Nepal: Strengthening Financial Crisis Contingency Plans

The Project’s objective was to strengthen the policy response of the Nepal authorities to instances of serious financial distress, thereby mitigating the negative impact of financial crisis situations on the real economy.

As a result of the project, the legal powers, policies, procedures for dealing with and resolving financial crises have been reviewed and gaps were identified,including an assessment of the adequacy of financial sector safety net arrangements and resources for dealing with a crisis and an assessment of internal procedures of the Crisis Management Fund (CMF) that was set up by the government. Also internal and external communication and coordination strategies have been reviewed and actions recommended for improvement.

Based on comments from the Nepal Rasta Bank (NRB), the final report was issued in October 2010 which was highly appreciated by the Governor and Finance Secretary.  The project was completed within six months of receiving the Government’s request.

NRB has begun implementing structural changes to make the crisis management framework effective.  A contingency framework to guide NRB during the times of financial crises was developed.The Senior Policy Group (SPG) has been formed and a technical committee, headed by the Deputy Governor, has been set up at NRB to act as the Secretariat for the SPG.  The Analysis Unit at NRB is conducting stress-tests. FIRST has recently received a follow-up request for TA to assist the authorities develop a bank resolution framework.