{
  "title": "IMF Executive Board Concludes 2019 Article IV Consultation with Nepal",
  "publication": "IMF News, February 18, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/02/14/pr1945-nepal-imf-executive-board-concludes-2019-article-iv-consultation",
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  "summary": "Real GDP is estimated to have expanded by 6.3 percent in FY 2017/18 (mid-July 2017 to mid-July 2018).",
  "publishDate": "2019-02-18",
  "sections": [
    {
      "heading": "Economic performance and near-term outlook",
      "content": "- Real GDP is estimated to have expanded by 6.3 percent in FY 2017/18 (mid-July 2017 to mid-July 2018).\n- Growth is expected to reach 6.5 percent in FY2018/19, supported by ongoing reconstruction, investment in hydro-power projects, and strong tourism-related activity.\n- Headline inflation averaged 4.2 percent in FY 2017/18, held down by subdued food-price inflation; headline CPI (period average) projected at 4.9 percent for 2018/19.\n- Private sector credit posted 24 percent (y/y) growth in December 2018, following average growth rates above 20 percent since FY 2015/16."
    },
    {
      "heading": "Fiscal developments and concerns",
      "content": "- Government expenditure increased by 32.4 percent (year-on-year) in FY 2017/18, driven by transition to fiscal federalism and reconstruction spending; spending was concentrated in the last quarter of the fiscal year.\n- Revenue growth was 18.9 percent (y/y) in FY 2017/18.\n- Fiscal deficit increased to 6.5 percent of GDP in FY 2017/18, from 3.1 percent of GDP in FY 2016/17.\n- Executive Directors noted public debt remains low but urged more to ensure fiscal sustainability, make budgets more realistic and spending more efficient, and build implementation capacity.\n- Directors welcomed progress on a fiscal federalism framework and emphasized focus on building policy implementation capacity and instituting a sound public financial management framework at the subnational level."
    },
    {
      "heading": "External sector and reserves",
      "content": "- The current account moved to a deficit of 8.2 percent of GDP in FY 2017/18, following a modest deficit of 0.4 percent in FY 2016/17.\n- Imports grew by 27.4 percent (y/y) in FY 2017/18; exports expanded by 15.5 percent (y/y) but exports comprised 3.1 percent of GDP in FY 2017/18.\n- Workers' remittances grew by 10.2 percent (y/y) in FY 2017/18 and were equivalent to 25.1 percent of Nepal’s GDP.\n- Gross official foreign exchange reserves stood at US$ 8.3 billion as of December 2018, having declined by approximately US$1.2 billion from the record set in January 2018."
    },
    {
      "heading": "Financial sector vulnerabilities and monetary policy",
      "content": "- Expansionary fiscal and credit policies are contributing to rising non-food inflation, a widening current account deficit, falling foreign exchange reserves, and a buildup of financial sector vulnerabilities.\n- Directors recommended policy tightening in the near term, including through fiscal consolidation, to avoid an abrupt slowdown and promote more durable expansion.\n- Directors considered that monetary policy should be tightened, including to support the exchange rate peg to the Indian rupee.\n- To temper excessive credit growth, Directors encouraged strengthening macro‑prudential policies and accelerating financial sector reforms.\n- Directors recommended banks be encouraged to build additional capital and provisioning buffers, enhance financial sector oversight and regulations, continue implementing the 2014 FSAP recommendations, and strengthen the AML/CFT regime in line with international best practices.\n- Directors noted the recently initiated review of the central bank act provides an important opportunity to strengthen the central bank’s operational autonomy and accountability."
    },
    {
      "heading": "Structural reforms and investment climate",
      "content": "- Directors welcomed efforts to strengthen competition, generate a more conducive environment for investment, and reduce corruption.\n- They called for swift implementation of the structural reform agenda, including revising public procurement laws and easing obstacles to firm entry and operations.\n- Emphasis on increasing foreign direct investment, strengthening governance and institutions, and enhancing access to finance, particularly for underserved populations outside major cities."
    },
    {
      "heading": "Key statistics (selected from Table 1)",
      "content": "- Real GDP: 0.6 (2015/16); 7.9 (2016/17); 6.3 (2017/18); 6.5 (2018/19 projection).\n- Headline CPI (period average): 9.9 (2015/16); 4.5 (2016/17); 4.2 (2017/18); 4.9 (2018/19 projection).\n- Total revenue and grants (percent of GDP): 23.3 (2015/16); 24.4 (2016/17); 25.5 (2017/18); 29.2 (2018/19 projection); 29.4 (2019/20 projection).\n- Expenditure (percent of GDP): 27.5 (2015/16); 32.0 (2016/17); 34.2 (2017/18); 34.4 (2018/19 projection).\n- Net lending/borrowing (percent of GDP): 1.4 (2015/16); -3.1 (2016/17); -6.5 (2017/18); -5.0 (2018/19 projection).\n- Private sector credit (annual percent change): 23.2 (2015/16); 18.0 (2016/17); 22.3 (2017/18); 19.8 (2018/19 projection).\n- Gross investment (percent of nominal GDP): 33.9 (2015/16); 45.7 (2016/17); 51.8 (2017/18); 55.0 (2018/19 projection); 57.0 (2019/20 projection).\n- Current account (in millions of U.S. dollars): 1,339 (2015/16); -93 (2016/17); -2,350 (2017/18); -2,778 (2018/19 projection); -4,129 (2019/20 projection).\n- Current account (in percent of GDP): -0.4 (2015/16); -8.2 (2017/18).\n- Trade balance (in millions of U.S. dollars): -6,389 (2015/16); -8,446 (2016/17); -10,849 (2017/18); -12,899 (2018/19 projection); -15,061 (2019/20 projection).\n- Workers' remittances (in millions of U.S. dollars): 6,253 (2015/16); 6,556 (2016/17); 7,224 (2017/18); 8,495 (2018/19 projection); 9,084 (2019/20 projection).\n- Gross official reserves (in millions of U.S. dollars): 8,574 (2015/16); 9,264 (2016/17); 9,304 (2017/18); 8,558 (2018/19 projection); 6,788 (2019/20 projection).\n- Public debt (in percent of GDP, memorandum): 27.9 (2015/16); 30.4 (2016/17); 33.1 (2017/18).\n- GDP at market prices (in billions of U.S. dollars): 21.2 (2015/16); 24.9 (2016/17); 28.9 (2017/18); 33.0 (2018/19 projection).\n- Exchange rate (NPR/US$; period average): 106.4 (2015/16); 106.2 (2016/17); 104.4 (2017/18).\n\nIMF Communications Department; Press Release No. 19/45; February 17, 2019.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Nepal and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/02/14/pr1945-nepal-imf-executive-board-concludes-2019-article-iv-consultation"
    }
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    "Published: February 18, 2019",
    "Real GDP is estimated to have expanded by 6.3 percent in FY 2017/18 (mid-July 2017 to mid-July 2018).",
    "Growth is expected to reach 6.5 percent in FY2018/19, supported by ongoing reconstruction, investment in hydro-power projects, and strong tourism-related activity.",
    "Headline inflation averaged 4.2 percent in FY 2017/18, held down by subdued food-price inflation; headline CPI (period average) projected at 4.9 percent for 2018/19.",
    "Private sector credit posted 24 percent (y/y) growth in December 2018, following average growth rates above 20 percent since FY 2015/16.",
    "Government expenditure increased by 32.4 percent (year-on-year) in FY 2017/18, driven by transition to fiscal federalism and reconstruction spending; spending was concentrated in the last quarter of the fiscal year.",
    "Revenue growth was 18.9 percent (y/y) in FY 2017/18.",
    "Fiscal deficit increased to 6.5 percent of GDP in FY 2017/18, from 3.1 percent of GDP in FY 2016/17.",
    "Executive Directors noted public debt remains low but urged more to ensure fiscal sustainability, make budgets more realistic and spending more efficient, and build implementation capacity.",
    "Directors welcomed progress on a fiscal federalism framework and emphasized focus on building policy implementation capacity and instituting a sound public financial management framework at the subnational level.",
    "The current account moved to a deficit of 8.2 percent of GDP in FY 2017/18, following a modest deficit of 0.4 percent in FY 2016/17.",
    "Imports grew by 27.4 percent (y/y) in FY 2017/18; exports expanded by 15.5 percent (y/y) but exports comprised 3.1 percent of GDP in FY 2017/18.",
    "Workers' remittances grew by 10.2 percent (y/y) in FY 2017/18 and were equivalent to 25.1 percent of Nepal’s GDP.",
    "Gross official foreign exchange reserves stood at US$ 8.3 billion as of December 2018, having declined by approximately US$1.2 billion from the record set in January 2018.",
    "Expansionary fiscal and credit policies are contributing to rising non-food inflation, a widening current account deficit, falling foreign exchange reserves, and a buildup of financial sector vulnerabilities.",
    "Directors recommended policy tightening in the near term, including through fiscal consolidation, to avoid an abrupt slowdown and promote more durable expansion.",
    "Directors considered that monetary policy should be tightened, including to support the exchange rate peg to the Indian rupee.",
    "To temper excessive credit growth, Directors encouraged strengthening macro‑prudential policies and accelerating financial sector reforms.",
    "Directors recommended banks be encouraged to build additional capital and provisioning buffers, enhance financial sector oversight and regulations, continue implementing the 2014 FSAP recommendations, and strengthen the AML/CFT regime in line with international best practices.",
    "Directors noted the recently initiated review of the central bank act provides an important opportunity to strengthen the central bank’s operational autonomy and accountability.",
    "Directors welcomed efforts to strengthen competition, generate a more conducive environment for investment, and reduce corruption.",
    "They called for swift implementation of the structural reform agenda, including revising public procurement laws and easing obstacles to firm entry and operations.",
    "Emphasis on increasing foreign direct investment, strengthening governance and institutions, and enhancing access to finance, particularly for underserved populations outside major cities.",
    "Real GDP: 0.6 (2015/16); 7.9 (2016/17); 6.3 (2017/18); 6.5 (2018/19 projection).",
    "Headline CPI (period average): 9.9 (2015/16); 4.5 (2016/17); 4.2 (2017/18); 4.9 (2018/19 projection).",
    "Total revenue and grants (percent of GDP): 23.3 (2015/16); 24.4 (2016/17); 25.5 (2017/18); 29.2 (2018/19 projection); 29.4 (2019/20 projection).",
    "Expenditure (percent of GDP): 27.5 (2015/16); 32.0 (2016/17); 34.2 (2017/18); 34.4 (2018/19 projection).",
    "Net lending/borrowing (percent of GDP): 1.4 (2015/16); -3.1 (2016/17); -6.5 (2017/18); -5.0 (2018/19 projection).",
    "Private sector credit (annual percent change): 23.2 (2015/16); 18.0 (2016/17); 22.3 (2017/18); 19.8 (2018/19 projection).",
    "Gross investment (percent of nominal GDP): 33.9 (2015/16); 45.7 (2016/17); 51.8 (2017/18); 55.0 (2018/19 projection); 57.0 (2019/20 projection).",
    "Current account (in millions of U.S. dollars): 1,339 (2015/16); -93 (2016/17); -2,350 (2017/18); -2,778 (2018/19 projection); -4,129 (2019/20 projection).",
    "Current account (in percent of GDP): -0.4 (2015/16); -8.2 (2017/18).",
    "Trade balance (in millions of U.S. dollars): -6,389 (2015/16); -8,446 (2016/17); -10,849 (2017/18); -12,899 (2018/19 projection); -15,061 (2019/20 projection).",
    "Workers' remittances (in millions of U.S. dollars): 6,253 (2015/16); 6,556 (2016/17); 7,224 (2017/18); 8,495 (2018/19 projection); 9,084 (2019/20 projection).",
    "Gross official reserves (in millions of U.S. dollars): 8,574 (2015/16); 9,264 (2016/17); 9,304 (2017/18); 8,558 (2018/19 projection); 6,788 (2019/20 projection).",
    "Public debt (in percent of GDP, memorandum): 27.9 (2015/16); 30.4 (2016/17); 33.1 (2017/18).",
    "GDP at market prices (in billions of U.S. dollars): 21.2 (2015/16); 24.9 (2016/17); 28.9 (2017/18); 33.0 (2018/19 projection).",
    "Exchange rate (NPR/US$; period average): 106.4 (2015/16); 106.2 (2016/17); 104.4 (2017/18).",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[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/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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