amid speculation that Nepal could face an economic collapse similar to that of Sri Lanka, the International Monetary Fund said on Thursday that Nepal was in a strong position to manage the economy and financial risks.

Teresa Daban Sanchez, Resident Representative of the International Monetary Fund in Nepal, said, “Nepal is still in a strong position in terms of managing economic risks.

Sanchez was speaking at a program titled “Workshop on Business and Investment Facilitation: Nepal,” hosted by the U.S. Embassy in Kathmandu on Thursday.

Sanchez said Nepal’s economic progress was on track until January, but the Russian-Ukrainian war triggered high commodity prices and led to high inflation in import-dependent Nepal.

Nepal’s debt-to-GDP ratio is a comfortable 40%, Sanchez said.

“The foreign exchange reserve is decreasing but remains sufficient. The government’s fiscal policy is not expansionary as expected. A tight monetary policy has been put in place and Nepal is enjoying strong support from development partners. This is why Nepal is in a strong position,” she said.

Despite concerns over the state of Nepal’s economy amid dwindling foreign exchange reserves over the past fiscal year, international agencies like the IMF and World Bank have yet to show a red flag on l economy of Nepal.

“Tightening monetary policy will help maintain international reserves without the need to control import restrictions that could exacerbate inflation and hamper growth,” Sanchez said.

“The measures taken by the government and the central bank indicate a silver lining in recent months with an improvement in FDI, export of new products, arrival of tourists and flow of remittances,” Maha said. Prasad Adhikari, governor of the Nepal Rastra Bank.

Nepal’s economy is facing challenges, especially on the external side and inflation, he said.

The country’s annual import bill reached Rs 1.92 trillion in the last fiscal year, up by 24.72%.

Inflation in Nepal hit a 70-month high in June and there are signs that it will cross the double digit mark by the end of the fiscal year ending in mid-July.

According to the Nepal Rastra Bank’s macroeconomic report, year-on-year inflation reached 8.56 percent in the first 11 months of the last fiscal year ended mid-June. It was 4.19% over the same period last year.

The program speaker highlighted the improvement of foreign direct investment policies.

Nepal Rastra Bank has liberalized its foreign investment policies, Adhikari said.

Investment protection as well as the benefits of repatriation investments have been ensured, he said. There is a significant improvement in the entry and exit process, government clearances and institutional arrangement and facilitation, he said.

“Together with USAID, Millennium Challenge Corporation (MCC), US Development Finance Corporation and others, US Government financial support to Nepal will reach $1 billion over the next 5 years,” said Manny P Micaller Jr. Chargé d’Affaires at the United States Embassy in Kathmandu, Nepal.

“We want to see more American businesses, investors, products and services available in Nepal. Attracting quality foreign investment, products and services requires a favorable and stable business and investment climate,” he said.

The MCC project will also present business opportunities for foreign companies in Nepal and hopefully enable more partnerships between Nepalese and international forums, he said.

Nepal received a foreign direct investment pledge for 14 projects worth 550 million US rupees, in the last fiscal year 2021-22, creating 729 jobs with most of the investment committee for small industry, according to the Ministry of Industry. These investment pledges for the United States amounted to Rs 1.67 billion for 7 projects in the previous fiscal year 2020-21.

According to the Customs Department, imports from the United States increased by 156.41% in the last fiscal year 2021-22 compared to the previous fiscal year 2020-21, as Nepal imported goods worth 50 billion rupees in the last financial year.

Nepal’s trade deficit with the United States stood at 32 billion rupees in the last fiscal year 2021-22.