## IMF Executive Board Completes the Third Review of the Nepal Extended Credit Facility

_IMF News, November 30, 2023_

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## Bibliographic details
- Published: November 30, 2023

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### Review outcome and disbursements
- Executive Board completed the third review under the four‑year Extended Credit Facility (ECF) for Nepal on November 29.
- Withdrawal allowed: SDR 39.20 million (about US$ 52.25 million).
- Total disbursements under the ECF for budget support thus far: SDR 166.90 million (about US$ 222.5 million).
- ECF arrangement approved on January 12, 2022 in an amount equivalent to SDR 282.42 million (180 percent of quota or about US$ 376.5 million).

### Program progress and macroeconomic outlook
- IMF assessment: Nepal has made good progress with program implementation; program helped mitigate pandemic and global shocks, protect vulnerable groups, and preserve macroeconomic and financial stability.
- Program role: Catalyzing additional financing from Nepal’s development partners.
- Growth developments:
  - Nepal’s post‑pandemic rebound ended last year as growth slowed markedly.
  - Inflation: 8.2 percent in September (remains high though declining).
  - Growth projection: 3.5 percent in FY2023/24 (below potential), led by increased domestic demand, new hydroelectric capacity, and continued recovery in tourism.
- Risk assessment:
  - Risks skewed to the downside.
  - External sector risks dominate given high remittance income and dependence on imported goods.
  - Domestic risks: further deterioration in bank balance sheets or lack of progress on AML/CFT deficiencies identified by the Asia Pacific Group of the FATF could create financial system stress.

### Policy priorities and IMF recommendations (from Mr. Bo Li, Deputy Managing Director and Acting Chair)
- Fiscal policy:
  - Boost execution of capital spending while maintaining fiscal discipline — described as “growth friendly consolidation.”
  - Maintain momentum on governance reforms to cement gains in fiscal transparency.
  - Further structural reforms to mobilize domestic revenue, strengthen public investment management, and address fiscal risks to bolster medium‑term fiscal sustainability.
- Monetary and financial policy:
  - Maintain current cautious and data dependent monetary policy to preserve price and external stability, given weak monetary policy transmission and elevated (though declining) inflation.
  - Financial policy should remain vigilant; focus on building regulatory frameworks to avoid boom‑bust cycles and establish a more stable, pro‑growth financial sector equilibrium.
  - Continue reforms on lending practices and asset classification; prepare for loan portfolio review of the ten largest banks.
  - Continue implementation of financial sector reform agenda to align the local framework more closely with international standards.
- Governance and safeguards:
  - Urgently improve the AML/CFT framework and its effectiveness in line with international standards and peer evaluations to maintain smooth access to the global financial system.
  - Prioritize reforms to implement the 2021 IMF Safeguards Assessment recommendations regarding the Nepal Rastra Bank (NRB) Act and NRB audit.
- Structural reforms to foster investment and inclusion:
  - Improve the business climate, build human capital, and continue improving social safety nets, particularly the coverage of the child grant program.

### Key economic indicators (selected figures from the staff table and narrative)
- Inflation and growth:
  - Headline CPI (period average): 6.1 (2019/20), 3.6 (2020/21), 6.3 (2021/22), 7.8 (2022/23), 7.3 (2023/24), 6.2 (2024/25), 5.5 (2025/26), 5.4 (2026/27).
  - Headline CPI (end of period): 4.2 (2019/20), 8.1 (2020/21), 7.4 (2021/22), 6.8 (2022/23).
  - Real GDP (annual percent change): -2.4 (2019/20), 4.8 (2020/21), 5.6 (2021/22), 0.8 (2022/23), 3.5 (2023/24), 5.2 (2024/25).
- Fiscal indicators (central government, in percent of GDP):
  - Total revenue and grants: 22.2 (2019/20), 23.3 (2020/21), 23.1 (2021/22), 19.3 (2022/23), 19.8 (2023/24), 20.8 (2024/25), 21.5 (2025/26), 22.1 (2026/27), 22.8 (2027/28).
  - Tax revenue: 18.0 (2019/20), 20.0 (2020/21), 16.1 (2021/22), 16.5 (2022/23), 17.6 (2023/24), 18.4 (2024/25), 19.1 (2025/26), 19.7 (2026/27).
  - Expenditure: 27.6 (2019/20), 27.2 (2020/21), 26.3 (2021/22), 25.1 (2022/23), 25.4 (2023/24), 25.5 (2024/25), 25.7 (2025/26), 25.8 (2026/27).
  - Net lending/borrowing: -5.4 (2019/20), -4.0 (2020/21), -3.2 (2021/22), -5.8 (2022/23), -5.3 (2023/24), -4.6 (2024/25), -3.6 (2025/26), -3.1 (2026/27).
- Balance of payments and external sector:
  - Current account (in millions of U.S. dollars): -339 (2019/20), -2,844 (2020/21), -5,174 (2021/22), -586 (2022/23), -721 (2023/24), -2,015 (2024/25).
  - Current account (in percent of GDP): -1.0 (2019/20), -7.7 (2020/21), -12.7 (2021/22), -1.6 (2022/23), -3.4 (2023/24), -3.3 (2024/25).
  - Trade balance (in millions of U.S. dollars): -9,186 (2019/20), -11,510 (2020/21), -13,759 (2021/22), -10,728 (2022/23), -11,813 (2023/24), -13,735 (2024/25).
  - Workers' remittances (in millions of U.S. dollars): 7,533 (2019/20), 8,150 (2020/21), 8,326 (2021/22), 9,330 (2022/23), 9,967 (2023/24), 10,356 (2024/25), 10,811 (2025/26).
  - Gross official reserves (in millions of U.S. dollars): 10,559 (2019/20), 10,884 (2020/21), 8,953 (2021/22), 10,916 (2022/23), 12,674 (2023/24), 13,225 (2024/25), 14,186 (2025/26).
- Debt and output:
  - Public debt (in percent of GDP): 43.3 (2019/20), 43.1 (2020/21), 47.0 (2021/22), 48.4 (2022/23), 49.3 (2023/24), 50.0 (2024/25), 50.2 (2025/26).
  - Nominal GDP (in billions of U.S. dollars): 33.4 (2019/20), 36.9 (2020/21), 40.8 (2021/22), 41.0 (2022/23), 45.9 (2023/24), 50.9 (2024/25), 56.1 (2025/26).
  - Net International Reserves (in millions of U.S. dollars): 10,291 (2019/20), 10,620 (2020/21), 8,821 (2021/22), 10,473 (2022/23), 12,146 (2023/24).
- Additional notes from the staff table:
  - Real effective exchange rate (average, y/y percent change): -2.9 (2019/20), 1.6 (2020/21).
  - Exchange rate (NPR/US$; period average): 116.3 (2019/20), 117.9 (2020/21), 120.8 (2021/22), 130.8 (2022/23).
  - Memorandum: Note that the NSO adopts a 3 year cycle in its national accounts; in May 2023 growth was revised up in FY2021/22 from 4.2 percent to 4.8 percent and from 5.3 percent to 5.6 percent in FY2021/22 in light of new data.
  - Current baseline forecast is as of September 28, 2023.

*IMF Press Release No. 23/413, November 30, 2023.*

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## References

- [Bo Li](https://www.imf.org/en/About/senior-officials/Bios/bo-li)
- [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/)
- [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/2023/11/30/pr23413-nepal-imf-exec-board-completes-3rd-rev-ecf_