## IMF Staff Completes 2018 Article IV Mission to Nepal

_IMF News, December 13, 2018_

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**Canonical URL:** [IMF Staff Completes 2018 Article IV Mission to Nepal](https://www.imf.org/en/news/articles/2018/12/12/pr18473-nepal-imf-staff-completes-2018-article-iv-mission)

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## Bibliographic details
- Published: December 13, 2018

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### Mission facts and context
- Mission leader: Geert Almekinders.
- Visit dates: December 2-13.
- Meetings included: Minister of Finance Dr. Yuba Raj Khatiwada, Central Bank Governor Dr. Chiranjibi Nepal, other high-level government officials, private sector representatives, and donor community.
- Statement issued at conclusion of visit.
- Press Release No. 18/473. Date: December 13, 2018.

### Macroeconomic assessment and key statistics
- Real GDP growth:
  - Growth is expected to reach 6.5 percent in FY 2018/19.
- Fiscal position:
  - Fiscal deficit reached 6.5 percent of GDP in FY 2017/18.
- Credit and financial indicators:
  - Credit growth accelerated to 25 percent most recently in October.
  - The IMF team supports maintaining the 80 percent limit on the credit-to-core capital cum deposit (CCD) ratio.
- External sector:
  - Current account deficit reached 8.2 percent of GDP in FY 2017/18.
  - Some outflows of reserves have occurred.

### Staff findings
- Recent pickup in economic activity after a prolonged period of subdued growth, supported by:
  - Greater political stability.
  - A more reliable supply of electricity.
  - Expanding post-earthquake reconstruction activity, services, and manufacturing.
- The improved outlook provides an opening to address deep-seated structural weaknesses and boost long-term growth.
- The current expansion has generated challenges that need careful management:
  - Rising fiscal deficit.
  - Rapid credit growth raising financial stability concerns.
  - Expansion of domestic demand contributing to a widening current account deficit and reserve pressures.
- Progress noted on fiscal framework for Nepal’s new federal system, with potential to improve quality and delivery of government services.
- Need to ensure that the general government budget envelope does not expand unduly as responsibilities devolve; central government will ultimately need to shrink.

### Policy recommendations
- Macroeconomic policy stance:
  - A measured tightening of policies is warranted to safeguard macroeconomic and financial stability.
  - Specific recommendations: higher interest rates, tighter macroprudential policies, and a smaller fiscal deficit than currently budgeted.
  - Goal: reduce pressure on the current account by constraining import growth and align expansion with domestic productive capacity.
- Fiscal federalism and public financial management:
  - Ensure the general government budget envelope does not expand unduly with fiscal decentralization.
  - Build policy implementation capacity at sub-national level.
  - Put in place a sound public-financial management framework at the sub-national level.
  - Support for authorities’ efforts to reform the tax system and review options to consolidate central government expenditure by forming the Public Expenditure Review Commission.
- Financial sector and macroprudential measures:
  - Temper excessive credit growth through macro-prudential measures.
  - Maintain the 80 percent limit on the CCD ratio; resist pressures to change its calculation to expand room for credit growth.
  - Encourage banks to build additional capital and provisioning buffers against potential losses.
  - Accelerate ongoing reforms to strengthen financial-sector oversight and regulation.
- Structural reforms to boost medium-term growth and jobs:
  - Make the economy more competitive and generate a more conducive environment for investment.
  - Support government efforts to improve the business climate, including revising investment-related laws and regulations ahead of the Investment Summit to be held in March 2019.
  - Swiftly implement the structural reform agenda aimed at easing obstacles to firm entry and operations.
  - Priorities: increase foreign direct investment, strengthen governance and institutions, and enhance access to finance—particularly for the underserved population outside major cities.

### Concluding remarks
- Measured policy adjustments today could yield more stable and higher future growth.
- The team expressed sincere gratitude to the Nepal Rastra Bank and the Government of Nepal for their hospitality and exchanges of views.

*IMF Staff Completes 2018 Article IV Mission to Nepal — Press Release No. 18/473*

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## References

- [Nepal and the IMF](http://www.imf.org/external/country/NPL/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2018/12/12/pr18473-nepal-imf-staff-completes-2018-article-iv-mission_