{
  "title": "Nepal: IMF Reaches Staff-level Agreement on 4th Review Under the Extended Credit Facility",
  "publication": "IMF News, June 6, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/06/06/pr-24209-nepal-imf-reaches-agreement-on-4th-review-under-the-eff",
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  "summary": ": An International Monetary Fund (IMF) team led by Mr. Tidiane Kinda visited Kathmandu during May 22 to June 5 to hold discussions on the policies and reforms that could lead to the completion of the 4th review of the authorities’ economic program supported by the IMF’s Extended Credit Facility (ECF).",
  "publishDate": "2024-06-06",
  "sections": [
    {
      "heading": "Mission and staff-level agreement",
      "content": "- IMF team led by Mr. Tidiane Kinda visited Kathmandu during May 22 to June 5 to discuss policies and reforms for completion of the 4th review under the Extended Credit Facility (ECF).\n- The Nepali authorities and IMF staff reached staff-level agreement for a disbursement of about US$41.6 million under the fourth review of the ECF arrangement.\n- The agreement is subject to approval by the IMF’s Executive Board."
    },
    {
      "heading": "Disbursements and ECF figures",
      "content": "- Completion would make available SDR 31.4 million (about US$41.6 million).\n- Total disbursements under the ECF thus far: SDR 188.3 million (about US$249.7 million).\n- Total ECF amount: SDR 282.42 million (about US$380.2 million)."
    },
    {
      "heading": "Recent macroeconomic developments and outlook",
      "content": "- Growth:\n  - Growth projected around 3 percent in FY2023/24.\n  - Growth expected to reach 4.9 percent in FY2024/25, supported by stronger domestic demand.\n- Inflation:\n  - Inflation decreased from a peak of 8.6 percent in September 2022 to 4.6 percent in April 2024.\n  - Inflation is projected to remain within the NRB’s target ceiling of 5.5 percent.\n- External position:\n  - External position continues to strengthen, reflecting prudent policies, buoyant remittances, and subdued imports.\n- Drivers expected to boost growth in FY2024/25:\n  - Cautiously accommodative monetary policy stance.\n  - Planned increase in capital expenditure in the FY2024/25 budget.\n  - Additional hydropower generation.\n  - Continued increase in tourist arrivals.\n- Medium-term outlook:\n  - Favorable, with strategic investments in infrastructure, especially in the energy sector, expected to support potential growth."
    },
    {
      "heading": "Fiscal policy, revenue, and public finances",
      "content": "- Fiscal constraints:\n  - Tax-to-GDP ratio remains below pre-pandemic levels, limiting fiscal space for development spending, including infrastructure and targeted social benefits.\n- Recent fiscal reforms and measures:\n  - Approval of a Domestic Revenue Mobilization Strategy by the Ministry of Finance aimed at strengthening tax collection.\n  - Approval of an Action Plan by the National Planning Commission (NPC) aimed at improving execution of budgeted capital projects.\n  - Reforms to enhance fiscal transparency are well advanced, including:\n    - Incorporating most Extra Budgetary Funds accounts in the annual financial statements published by the Financial Comptroller General Office.\n    - Publishing audited financial statements for some key public enterprises.\n- Near-term fiscal transparency deliverables agreed with authorities:\n  - Publication of a comprehensive tax expenditure report.\n  - Publication of a fiscal risk statement.\n  - Revising and approving the National Project Bank Operational Procedures and the Unified Directives related to project development, prioritization, and selection.\n  - Reporting consolidated financial information of all extrabudgetary operational funds."
    },
    {
      "heading": "Financial sector performance and vulnerabilities",
      "content": "- Banking sector:\n  - Banks’ non-performing loans doubled since August 2022 to 4.0 percent in April 2024.\n  - Bank profitability declined.\n  - Major NRB achievements include finalization and full implementation of the Supervisory Information System for all banks.\n  - Progress on procurement of an independent international consultant to assist NRB in the conduct of the Loan Portfolio Review (LPR) of the 10 largest banks.\n- SACCO sector:\n  - Financial health of the savings and credit cooperatives (SACCO) sector has deteriorated.\n  - Authorities are starting to develop a strategy to deal with issues in the SACCO sector, including reforming the supervisory framework and architecture.\n- Public enterprises and audits:\n  - Priority to publish annual financial statements by all majority and wholly owned public enterprises.\n  - Audit of the financial statements of four priority public enterprises agreed.\n- Recommended financial governance actions:\n  - Launch the LPR of the banking system.\n  - Submit to Parliament amendments of the NRB Act.\n  - Involve experts with international experience in auditing and central bank auditing for an audit of NRB’s FY23/24 financial statements.\n  - Implement key reforms in the 2023 Financial Sector Stability Report."
    },
    {
      "heading": "Program objectives and policy recommendations",
      "content": "- Program aims:\n  - Support sustained growth, protect vulnerable groups, and help preserve macroeconomic and financial stability.\n- Fiscal policy guidance:\n  - Accelerate capital spending to boost domestic demand.\n  - Execute planned increase in capital expenditure while limiting overall spending growth to achieve growth-friendly fiscal consolidation as envisaged in the FY2024/25 budget.\n- Monetary policy guidance:\n  - Pursue a cautious and data-driven approach to monetary policy.\n  - Strengthen the monetary framework to maintain price and external stability.\n- Financial sector priorities:\n  - Strengthen Nepal’s financial system as a top priority through the LPR, NRB Act amendments, audits, and public enterprise financial transparency."
    },
    {
      "heading": "AML/CFT reforms",
      "content": "- Nepal committed to strengthening its AML/CFT framework.\n- Amendments to a set of 15 laws, including on money laundering, have been recently enacted.\n- Secondary legislation is under preparation to bring Nepal’s AML/CFT legal framework in line with international standards.\n- Nepal will seek technical support from the IMF and other donors to ensure effectiveness of the new legal framework.\n\nSource: Press Release No. 24/209, June 6, 2024, International Monetary Fund.\n\n---\n\n\n References\n\n- Nepal and the IMF\n- Special Drawing Rights (SDRs) -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- see Press Release No. 22/6\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/06/06/pr-24209-nepal-imf-reaches-agreement-on-4th-review-under-the-eff"
    }
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    "Published: June 6, 2024",
    "IMF team led by Mr. Tidiane Kinda visited Kathmandu during May 22 to June 5 to discuss policies and reforms for completion of the 4th review under the Extended Credit Facility (ECF).",
    "The Nepali authorities and IMF staff reached staff-level agreement for a disbursement of about US$41.6 million under the fourth review of the ECF arrangement.",
    "The agreement is subject to approval by the IMF’s Executive Board.",
    "Completion would make available SDR 31.4 million (about US$41.6 million).",
    "Total disbursements under the ECF thus far: SDR 188.3 million (about US$249.7 million).",
    "Total ECF amount: SDR 282.42 million (about US$380.2 million).",
    "Growth:",
    "Inflation:",
    "External position:",
    "Drivers expected to boost growth in FY2024/25:",
    "Medium-term outlook:",
    "Fiscal constraints:",
    "Recent fiscal reforms and measures:",
    "Near-term fiscal transparency deliverables agreed with authorities:",
    "Banking sector:",
    "SACCO sector:",
    "Public enterprises and audits:",
    "Recommended financial governance actions:",
    "Program aims:",
    "Fiscal policy guidance:",
    "Monetary policy guidance:",
    "Financial sector priorities:",
    "Nepal committed to strengthening its AML/CFT framework.",
    "Amendments to a set of 15 laws, including on money laundering, have been recently enacted.",
    "Secondary legislation is under preparation to bring Nepal’s AML/CFT legal framework in line with international standards.",
    "Nepal will seek technical support from the IMF and other donors to ensure effectiveness of the new legal framework.",
    "[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)"
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