The International Monetary Fund's two-week review of the Poverty Reduction Growth Facility (PRGF) has concluded that the performance of the progam has been good.

In a press statement this week, the IMF representative office in Nepal said there had been "good progress against the background of a difficult political and security situation". The three-year $70 million fund to support the government's 10th Plan and poverty-reduction strategy facility was approved in November last year. The money is to be distributed in seven tranches till 2006.

The IMF mission was headed by Hisanobu Shishido and completed its review this week. It recommended that the second tranche of $10 million be transferred by May. The review mission found that Nepal met all its macroeconomic targets this year.

Agriculture and manufacturing have done well despite the insurgency, and there has been a rebound in tourist arrivals. GDP growth is expected at 3.5 percent. "Although the trade deficit has widened, robust remittances have kept international reserves at comfortable levels," the review concluded.

The IMF team also said revenue and regular spending have been in line with the budget targets, but development spending had sagged because of the conflict. The IMF seems satisfied with the government's promise that it will raise development spending this year.

The IMF also found progress in structural reforms "encouraging" with improved tax and customs administration and the resizing of Nepal Rastra bank. The banking sector reform was said to be on track and privatisation was going apace. But the review panel said more needed to be done to enhance debt recovery and address losses at the Nepal Oil Corporation.