{
  "title": "Nepal: IMF Reaches Staff-level Agreement on 5th Review Under the Extended Credit Facility",
  "publication": "IMF News, January 21, 2025",
  "sourceUrl": "https://www.imf.org/en/news/articles/2025/01/21/pr-25009-nepal-imf-reaches-agreement-on-5th-review-under-the-ecf",
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  "summary": "An International Monetary Fund (IMF) team led by Ms. Sarwat Jahan visited Kathmandu during Jan 8 to Jan 19, 2025.",
  "publishDate": "2025-01-21",
  "sections": [
    {
      "heading": "Mission and procedural status",
      "content": "- IMF team led by Ms. Sarwat Jahan visited Kathmandu during Jan 8 to Jan 19, 2025.\n- Press Release No. 25/009 dated January 21, 2025.\n- Staff-level agreement reached for the fifth review of Nepal’s economic reform program under the IMF’s Extended Credit Facility (ECF); agreement is subject to approval by the IMF Executive Board.\n- Upon completion of the Executive Board Review, Nepal would have access to SDR 31.4 million (about US$40.6 million).\n- Total IMF financial support disbursed under the ECF would be SDR 219.7 million (about US$283.9 million), from a total of SDR 282.42 million."
    },
    {
      "heading": "Recent program implementation and structural reforms",
      "content": "- Program performance described as satisfactory.\n- All quantitative performance criteria and indicative targets for end-July 2024 were met except for the indicative targets on revenue collection and child welfare grants.\n- Implementation of structural benchmarks due before end-December 2024 gained momentum; some reforms remain ongoing.\n- Key reforms accomplished as part of the fifth review include:\n  - Amendment of Nepal’s anti-money laundering (AML) law.\n  - Strengthening the financial oversight of public enterprises.\n  - Completing an audit of the FY2023/24 financial statement of the Nepal Rastra Bank (NRB) involving experts with international experience in auditing other central banks.\n- Loan Portfolio Review (LPR) of the 10 largest banks:\n  - Initial procurement for the LPR was cancelled.\n  - NRB restarted the process to hire an independent international consultant to assist with the LPR.\n  - Completion of the review by the IMF’s Executive Board requires progress in key steps for launching the LPR and maintaining reform momentum."
    },
    {
      "heading": "Economic developments and outlook",
      "content": "- Recent shocks and impacts:\n  - Severe floods in September 2024 caused widespread damage across critical sectors and dampened still-weak domestic demand.\n  - Inflation accelerated to 6.1 percent in December 2024 due to a spike in food prices following the floods.\n- External and fiscal developments:\n  - Nepal’s external position continued to strengthen, bolstered by robust remittances and subdued imports.\n  - Revenue growth remained modest.\n- Financial sector vulnerabilities:\n  - Non-performing loans in the banking sector reached 4.4 percent in October 2024.\n  - Financial health of the savings and credit cooperatives (SACCOs) sector deteriorated.\n- Growth and near-term trajectory:\n  - Growth is expected to gather pace, exceeding 4 percent in FY2024/25, supported by stronger public capital expenditure, including post-flood recovery and reconstruction efforts.\n  - Imports are expected to rebound in the second half of the year.\n  - Flood-driven food inflation is expected to ease as transport networks are repaired and agricultural output recovers.\n- Downside risks highlighted:\n  - Under-execution of growth-enhancing capital projects.\n  - An increase in financial sector vulnerabilities.\n  - Potential disruption to policy continuity and reform implementation."
    },
    {
      "heading": "Policy analysis and IMF recommendations",
      "content": "- Fiscal policy:\n  - Growth-friendly fiscal consolidation is critical—by accelerating capital expenditure coupled with stronger revenue mobilization.\n  - Timely execution of spending will further support growth and recovery.\n- Monetary policy:\n  - Monetary policy should continue to follow a data-driven approach to maintain price and external stability while supporting growth.\n- Financial sector and oversight:\n  - With amendments to the AML Law enacted, the next steps should focus on the effectiveness and application of the new legal framework.\n  - Amendments of the NRB Act are key to strengthening the central bank’s independence and governance.\n  - Rising financial sector vulnerabilities warrant increased vigilance.\n  - It is essential to launch the LPR in a timely manner; an important component would be to apply the Basel Committee on Banking Supervision Guidelines.\n  - Prioritizing measures to deal with problematic SACCOs would help boost consumption."
    },
    {
      "heading": "Stakeholder engagement",
      "content": "- The IMF team met with:\n  - Honorable Deputy Prime Minister and Finance Minister Mr. Bishnu Prasad Paudel.\n  - National Planning Commission Vice-Chairman Honorable Dr. Shiva Raj Adhikari.\n  - Nepal Rastra Bank Governor Mr. Maha Prasad Adhikari.\n  - Other senior government and central bank officials, private sector representatives, and development partners.\n- IMF statement: “The IMF team is grateful to the Nepali authorities for their hospitality and for open and constructive discussions.”\n\nSource: International Monetary Fund — Press Release No. 25/009, January 21, 2025.\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/2025/01/21/pr-25009-nepal-imf-reaches-agreement-on-5th-review-under-the-ecf"
    }
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    "Published: January 21, 2025",
    "IMF team led by Ms. Sarwat Jahan visited Kathmandu during Jan 8 to Jan 19, 2025.",
    "Press Release No. 25/009 dated January 21, 2025.",
    "Staff-level agreement reached for the fifth review of Nepal’s economic reform program under the IMF’s Extended Credit Facility (ECF); agreement is subject to approval by the IMF Executive Board.",
    "Upon completion of the Executive Board Review, Nepal would have access to SDR 31.4 million (about US$40.6 million).",
    "Total IMF financial support disbursed under the ECF would be SDR 219.7 million (about US$283.9 million), from a total of SDR 282.42 million.",
    "Program performance described as satisfactory.",
    "All quantitative performance criteria and indicative targets for end-July 2024 were met except for the indicative targets on revenue collection and child welfare grants.",
    "Implementation of structural benchmarks due before end-December 2024 gained momentum; some reforms remain ongoing.",
    "Key reforms accomplished as part of the fifth review include:",
    "Loan Portfolio Review (LPR) of the 10 largest banks:",
    "Recent shocks and impacts:",
    "External and fiscal developments:",
    "Financial sector vulnerabilities:",
    "Growth and near-term trajectory:",
    "Downside risks highlighted:",
    "Fiscal policy:",
    "Monetary policy:",
    "Financial sector and oversight:",
    "The IMF team met with:",
    "IMF statement: “The IMF team is grateful to the Nepali authorities for their hospitality and for open and constructive discussions.”",
    "[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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