## Nepal: Moving Forward with IMF Support

_IMF News, February 28, 2024_

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**Canonical URL:** [Nepal: Moving Forward with IMF Support](https://www.imf.org/en/news/articles/2024/03/01/022824oped-nepal-setopati-nepal-moving-forward-with-imf-support)

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## Bibliographic details
- Published: February 28, 2024

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### Program overview and recent support
- IMF arrangement approved a third tranche worth about $52 million in November 2023.
- The program signals to donors and investors that Nepal’s economy is stable and that the government is implementing reforms in government revenues and spending, monetary and financial policies, and governance.
- Publication: Op-ed by Anne-Marie Gulde-Wolf and Tidiane Kinda, originally published on Setopati on February 28, 2024.

### Macroeconomic and monetary developments
- Decisive and data-driven monetary policy by the Rastra Bank has helped replenish international reserves and rendered unnecessary the use of import restrictions that reduce tax collection and are costly for businesses.
- Budget discipline by the Ministry of Finance, despite a large revenue shortfall, has helped preserve a sustainable debt level—one of Nepal’s major economic strengths.
- Near-term growth is below potential; the economy is on a recovery path but requires stronger pickup.

### Fiscal policy and investment
- Critical near-term policy to support growth: increase capital spending in a fiscally responsible manner.
- Donors are keen to support such spending with concessional lending, but execution rates must improve.
- The Planning Commission is producing a public investment strategy, building on plans in the budget and IMF advice, to help accelerate capital spending.
- Fiscal discipline must be maintained while addressing low fiscal revenue as a priority.
- The government is preparing a domestic revenue mobilization strategy, with support from the IMF; many tax exemptions have already been identified.

### Financial sector risks and reforms
- Credit-to-GDP went from roughly 50% to nearly 100% over the last decade, a pace characterized as too fast and risky for sustainable lending practices.
- International experience suggests excessively rapid credit growth often leads to painful credit busts; Nepal can avoid a sharp correction by adjusting lending practices.
- Rastra Bank has improved its supervisory system for banks and amended regulations on asset classification and working capital loans.
  - These reforms aim to strengthen bank monitoring, stimulate proper loan classification, and improve lending practices.
  - There is a gradual shift in lending towards term loans, better suited for investments, and away from excessive working capital loans and overdrafts.
  - An upcoming loan portfolio review will complement recent measures and help address remaining problems.

### Governance, AML/CFT, and institutional reforms
- Governance is a key pillar of the program; advancing governance reform and moving toward international standards will help attract international investors.
- Priorities include:
  - Amending the NRB Act.
  - Enhancing the external audit of the NRB.
  - Addressing weaknesses in the anti-money laundering/combatting the financing of terrorism (AML/CFT) framework by the recent passing of the AML/CFT amendment bill and raising effectiveness on the ground.

### External risks and opportunities
- Risks on the horizon include higher commodity prices, global growth slowdown, and natural disasters that could reduce growth.
- The upcoming Investment Summit presents an opportunity to showcase Nepal’s economic potential.
- To maximize benefits from the Summit and growing international engagement, Nepal should:
  - Improve swiftly and durably its investment climate.
  - Build human capital.
  - Improve social safety nets.
- The IMF is presented as a partner to support Nepal in implementing these reforms and realizing its potential.

*Source: Op-ed by Anne-Marie Gulde-Wolf and Tidiane Kinda, originally published on Setopati on February 28, 2024.*

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## References

- [Nepal and the IMF](http://www.imf.org/external/country/NPL/index.htm)
- [Views and Commentaries](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)

_Source: https://www.imf.org/en/news/articles/2024/03/01/022824oped-nepal-setopati-nepal-moving-forward-with-imf-support_