- The IMF Executive Board completed the seventh and final review under the Extended Credit Facility (ECF) Arrangement for Nepal, enabling a disbursement of SDR 31.32 million (about US$ 42.9 million). Nepal has made tangible progress in implementing reforms under the program which has helped preserve macroeconomic and financial stability and build buffers to mitigate the impact of global shocks and domestic uncertainty on economic activity.
- Growth momentum is expected to pick up, underpinned by reduced domestic uncertainty following the post-elections smooth transition of power and a supportive policy mix for FY2026/27. The outlook is subject to downside risks, given heightened global uncertainty and domestic vulnerabilities.
- Going forward, Nepal will benefit from sustaining the reform momentum and institutionalizing the progress made over the course of the program. The IMF will continue close engagement with Nepal through Post-Financing Assessment, Article IV consultations on the standard 12-month cycle, and CD delivery.
Washington, DC: On June 5, the Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation and the seventh and final review under the Extended Credit Facility (ECF) for Nepal, allowing the authorities to withdraw a disbursement of SDR 31.32 million (about US$ 42.9 million).[1] This brings total disbursements under the ECF for budget support to SDR 282.42 million (about US$ 384.1 million). The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]
The ECF arrangement for Nepal was approved by the Executive Board on January 12, 2022 (see Press Release No. 22/6) for SDR 282.42 million (180 percent of quota). Nepal has made tangible progress in implementing reforms under the program, which has supported an ongoing economic recovery while preserving macroeconomic stability, building buffers and protecting the vulnerable.
Economic activity is expected to grow to 3 percent in FY2025/26, reflecting protest-related disruptions, weaker agricultural production, and subdued private investment amid pre-election uncertainty, as well as spillovers from the war in the Middle East. However, a recent smooth transition of power to a single-majority government, an accommodative policy stance, and an expansionary fiscal policy for FY2026/27 will support a gradual recovery in the private sector, allowing economic growth momentum to strengthen. Inflation is projected to pick up from in line with rising global oil prices, but on average will remain close to the NRB’s 5-percent target. The outlook is subject to important downside risks, including uncertainty around policy continuity, under-execution of public capital spending, and risks from the global economic environment. The structural reforms implemented under the program have strengthened institutions and improved policymaking. Key advances include the modernization of monetary operations, improvements in financial sector oversight, the completion of a loan portfolio review, enhancements to the fiscal framework and transparency, and stronger public investment management. Governance and accountability have also been reinforced through upgrades to the anti-money laundering framework, legal reforms, enhanced external auditing of the NRB, and improved accountability of public enterprises.
At the conclusion of the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director, and Acting Chair, made the following statement:
“The completion of the seventh review marks the conclusion of Nepal’s reform program supported by the Extended Credit Facility, which has helped safeguard macroeconomic stability, rebuild buffers, and protect the vulnerable. Program performance has been broadly adequate despite successive domestic and global shocks. Following the program, continued commitment to preserve macroeconomic stability and sustain the reform momentum remains of paramount importance to increase resilience to shocks, support the recovery, and foster durable and inclusive growth.
“An expansionary fiscal stance is necessary to support economic recovery in the near term, followed by a growth‑friendly gradual fiscal consolidation that preserves fiscal sustainability. Any fiscal support to alleviate the impact of the ongoing energy price shock should be temporary and targeted and designed to avoid inflationary pressures. Capital expenditure execution should be boosted by strengthening Public Investment Management and enforcing the revised National Project Bank guidelines. Improving budget realism and upgrading the medium-term fiscal framework will enhance spending efficiency. Implementing reforms in the Domestic Revenue Mobilization Strategy and using the Tax Expenditure Report to help rationalize tax expenditures will reinforce fiscal sustainability and support priority spending. The social safety net should be strengthened through better-targeted and transparent measures, with priority given to cushioning vulnerable households.
“The accommodative monetary policy stance should be adjusted if second-round price and external sector pressures arise. Vigilance is needed to address rising financial sector vulnerabilities, including strengthening bank credit practices and risk-based supervision. Expanding the Loan Portfolio Review diagnostic to remaining banks and developing a resolution regime for problematic savings and credit cooperatives remain critical. Implementing the Financial Action Task Force (FATF) Action Plan to strengthen the AML/CFT framework is critical to exit from the grey list.
“Strengthening governance and institutional credibility will enhance the effectiveness of the broader structural reform agenda, aimed at improving the business environment, creating jobs, and enhancing public service delivery”.
Executive Board Assessment[3]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed the completion of the seventh and final review under the ECF and the broadly satisfactory program performance, which helped preserve macroeconomic stability and rebuild buffers despite successive domestic shocks and elevated global uncertainty. Nepal’s medium‑term economic outlook is broadly favorable but the spillovers from the war in the Middle East weigh on near‑term economic prospects. Against this backdrop, Directors urged continued commitment to prudent policies and reform implementation to reinforce confidence, safeguard macroeconomic stability, increase resilience to shocks, and support durable and inclusive growth. They recommended continued engagement with staff through the Post‑Financing Assessment and capacity development.
Directors concurred that an expansionary fiscal policy is appropriate to support domestic demand in the near term, followed by a gradual, growth‑friendly fiscal consolidation to preserve debt sustainability. They encouraged further mobilizing domestic revenues to support development and social spending. They emphasized that fiscal support to cushion external shocks should be temporary and targeted toward the vulnerable and designed to avoid inflationary pressures. Directors underscored that boosting capital expenditure execution by implementing the PIMA Action Plan is critical for medium‑term growth. Improving budget realism and upgrading the medium‑term fiscal framework will help enhance spending efficiency.
Directors recommended closely monitoring inflation and external sector developments and adjusting the monetary policy stance if second‑round price and external sector pressures arise. They welcomed the submission of the draft amendments to the Nepal Rastra Bank Act to Parliament and urged timely adoption. In the financial sector, given rising vulnerabilities and elevated non‑performing loans, Directors recommended improving bank credit practices and risk‑based supervision. They also urged implementing the post‑Loan Portfolio Review Roadmap and expanding the application of the diagnostic approach to remaining banks, as well as resolving problematic savings and credit cooperatives. Directors emphasized swift implementation of the FATF Action Plan to exit from the grey list.
Directors called for strengthening governance and institutional credibility to enhance the effectiveness of the broader structural reform agenda aimed at improving the business environment, creating jobs, and enhancing public service delivery. In this context, Directors welcomed the ongoing IMF Governance and Corruption Diagnostics. Directors also highlighted the importance of investment in skills, technology adoption, and natural disaster‑resilient infrastructure to promote sustained growth.
It is expected that the next Article IV consultation with Nepal will be held on the standard 12‑month cycle.
READ MORE: https://www.imf.org/en/news/articles/2026/06/08/pr26188-nepal-imf-exec-board-concludes-2026-article-iv-consult-completes-seventh-review-ecf
