Kathmandu: The International Monetary Fund (IMF) executive board has completed the fifth review under the Extended Credit Facility (ECF) Arrangement for Nepal, granting the country access to Special Drawing Rights (SDR) of 31.4 million, approximately US$ 41.8 million. This milestone elevates the total disbursements under the ECF for budget support to SDR 219.7 million, about US$ 289.1 million.
According to National News Agency Nepal, the IMF acknowledged Nepal’s progress in implementing reforms under the ECF program, which has fostered early signs of economic recovery while maintaining macroeconomic and financial stability and safeguarding the vulnerable. The review was finalized on March 12, with a press statement released on March 14 detailing these developments.
Despite these advancements, Nepal’s economy is grappling with challenges such as subdued domestic demand. Economic activity is anticipated to rise moderately in FY2024/25, partly due to disruptions from the September 2024 floods. The IMF projects growth to reach 4.2 percent in FY2024/25, driven by increased capital spending on reconstruction, an accommodative monetary policy stance, and additional hydropower generation.
The IMF also noted that post-flood supply-side pressures are expected to be temporary, with average inflation projected to align with the Nepal Rastra Bank’s target of around 5 percent. Efforts to enhance revenue mobilization will support development spending and fiscal sustainability, though the outlook is influenced by risks such as potential under-execution of capital spending, financial sector vulnerabilities, and political fragility.
The IMF’s executive directors advised a gradual, growth-friendly fiscal consolidation to stabilize debt and emphasized the necessity of revenue mobilization to support heightened capital spending and protect vulnerable populations. They welcomed Nepal’s new Domestic Revenue Mobilization Strategy and stressed the importance of improving public investment management and advancing fiscal transparency.
The directors also recommended that monetary policy remain cautious and data-driven to ensure price and external stability. They highlighted the need for amendments to the Nepal Rastra Bank Act to fortify its governance, independence, and accountability.
Concerns regarding increasing financial sector vulnerabilities prompted the directors to advocate for a proactive approach. They urged alignment of financial sector regulations with international standards, execution of a planned Loan Portfolio Review, and development of a comprehensive strategy to address problematic savings and credit cooperatives. In light of Nepal’s recent Financial Action Task Force (FATF) grey listing, the directors emphasized the urgency of enhancing the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework through reforms.
The directors called for ambitious structural reforms to promote sustainable and inclusive growth, recommending efforts to lower the high cost of doing business, improve the investment climate, enhance governance, and strengthen anticorruption institutions. They highlighted Nepal’s vulnerability to natural disasters, underscoring the need to bolster resilience to climate shocks.