Although WB was supposed to give $50 million under the second phase of the development policy credit (DPC), the lender is now eager to give $100 million. “The negotiations will start next week,” said a WB official.

DPC is a window which the government can use for prioritised projects as per its wish.

Although Nepal was supposed to introduce Bank and Financial Institutions Act (BAFIA), one of the 10 conditions to be met to get the fund under the second phase of DPC, the WB has agreed to postpone this condition for the third phase. On such a credit, WB charges 0.5 percent fee for non-utilisation of the funds but the credit remains interest-free.

With the two sides negotiating on $100 million for last few years, Nepal has already received $30 million in the first phase. The credit under the first phase was used to accelerate Nepal’s financial sector reform programme, reduce the banking sector’s vulnerability and increase its transparency.

Finance Secretary Suman Sharma said initial talks have been held on using half of the proposed $100 million of the second phase in earthquake-affected areas.

DPC comes as the financial sector stability credit. The first phase of credit was taken to support the Medium Term Financial Sector Reforms Programme, under which tasks such as preparation of a long-term financial sector reform strategy, increasing people’s access to financial services and recapitalisation of Nepal Rastra Bank and Rastriya Banijya Bank, are being carried out, according to the Finance Ministry.

Besides adding resources under the DPC, the global development lender also plans to restructure existing portfolio to generate resources for reconstruction purposes, as all the aid portfolios have not been used.

Currently, the overall WB portfolio in Nepal stands at around $1.3 billion. According to the WB official, WB’s initial tentative calculation shows 10-20 percent of the existing portfolio can be drawn for the reconstruction and rehabilitation purposes. “The exact figure might come out within the next week,” said the official.

The bank restructures its portfolio in a way that the resources allocated in one area will be reallocated to another area in the same sector.

According to WB, the additional support for Nepal will be determined based on the report of the Post Disaster Needs Assessment (PDNA). The government and the donors have agreed to make assessment of the damage and ascertain the required resources for reconstruction and rehabilitation.  

According to the WB official, Nepal can also get resources from its Crisis Response Window (CRW) and the size could be a maximum of $300 million.

The primary objective of the CRW is to provide IDA countries with additional resources that will help the countries respond to severe economic crises and major natural disasters and return to their long-term development paths.

In case of natural disasters, the CRW targets events that are exceptionally severe. The additional CRW financing would complement the UN efforts to provide emergency relief by supporting safety nets for affected populations and restoring basic physical assets that were destroyed by the disaster.