IMF Executive Board Completes the Third Review of the Nepal Extended Credit Facility
IMF News, November 30, 2023
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- IMF Executive Board Completes the Third Review of the Nepal Extended Credit Facility
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- Published: November 30, 2023
Review outcome and disbursements
- Executive Board completed the third review under the four‑year Extended Credit Facility (ECF) for Nepal on November 29.
- Withdrawal allowed: SDR 39.20 million (about US$ 52.25 million).
- Total disbursements under the ECF for budget support thus far: SDR 166.90 million (about US$ 222.5 million).
- ECF arrangement approved on January 12, 2022 in an amount equivalent to SDR 282.42 million (180 percent of quota or about US$ 376.5 million).
Program progress and macroeconomic outlook
- IMF assessment: Nepal has made good progress with program implementation; program helped mitigate pandemic and global shocks, protect vulnerable groups, and preserve macroeconomic and financial stability.
- Program role: Catalyzing additional financing from Nepal’s development partners.
- Growth developments:
- Nepal’s post‑pandemic rebound ended last year as growth slowed markedly.
- Inflation: 8.2 percent in September (remains high though declining).
- Growth projection: 3.5 percent in FY2023/24 (below potential), led by increased domestic demand, new hydroelectric capacity, and continued recovery in tourism.
- Risk assessment:
- Risks skewed to the downside.
- External sector risks dominate given high remittance income and dependence on imported goods.
- Domestic risks: further deterioration in bank balance sheets or lack of progress on AML/CFT deficiencies identified by the Asia Pacific Group of the FATF could create financial system stress.
Policy priorities and IMF recommendations (from Mr. Bo Li, Deputy Managing Director and Acting Chair)
- Fiscal policy:
- Boost execution of capital spending while maintaining fiscal discipline — described as “growth friendly consolidation.”
- Maintain momentum on governance reforms to cement gains in fiscal transparency.
- Further structural reforms to mobilize domestic revenue, strengthen public investment management, and address fiscal risks to bolster medium‑term fiscal sustainability.
- Monetary and financial policy:
- Maintain current cautious and data dependent monetary policy to preserve price and external stability, given weak monetary policy transmission and elevated (though declining) inflation.
- Financial policy should remain vigilant; focus on building regulatory frameworks to avoid boom‑bust cycles and establish a more stable, pro‑growth financial sector equilibrium.
- Continue reforms on lending practices and asset classification; prepare for loan portfolio review of the ten largest banks.
- Continue implementation of financial sector reform agenda to align the local framework more closely with international standards.
- Governance and safeguards:
- Urgently improve the AML/CFT framework and its effectiveness in line with international standards and peer evaluations to maintain smooth access to the global financial system.
- Prioritize reforms to implement the 2021 IMF Safeguards Assessment recommendations regarding the Nepal Rastra Bank (NRB) Act and NRB audit.
- Structural reforms to foster investment and inclusion:
- Improve the business climate, build human capital, and continue improving social safety nets, particularly the coverage of the child grant program.
Key economic indicators (selected figures from the staff table and narrative)
- Inflation and growth:
- Headline CPI (period average): 6.1 (2019/20), 3.6 (2020/21), 6.3 (2021/22), 7.8 (2022/23), 7.3 (2023/24), 6.2 (2024/25), 5.5 (2025/26), 5.4 (2026/27).
- Headline CPI (end of period): 4.2 (2019/20), 8.1 (2020/21), 7.4 (2021/22), 6.8 (2022/23).
- Real GDP (annual percent change): -2.4 (2019/20), 4.8 (2020/21), 5.6 (2021/22), 0.8 (2022/23), 3.5 (2023/24), 5.2 (2024/25).
- Fiscal indicators (central government, in percent of GDP):
- Total revenue and grants: 22.2 (2019/20), 23.3 (2020/21), 23.1 (2021/22), 19.3 (2022/23), 19.8 (2023/24), 20.8 (2024/25), 21.5 (2025/26), 22.1 (2026/27), 22.8 (2027/28).
- Tax revenue: 18.0 (2019/20), 20.0 (2020/21), 16.1 (2021/22), 16.5 (2022/23), 17.6 (2023/24), 18.4 (2024/25), 19.1 (2025/26), 19.7 (2026/27).
- Expenditure: 27.6 (2019/20), 27.2 (2020/21), 26.3 (2021/22), 25.1 (2022/23), 25.4 (2023/24), 25.5 (2024/25), 25.7 (2025/26), 25.8 (2026/27).
- Net lending/borrowing: -5.4 (2019/20), -4.0 (2020/21), -3.2 (2021/22), -5.8 (2022/23), -5.3 (2023/24), -4.6 (2024/25), -3.6 (2025/26), -3.1 (2026/27).
- Balance of payments and external sector:
- Current account (in millions of U.S. dollars): -339 (2019/20), -2,844 (2020/21), -5,174 (2021/22), -586 (2022/23), -721 (2023/24), -2,015 (2024/25).
- Current account (in percent of GDP): -1.0 (2019/20), -7.7 (2020/21), -12.7 (2021/22), -1.6 (2022/23), -3.4 (2023/24), -3.3 (2024/25).
- Trade balance (in millions of U.S. dollars): -9,186 (2019/20), -11,510 (2020/21), -13,759 (2021/22), -10,728 (2022/23), -11,813 (2023/24), -13,735 (2024/25).
- Workers' remittances (in millions of U.S. dollars): 7,533 (2019/20), 8,150 (2020/21), 8,326 (2021/22), 9,330 (2022/23), 9,967 (2023/24), 10,356 (2024/25), 10,811 (2025/26).
- Gross official reserves (in millions of U.S. dollars): 10,559 (2019/20), 10,884 (2020/21), 8,953 (2021/22), 10,916 (2022/23), 12,674 (2023/24), 13,225 (2024/25), 14,186 (2025/26).
- Debt and output:
- Public debt (in percent of GDP): 43.3 (2019/20), 43.1 (2020/21), 47.0 (2021/22), 48.4 (2022/23), 49.3 (2023/24), 50.0 (2024/25), 50.2 (2025/26).
- Nominal GDP (in billions of U.S. dollars): 33.4 (2019/20), 36.9 (2020/21), 40.8 (2021/22), 41.0 (2022/23), 45.9 (2023/24), 50.9 (2024/25), 56.1 (2025/26).
- Net International Reserves (in millions of U.S. dollars): 10,291 (2019/20), 10,620 (2020/21), 8,821 (2021/22), 10,473 (2022/23), 12,146 (2023/24).
- Additional notes from the staff table:
- Real effective exchange rate (average, y/y percent change): -2.9 (2019/20), 1.6 (2020/21).
- Exchange rate (NPR/US$; period average): 116.3 (2019/20), 117.9 (2020/21), 120.8 (2021/22), 130.8 (2022/23).
- Memorandum: Note that the NSO adopts a 3 year cycle in its national accounts; in May 2023 growth was revised up in FY2021/22 from 4.2 percent to 4.8 percent and from 5.3 percent to 5.6 percent in FY2021/22 in light of new data.
- Current baseline forecast is as of September 28, 2023.
IMF Press Release No. 23/413, November 30, 2023.