Nepal: 2010 Article IV Consultation and Request for Disbursement Under the Rapid Credit Facility: Staff Report; Staff Supplements; Public Information Notice on the Executive Board Discussion; Press Release on the Executive Board Discussion; and Statement by the Alternate Executive Director and Advisor for Nepal

IMF Staff Country Reports, July 6, 2010

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Nepal: 2010 Article IV Consultation and Request for Disbursement Under the Rapid Credit Facility: Staff Report; Staff Supplements; Public Information Notice on the Executive Board Discussion; Press Release on the Executive Board Discussion; and Statement by the Alternate Executive Director and Advisor for Nepal

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Bibliographic details

• Published: July 6, 2010
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9781455202416.002

Executive summary and macroeconomic outlook

• After years of macroeconomic stability, the global crisis is having a substantial, albeit somewhat delayed, impact on Nepal’s economy and exposing its structural weaknesses.
• The Nepalese rupee appears modestly overvalued, but maintaining the peg should remain a key near-term policy objective.
• Remittances and external balances are important vulnerability channels (subject tags include Balance of payments; Remittances; External debt).

Financial sector risks and urgent priorities

• Risks in the financial sector are coming to a head and need to be addressed urgently.
• The Nepal Rastra Bank (NRB)’s recent directives are welcome, but enforcement is crucial to their effectiveness.
• Key areas requiring policy action:
  • Tighten bank licensing policy.
  • Incentivize banking sector consolidation.
  • Tackle reform of state-controlled banks.
• Subject tags highlighting scope: Banking; Credit; Financial sector; Money; Fiscal policy stance; Public debt.

Policy recommendations and institutional measures

• Maintain the exchange rate peg as a near-term priority despite modest overvaluation of the Nepalese rupee.
• Strengthen enforcement capacity at the Nepal Rastra Bank to ensure recent directives achieve intended stability outcomes.
• Reform banking sector governance through:
  • Stricter licensing standards to reduce fragility.
  • Policies that encourage consolidation among banks to improve resilience.
  • Targeted measures to reform state-controlled banks to address structural weaknesses.

Content in this bundle

• Nepal’s Remittances: Trends and Projections
  • Nepal’s Remittances: Trends and Projections (Markdown version)
  • Nepal’s Remittances: Trends and Projections (PDF)