Nepal: Third Review Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Nepal

IMF Staff Country Reports, December 6, 2023

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Canonical URL: Nepal: Third Review Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Nepal

Presents Nepal’s Third Review under the Extended Credit Facility (ECF) Arrangement.
Concludes that Nepal has made good progress with the implementation of the program, which has:
- helped mitigate the impact of the pandemic and global shocks on economic activity,
- protected vulnerable groups,
- preserved macroeconomic and financial stability.
Notes that Nepal’s post-pandemic rebound, fuelled by a credit boom, ended last year as growth slowed markedly.
Highlights trade-offs: low domestic demand helped resolve external pressures but deflated government revenue and led to a widening of the fiscal deficit despite expenditure control.

Growth:
- Post-pandemic rebound ended last year; growth slowed markedly.
Domestic demand:
- Low domestic demand eased external pressures.
- Low domestic demand deflated government revenue.
Financial stability:
- Program actions helped preserve macroeconomic and financial stability.

Fiscal:
- Government revenue fell due to low domestic demand.
- Fiscal deficit widened despite expenditure control.
External:
- External pressures were alleviated by subdued domestic demand.

Fiscal policy:
- Enhance capital expenditure while maintaining overall fiscal discipline.
Financial sector and governance:
- Advance reforms in banking regulation and governance.
Business environment and inclusion:
- Improve the business climate to foster investment.
- Build human capital.
- Continue improving social safety nets, in particular the coverage of the child grant program.
Structural agenda:
- Continued progress on the structural front is needed to foster investment and growth that is more inclusive.