IMF - International Monetary Fund
IMF - International Monetary Fund
10/02/2025 | Press release | Distributed by Public on 10/02/2025 15:35
IMF Executive Board Completes the Sixth Review under the Extended Credit Facility Arrangement for Nepal
IMF Executive Board Completes the Sixth Review under the Extended Credit Facility Arrangement for Nepal
October 2, 2025
- The IMF Executive Board completed the sixth review under the Extended Credit Facility (ECF) Arrangement for Nepal, enabling a disbursement of SDR 31.4 million (about US$ 43.05 million).
- Nepal has made tangible progress in implementing reforms under the program, despite a challenging domestic socio-economic environment and an uncertain global context.
- The near-term impact of the social unrest is being assessed, but the economy has been on a path to recovery which is expected to continue in FY2025/26, underpinned by budget measures to boost capital expenditure execution while maintaining overall fiscal discipline, an accommodative monetary policy, and structural reforms to improve governance.
Washington, DC: On October 1, 2025, the Executive Board of the International Monetary Fund (IMF) completed the sixth review under the Extended Credit Facility (ECF) for Nepal, allowing the authorities to withdraw a disbursement of SDR 31.4 million (about US$ 43.05 million). This brings total disbursements under the ECF for budget support thus far to SDR 251.1 million (about US$ 341.2 million).
The ECF arrangement for Nepal was approved by the Executive Board on January 12, 2022 (see Press Release No. 22/6) for SDR 282.4 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 and protecting the vulnerable.
The political landscape in Nepal underwent a change with the youth-led protests-reflecting long-standing grievances related to corruption, governance, and inequality which were exacerbated by relatively subdued growth and lack of job opportunities-culminating in the formation of an interim government. Despite the socio-economic challenges, economic recovery is projected to continue in FY2025/26, underpinned by budget measures to improve project execution and boost private sector confidence, while monetary policy remains accommodative. Inflation is expected to remain within the Nepal Rastra Bank's target of about 5 percent. Recovery in imports is expected to pick up momentum, driven by pent-up demand and higher execution of capital expenditure-particularly on reconstruction and energy. Efforts to mobilize revenues will support development spending and ensure fiscal sustainability. The medium-term outlook remains favorable, anchored by strategic infrastructure investments-including in the hydropower sector-and ongoing structural reforms aimed at boosting productivity, enhancing competitiveness, and fostering private sector-led growth. However, downside risks have intensified. It is critical to address risks stemming from capital expenditure under-execution, financial sector vulnerabilities, natural disasters, social discontent and political uncertainty, alongside global headwinds related to trade tensions. Safeguarding targeted social protection will lead to a more inclusive and sustainable growth.
Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director, made the following statement:
In the midst of a challenging domestic socio-economic environment, Nepal's reform program supported by the Extended Credit Facility (ECF) continues to underpin a gradual economic recovery while preserving macroeconomic stability and protecting the vulnerable. Program performance remains broadly adequate despite political volatility and the uncertain global context. Given the difficult political context, continued program ownership and commitment to the country's economic reforms remain of paramount importance to support growth, reduce poverty and foster public trust.
Gradual fiscal consolidation that supports post-protest reconstruction needs and economic recovery while preserving fiscal sustainability remains critical. Capital spending execution should be boosted by strengthening Public Investment Management and implementing the recently revised National Project Bank guidelines. It is essential to protect the most vulnerable through a full execution of the child grant budget by expanding the coverage and the per-beneficiary allowance. Implementation of reforms recommended in the Domestic Revenue Mobilization Strategy and the Tax Expenditure Report will reinforce medium-term fiscal sustainability. Building on the recently published fiscal risk statement, continued reforms are essential to further strengthen fiscal transparency and contain fiscal risks.
Monetary policy should remain data driven and appropriately accommodative to support the recovery while preserving price stability. Any potential regulatory forbearance should be limited, targeted, and time-bound. Vigilance is also needed to address rising financial sector vulnerabilities, including timely completion of the Loan Portfolio Review and decisive actions to resolve problematic savings and credit cooperatives. The Nepal Rastra Bank should strengthen its governance, independence, and accountability through amendments to the NRB Act. The establishment of an asset management company should be approached with caution given potential risks. Achieving concrete results in implementation of the anti-money laundering framework is key to expediting Nepal's exit from the FATF grey list.
Addressing structural barriers to strengthen the anticorruption framework and institutions, improve good governance, and enhance the investment climate will bolster economic resilience. Strengthening social protection to ensure growth is sustainable and inclusive remains a priority.
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Nepal: Selected Economic Indicators 2021/22-2029/30 1/
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