## Nepal: IMF Reaches Staff-level Agreement on 3rd Review Under the Extended Credit Facility _IMF News, October 5, 2023_ ## Source details **Canonical URL:** [Nepal: IMF Reaches Staff-level Agreement on 3rd Review Under the Extended Credit Facility](https://www.imf.org/en/news/articles/2023/10/05/pr23338-nepal-imf-reaches-sla-3rd-rev-ecf) ## Other formats - [Markdown version](/en/news/articles/2023/10/05/pr23338-nepal-imf-reaches-sla-3rd-rev-ecf/index.md) - [Structured JSON version](/en/news/articles/2023/10/05/pr23338-nepal-imf-reaches-sla-3rd-rev-ecf/index.json) - [Bundle manifest](/en/news/articles/2023/10/05/pr23338-nepal-imf-reaches-sla-3rd-rev-ecf/bundle-manifest.json) ## Bibliographic details - Published: October 5, 2023 --- ### Mission and procedural status - IMF team led by Mr. Tidiane Kinda visited Kathmandu during September 21 to October 5 to hold discussions on policies and reforms for the 3rd review of the authorities’ ECF-supported program. - The Nepali authorities and IMF staff reached staff-level agreement on the policies and reforms needed to complete the 3rd review under the ECF; the agreement is subject to approval by the IMF’s Executive Board. - Press Release No. 23/338 referenced; the statement reflects IMF staff preliminary findings and does not necessarily represent the views of the IMF’s Executive Board. - Completion would make available SDR 39.20 million (about US$51.3 million), bringing total disbursements under the ECF thus far to SDR 156.9 million (about US$205.4 million), from a total of SDR 282.42 million (about US$369.8 million). ### Macroeconomic assessment and outlook - External position: strengthened, supported by prudent fiscal and monetary policies, buoyant remittances, and post-pandemic rebound in tourism, despite spikes in regional food prices. - Growth: - Growth is projected to recover to 3.5 percent in FY2023/24, which is below potential, due to weak domestic demand. - Growth is estimated to have slowed in FY2022/23, reflecting last year’s import restrictions, regulatory uncertainty on land markets and construction licensing, lower credit flows, and weaker domestic demand in a context of large post-COVID emigration outflows. - Inflation: - Inflation remains high at 7.5 percent in August but is expected to recede. - Fiscal: - The ensuing shortfall in revenue pushed the FY2022/23 fiscal deficit upward, but to a level that remains consistent with a sustainable level of public debt, reflecting budget discipline. - Medium-term outlook: - Remains favorable as strategic investments in infrastructure, especially in the energy sector, are expected to support potential growth. ### Financial sector and credit conditions - Necessary balance sheet repairs after the credit boom and the sluggishness in the real estate market have been limiting credit growth in spite of monetary relaxation. - Reforms under the ECF aim to generate more stable, pro-growth credit while maintaining price and external stability. - Nepal Rastra Bank (NRB) achievements: - Full implementation of the Supervisory Information System (SIS) for Class A, B and C banks (excluding the onsite module). - Issuance of a new set of bank asset classification regulations aimed at strengthening monitoring capability and improving bank asset quality. ### Fiscal transparency and public finance reforms - Ministry of Finance achievements: - Formulation of a fiscal risk register. - Publication of the non-custom tax exemptions. - Implementation of a cash flow forecasting framework. - Additional future reforms and transparency measures highlighted: - Publication of a comprehensive tax expenditure report. - Publication of annual financial statements by public enterprises. - Audit of the financial statements of the four-priority public enterprises. - Reporting consolidated financial information of all extrabudgetary operational funds. ### Prioritized policy actions and reform agenda agreed with IMF staff - Priority actions agreed between the Nepali authorities and IMF staff: - Formulation of a Domestic Revenue Mobilization Strategy to improve tax collection. - Developing an action plan to improve the efficiency of public investment spending. - Launching a loan portfolio review of the banking system. - Continuing to strengthen the NRB’s SIS onsite module. - Amending the NRB Act. - Fiscal policy guidance: - Accelerating the planned increase in capital spending, as envisaged in the FY2023/24 budget, to help boost aggregate demand. - Monetary policy guidance: - Pursue a cautious and data-driven approach to monetary policy to maintain price and external stability. ### Anti–money laundering and countering financing of terrorism (AML/CFT) - Nepal is committed to strengthening its AML/CFT, supported by IMF technical assistance. - Authorities are diligently making progress to implement recommendations from the AML/CFT Mutual Evaluation, including enacting amendments of AML laws to bring them in line with international standards. ### Engagement and acknowledgements - The IMF team met with the Honorable Minister of Finance Dr. Prakash Sharan Mahat, Nepal Rastra Bank Governor Mr. Maha Prasad Adhikari, National Planning Commission Vice-Chairman Dr. Min Bahadur Shrestha, other senior government and NRB officials, development partners and representatives of the business and banking community. - The IMF team expressed gratitude to the Nepali authorities for their hospitality and for open and constructive discussions. *International Monetary Fund press release No. 23/338, October 5, 2023.* --- ## References - [Nepal and the IMF](http://www.imf.org/external/country/NPL/index.htm) - [Special Drawing Rights (SDRs) -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/special-drawing-rights-sdr) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [see Press Release No. 22/6](https://www.imf.org/en/News/Articles/2022/01/13/pr2206-nepal-imf-executive-board-approves-us-million-ecf-arrangement) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2023/10/05/pr23338-nepal-imf-reaches-sla-3rd-rev-ecf_