IMF, Nepal Seal Staff-Level Deal on Credit Review
Washington, DC: An International Monetary Fund (IMF) team led by Ms. Sarwat Jahan visited Kathmandu during May 26 to June 10, 2025. After constructive discussions, Ms. Jahan issued the following statement at the end of the mission: “The Nepali authorities and IMF staff reached staff-level agreement on the policies and reforms needed to complete the sixth review under the ECF (see Press Release No. 22/6 ) [1] . The agreement is subject to approval by the IMF’s Executive Board. Upon completion of the Executive Board Review Nepal would have access to SDR 31.4 million (about US$42.7 million), bringing the total IMF financial support disbursed under the ECF to SDR 251.1 million (about US$331.8 million), from a total of SDR 282.4 million.
“Nepal continues to make progress with the implementation of the ECF-supported program. Program performance has been satisfactory, with all quantitative performance metrics for mid‑January 2025 met except for the indicative target on child welfare grants. The implementation of structural benchmarks has gained momentum while reforms in some areas are still ongoing. Key reforms that have been completed or are on-track to be completed soon as part of the sixth review include completion of a tax expenditure report, publication of revised National Project Bank guidelines, and finalization of a post-Loan Portfolio Review (LPR) roadmap. Significant progress was made on bringing key recommendations from the IMF’s 2021 Safeguard Assessment and 2023 Financial Sector Stability Report into draft Nepal Rastra Bank (NRB) Act amendments in preparation for submission to Parliament. The NRB remains committed to completing the LPR and is finalizing the selection of the independent international consultant to assist with the LPR. The completion of the sixth review by the IMF’s Executive Board is contingent on NRB making further progress with the loan portfolio review.
“Domestically, economic activity has continued to gradually recover, underpinned by a rebound in construction and manufacturing, continued expansion of hydropower capacity, and a good harvest that helped offset the impact of the September 2024 floods. Growth in FY2024/25 is estimated to exceed 4 percent, although still below potential. Inflation, which spiked temporarily following the floods, decelerated to 3.4 percent y/y in April 2025. The external position continued to strengthen, with robust growth in exports, remittances, and tourism receipts outpacing the recovery in imports.
“Financial sector vulnerabilities have not yet eased, with non‑performing loans (NPLs) increasing to 5.2 percent in April 2025, impacting bank capital. The financial health of the savings and credit cooperatives (SACCOs) remains challenging.
“Looking ahead, growth is projected to strengthen in FY2025/26, while inflation is expected to remain contained within the NRB’s tolerance level. However, the outlook is subject to important downside risks, including under-execution of capital projects, an increase in financial sector vulnerabilities, elevated global trade tensions and uncertainty, and potential disruptions to domestic policy continuity and reform implementation.
“Against this background, policies and reforms envisaged under the ECF-supported program remain well-placed to help preserve macroeconomic stability and strengthen Nepal’s policymaking framework. The FY2025/26 budget is broadly consistent with the program objective to maintain fiscal and debt sustainability, while initiating reforms to increase capital spending, providing further incentives to encourage private sector investment, and expanding the public school midday meal program.
“Monetary policy continues to follow a cautious data-driven approach, with maintaining focus on price and external stability a key to supporting growth. Amendments to the NRB Act would strengthen the central bank’s independence and governance and make the bank resolution regime more robust. Rising financial sector vulnerabilities warrant increased vigilance. In this context, it is essential to launch the LPR in a timely manner and prioritize measures to deal with problematic SACCOs. Creation of an Asset Management Company should be approached with extra caution given the risks involved and should be made conditional on improvements to the debt recovery framework, including the insolvency law, and a thorough review of the business case for such an entity. The authorities have continued to make tangible improvements to the anti-money laundering/countering the financing of terrorism (AML/CFT) legal framework, and are now shifting their focus to effective implementation of Nepal’s AML/CFT Action Plan.
“The IMF team held meetings with the Honorable Deputy Prime Minister and Finance Minister Mr. Bishnu Prasad Paudel, the National Planning Commission Vice-Chairman Honorable Dr. Shiva Raj Adhikari, the Nepal Rastra Bank Governor Dr. Biswo Nath Poudel, and other senior government and central bank officials. The IMF team also met with representatives from the private sector, think tank and development partners.”
“The IMF team is grateful to the Nepali authorities for their hospitality and for open and constructive discussions.”
[1] The Extended Credit Facility (ECF) provides financial assistance to countries with protracted balance of payments problems. It supports countries’ economic programs aimed at moving toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. The ECF is expected to help catalyze additional foreign aid.
https://www.imf.org/en/News/Articles/2025/06/10/pr-25191-nepal-imf-reaches-agreement-on-6th-review-under-the-ecf