IMF Executive Board Completes the Fourth Review of Nepal's Extended Credit Facility

July 10, 2024

  • The IMF Executive Board completed the fourth review under the Extended Credit Facility (ECF) Arrangement for Nepal, providing the country with access to SDR 31.4 million (about US$ 41.3 million).
  • Nepal has made good progress with implementation of the program, despite a challenging political environment.
  • Following a slowdown last year, economic activity has started to pick up and the recovery is expected to gather steam, supported by cautiously accommodative monetary policy stance, planned increase in capital expenditure in the FY2024/25 budget, additional hydropower generation, and continued increase in tourist arrivals.

Washington, DC – July 10, 2024: On July 9, 2024, the Executive Board of the International Monetary Fund (IMF) completed the fourth review under the four‑year Extended Credit Facility (ECF) for Nepal, allowing the authorities to withdraw the equivalent of SDR 31.4 million (about US$ 41.3 million). This brings total disbursements under the ECF for budget support thus far to SDR 188.3 million (about US$ 247.7 million).

The ECF arrangement for Nepal was approved by the Executive Board on January 12, 2022 (see Press Release No. 22/6 ) for SDR 282.42 million (180 percent of quota or about US$ 371.6 million). Nepal has made good progress with implementation of the program, which has helped mitigate the impact of the pandemic and global shocks on economic activity, protect vulnerable groups, and preserve macroeconomic and financial stability. The program is also helping to catalyze additional financing from Nepal’s development partners.

The economy continues to face challenges as growth, projected around 3 percent in FY2023/24, remains below potential in the context of subdued domestic demand and post‑pandemic balance sheet repairs. Economic activity is expected to pick up with growth reaching 4.9 percent in FY2024/25, supported by stronger domestic demand. The cautiously accommodative monetary policy stance, planned increase in capital expenditure in the FY2024/25 budget, additional hydropower generation, and a continued increase in tourist arrivals are expected to boost domestic demand and growth. Inflation is expected to remain within the Nepal Rastra Bank’s (NRB) target ceiling of 5.5 percent.

Domestic risks dominate the outlook. Failure to raise the execution rate of capital projects would deprive the economy of much-needed stimulus and weigh on growth. Fragile political stability could disrupt policy continuity and reform implementation. Intensification of financial sector vulnerabilities such as a further rise in NPLs or more failures of cooperative lenders could endanger banking system soundness. Externally, high commodity prices could slow the recovery in energy-intensive sectors. Nepal remains vulnerable to natural disasters.

Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:

“Nepal has made important strides on its economic reform agenda. Decisive actions in monetary policy, bank regulation and rolling off COVID support policies played a major role in overcoming urgent balance of payments pressure in FY2021-22. Reserves continue to rise without the need to use distortive import restrictions. Fiscal discipline was maintained in FY2022-23 and so far in FY2023-24, despite revenue shortfalls. Bank supervision and regulation have improved with the rolling out of new supervisory information systems, the Working Capital Loan Guidelines and Asset Classification Regulations. Nepal’s medium-term outlook remains favorable as strategic investments in infrastructure, especially in the energy sector, are expected to support potential growth.

“With growth below potential, executing the planned increase in capital spending, as envisaged in the FY24/25 budget, while maintaining fiscal discipline through domestic revenue mobilization and rationalization of current spending remains critical to boost growth and preserve medium-term fiscal sustainability. Strengthening public investment management will support the needed boost to capital spending. Enhancing fiscal transparency will help contain fiscal risks and further strengthen medium-term fiscal sustainability.

“As monetary policy transmission is still weak in a context of balance sheet repair, a cautious and data dependent monetary policy remains appropriate to preserve price and external stability. Continuing to strengthen Nepal’s financial system remains a top priority. Financial policy should remain vigilant and focused on building regulatory frameworks that promote sustainable credit growth while proactively addressing emerging vulnerabilities in the savings and credit cooperatives sector. Maintaining recent reforms regarding lending practices and asset classification is important as preparations for the loan portfolio review of the ten largest banks continue.

“Nepal’s commitment to strengthen its AML/CFT framework is welcome. Amendments to a set of fifteen laws, including on money laundering, have been recently enacted—and secondary legislation is under preparation—to bring Nepal’s AML/CFT legal framework in line with international standards. It remains critical to ensure the effectiveness of the new legal framework. Reforms to implement the 2021 IMF Safeguards Assessment recommendations regarding the Nepal Rastra Bank (NRB) Act and NRB audit are a priority.

“Continued progress on the structural front remains needed to foster investment and more inclusive growth. These include improving the business climate, building human capital, and continuing to improve social safety nets, in particular aiming for full execution of the child grant budget, followed by an expansion of the program to all districts in Nepal.”


Nepal: Selected Economic Indicators 2020/21-2028/29 1/

2020/21

2021/22

2022/23

2023/24

2024/25

2025/26

2026/27

2027/28

2028/29

Projections

Output and Prices (annual percent change)

Real GDP

4.8

5.6

2.0

3.1

4.9

4.9

5.0

5.0

5.0

Headline CPI (period average)

3.6

6.3

7.8

5.6

5.2

5.4

5.4

5.4

5.4

Headline CPI (end of period)

4.2

8.1

7.4

5.0

5.4

5.4

5.4

5.4

5.4

Fiscal Indicators: Central Government (in percent of GDP)

Total revenue and grants

23.3

22.9

19.3

19.3

20.2

21.4

22.1

22.7

23.2

of which: Tax revenue

20.0

19.8

16.2

16.4

17.4

18.3

19.0

19.7

20.2

Expenditure

27.2

26.1

25.2

24.0

24.4

25.0

25.3

25.7

25.9

Expenses

22.0

21.7

20.8

20.3

19.4

19.4

19.5

19.7

19.8

Net acquisition of nonfinancial assets

5.3

4.3

4.4

3.7

5.0

5.6

5.8

6.0

6.1

Operating balance

1.3

1.2

-1.4

-1.0

0.9

2.0

2.6

3.0

3.4

Net lending/borrowing

-4.0

-3.1

-5.8

-4.7

-4.1

-3.6

-3.2

-2.9

-2.7

Statistical discrepancy

-0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net financial transactions

3.9

3.1

5.8

4.7

4.1

3.6

3.2

2.9

2.7

Net acquisition of financial assets

3.8

2.6

-0.9

1.3

1.3

1.3

1.3

1.3

1.3

Net incurrence of liabilities

7.7

5.8

4.9

6.0

5.4

4.9

4.5

4.2

4.0

Foreign

3.4

2.0

1.7

1.6

1.6

1.5

1.2

1.2

1.2

Domestic

4.3

3.7

3.3

4.4

3.8

3.4

3.3

3.1

2.8

Money and Credit (annual percent change)

Broad money

21.8

6.8

11.4

12.5

10.8

10.5

10.6

10.7

10.7

Domestic credit

26.8

17.9

8.8

8.8

9.3

9.4

10.1

10.5

10.7

Private sector credit

26.3

13.3

4.6

5.5

7.8

8.2

9.5

10.3

10.6

Saving and Investment(in percent of nominal GDP)

Gross investment

35.2

37.6

31.7

33.2

37.6

39.0

37.8

36.3

35.1

Gross fixed investment

29.3

29.0

25.1

26.3

29.8

30.9

29.9

28.8

27.8

Private

24.1

23.6

21.7

22.6

24.8

25.3

24.1

22.8

21.7

Central government

5.3

5.3

3.4

3.7

5.0

5.6

5.8

6.0

6.1

Change in Stock

5.8

8.7

6.6

6.9

7.8

8.1

7.9

7.6

7.3

Gross national saving

27.5

25.1

30.3

36.4

36.0

35.0

33.8

32.6

31.5

Private

27.0

24.4

32.2

38.0

35.7

33.8

32.1

30.4

29.0

Central government

0.4

0.7

-1.9

-1.6

0.3

1.1

1.7

2.2

2.6

Balance of Payments

Current account (in millions of U.S. dollars)

-2,844

-5,174

-557

1,409

-775

-2,100

-2,312

-2,419

-2,523

In percent of GDP

-7.7

-12.6

-1.4

3.2

-1.6

-4.0

-4.0

-3.8

-3.6

Trade balance (in millions of U.S. dollars)

-11,510

-13,759

-10,699

-10,492

-13,037

-15,067

-15,904

-16,711

-17,580

In percent of GDP

-31.2

-33.4

-26.2

-24.0

-27.3

-28.6

-27.4

-26.1

-25.0

Exports of goods (y/y percent change)

30.0

43.9

-19.9

-0.7

14.0

9.5

9.3

10.0

9.4

Imports of goods (y/y percent change)

25.7

21.9

-22.0

-1.8

23.1

14.9

5.9

5.6

5.7

Workers' remittances (in millions of U.S. dollars)

8,150

8,326

9,330

10,679

11,141

11,623

12,126

12,651

13,199

In percent of GDP

22.1

20.2

22.8

24.5

23.3

22.1

20.9

19.8

18.7

Gross official reserves (in millions of U.S. dollars)

10,884

8,973

10,974

13,564

14,582

14,565

14,399

14,398

14,578

In months of prospective imports

7.5

7.6

9.2

9.4

8.8

8.3

7.8

7.3

7.0

Memorandum Items

Public debt (in percent of GDP)

43.3

42.7

47.1

49.7

50.4

50.4

50.0

49.3

48.4

Nominal GDP (in billions of U.S. dollars)

36.9

41.2

40.9

43.7

47.8

52.6

58.0

63.9

70.4

Nominal GDP (in billions of Nepalese Rupees)

4,353

4,977

5,349

5,793

6,393

7,071

7,823

8,657

9,582

Net International Reserves (in millions of U.S. dollars)

10,620

8,821

10,528

13,081

14,024

14,012

13,899

13,962

14,222

Primary Deficit (in billions of Nepali Rupees)

138

110

239

173

158

141

125

114

104

Primary Deficit (in percent of GDP)

3.2

2.2

4.5

3.0

2.5

2.0

1.6

1.3

1.1

Tax Revenue (in billions of Nepalese Rupees)

870

984

866

950

1,115

1,292

1,489

1,705

1,932

Tax Revenue (In percent of GDP)

20.0

19.8

16.2

16.4

17.4

18.3

19.0

19.7

20.2

Health Expenditure (in percent of GDP)

1.1

2.3

1.7

1.2

1.2

1.2

1.2

1.2

1.2

Social Protection/Assistance (in percent of GDP)

1.7

3.7

2.8

2.8

2.8

2.8

2.8

2.8

2.8

CCRT debt relief (in millions of SDR) 2/

7.1

3.6

…

…

…

…

…

…

…

Private sector credit (in percent of GDP)

95.1

94.2

91.7

89.3

87.2

85.3

84.4

84.1

84.1

Exchange rate (NPR/US$; period average)

117.9

120.8

130.8

…

…

…

…

…

…

Real effective exchange rate (average, y/y percent change)

-2.9

1.6

1.2

…

…

…

…

…

…

1/ Fiscal year ends in mid-July.

2/ CCRT debt relief is included in grants and net incurrence of liabilities (foreign). The first tranche of CCRT debt relief covering the period April 14, 2020 to October 13, 2020 for SDR 2.9 million in FY 2019/20 was approved on April 13, 2020. The second tranche of CCRT debt relief covering the period October 14, 2020 to April 13, 2021 for SDR 3.6 million was approved on October 2, 2020. The third tranche of CCRT debt relief covering the period April 14, 2021 to October 15, 2021 for SDR 3.6 million was approved on April 1, 2021. The fourth and fifth (final) tranche of CCRT debt service relief covering the period from October 16, 2021 to January 10, 2022 and January 11 to April 13, 2022 was approved on October 6, 2021 and December 15, 2021 respectively for SDR 3.6 million.

Note: The NSO adopts a 3-year cycle in its national accounts producing preliminary, revised, and final estimates for real GDP growth. In April 2024 growth was revised up for FY2022/23 from 1.9 percent to 2 percent in light of new data.

Note: Current baseline forecast is as of June 10, 2024.

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Pemba Sherpa

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson