{
  "title": "IMF Staff Completes 2020 Article IV Mission to Nepal",
  "publication": "IMF News, January 17, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/01/17/pr2011-nepal-imf-staff-completes-2020-article-iv-mission",
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  "summary": "Nepal’s economy has been growing well above its long-term average in the last few years, supported by greater political stability, improved electricity supply, and reconstruction activity following the devastating earthquake in 2015.",
  "publishDate": "2020-01-17",
  "sections": [
    {
      "heading": "Economic growth and outlook",
      "content": "- Nepal’s economy has been growing well above its long-term average in the last few years, supported by greater political stability, improved electricity supply, and reconstruction activity following the devastating earthquake in 2015.\n- In FY19/20, signs of moderation are evident; the IMF team projects economic growth around 6 percent.\n- Factors contributing to the moderation:\n  - slower growth in India (a main trading partner),\n  - sluggish remittance inflows,\n  - weaker agricultural production.\n- Inflation is expected at 6 percent due to persistent high food inflation.\n- Recent macroeconomic developments:\n  - narrowing of the current account deficit,\n  - stabilization of gross official reserves,\n  - slower credit growth."
    },
    {
      "heading": "Fiscal policy and fiscal federalism",
      "content": "- Fiscal policy recommendations:\n  - Fiscal policy should be geared towards containing external pressures and protecting fiscal sustainability.\n  - A fiscal deficit of 4.5 percent of GDP, similar to the outcome in FY2018/19, would be prudent.\n- Public financial management and federal transition:\n  - The transition to fiscal federalism is described as a monumental challenge and needs to be carefully managed.\n  - To protect fiscal sustainability, the overall expenditure envelope of subnational governments needs to be aligned with available funding, with tight limits on any subnational borrowing.\n  - While important steps have been taken to improve public financial management, further efforts are needed to ensure that spending is of high quality and executed in a timely manner.\n- Tax administration:\n  - Recent upgrades to tax administration are commended."
    },
    {
      "heading": "Financial sector and macroprudential measures",
      "content": "- The Nepal Rastra Bank (NRB) actions:\n  - The NRB has appropriately taken a series of macroprudential measures to limit the buildup of systemic risk in the financial sector.\n  - Credit growth has approached levels that are supportive of economic growth while protecting financial stability.\n  - The NRB has taken actions to further strengthen bank supervision and regulation, including the introduction of a supervisory information system and implementation of selected elements of the Basel III capital framework.\n  - Recent regulatory requirement for banks to cross-check corporate borrowers’ financial information against the recently launched Integrated Tax System is expected to facilitate more prudent risk assessment by banks.\n  - The NRB’s policy of activating the countercyclical capital buffer that will require banks to increase their level of capital by July 2020 is appropriate.\n- Ongoing monitoring needs:\n  - The NRB should continue to closely monitor asset quality of banks and improve monitoring of concentration risk."
    },
    {
      "heading": "Monetary policy and market development",
      "content": "- Priority reform:\n  - Strengthen the implementation of monetary policy by putting in place a well-functioning interest rate framework that reduces volatility in short-term interest rates.\n- Expected benefits:\n  - Improved financial market development,\n  - Enhanced policy signaling and transmission."
    },
    {
      "heading": "Foreign direct investment and reform implementation",
      "content": "- Role of FDI:\n  - Foreign direct investment can contribute to development objectives by supporting economic activity and creating jobs.\n- Reform and implementation needs:\n  - Recent reform efforts have helped improve the investment climate.\n  - To boost foreign investment, new legislation and regulations need to be supported by an enabling implementation environment.\n  - Improving implementation capacity requires adequate staffing, better skills matching, and aligning incentives across and within Ministries to ensure high-quality projects move forward in a clear and timely manner."
    },
    {
      "heading": "Mission details and statement",
      "content": "- An IMF team led by Ms. Laura Jaramillo visited Kathmandu during January 5-17 to hold discussions for the 2020 Article IV consultation.\n- The team met Minister of Finance Dr. Yuba Raj Khatiwada, Nepal Rastra Bank Governor Dr. Chiranjibi Nepal, other high-level government officials, as well as representatives from the private sector and development partners.\n- Staff disclaimer:\n  - End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board.\n- Concluding remark from the mission: “The team expresses its sincere gratitude to the Government of Nepal and NRB for their warm hospitality and constructive discussions.”\n\nIMF Press Release No. 20/11 — IMF Communications Department, January 17, 2020\n\n---\n\n\n References\n\n- India and the IMF\n- Nepal and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/01/17/pr2011-nepal-imf-staff-completes-2020-article-iv-mission"
    }
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    "Published: January 17, 2020",
    "Nepal’s economy has been growing well above its long-term average in the last few years, supported by greater political stability, improved electricity supply, and reconstruction activity following the devastating earthquake in 2015.",
    "In FY19/20, signs of moderation are evident; the IMF team projects economic growth around 6 percent.",
    "Factors contributing to the moderation:",
    "Inflation is expected at 6 percent due to persistent high food inflation.",
    "Recent macroeconomic developments:",
    "Fiscal policy recommendations:",
    "Public financial management and federal transition:",
    "Tax administration:",
    "The Nepal Rastra Bank (NRB) actions:",
    "Ongoing monitoring needs:",
    "Priority reform:",
    "Expected benefits:",
    "Role of FDI:",
    "Reform and implementation needs:",
    "An IMF team led by Ms. Laura Jaramillo visited Kathmandu during January 5-17 to hold discussions for the 2020 Article IV consultation.",
    "The team met Minister of Finance Dr. Yuba Raj Khatiwada, Nepal Rastra Bank Governor Dr. Chiranjibi Nepal, other high-level government officials, as well as representatives from the private sector and development partners.",
    "Staff disclaimer:",
    "Concluding remark from the mission: “The team expresses its sincere gratitude to the Government of Nepal and NRB for their warm hospitality and constructive discussions.”",
    "[India and the IMF](http://www.imf.org/external/country/IND/index.htm)",
    "[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/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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