Nepal to receive Rs 5.59 billion from IMF under ECF

Nepal is poised to receive approximately Rs 5.59 billion (around $40.6 million) from the International Monetary Fund (IMF), following a staff-level agreement reached on the fifth review of the country's economic reform programme under the Extended Credit Facility (ECF).

The IMF team, led by Sarwat Jahan, concluded its mission in Kathmandu on January 19 after holding discussions with Nepali authorities. In a statement released on Monday (today), the IMF confirmed that the agreement is subject to approval by the IMF Executive Board. Upon formal endorsement, the disbursement will bring Nepal’s total financial support under the ECF to about $283.9 million (SDR 219.7 million), out of the approved SDR 282.42 million.

“Nepal continues to make progress with the implementation of the ECF-supported programme,” said the IMF statement, noting that all quantitative performance criteria and indicative targets for end-July 2024 were met, with the exception of those related to revenue collection and child welfare grants.

Key reforms under this review include amendments to the anti-money laundering (AML) legislation, enhanced financial oversight of public enterprises, and the completion of an external audit of Nepal Rastra Bank’s fiscal year 2023-24 financial statements using international central bank auditing standards.

Despite the cancellation of an initial procurement process, the central bank has renewed efforts to complete a Loan Portfolio Review (LPR) of the country’s 10 largest banks by hiring an independent international consultant. The IMF emphasised that timely execution of the LPR, based on Basel Committee guidelines, is critical for safeguarding financial stability.

Nepal's economic recovery, which began in fiscal year 2023-24, was disrupted by severe floods in September 2024. The disaster caused extensive damage to infrastructure and agriculture, contributing to a surge in food prices and pushing inflation to 6.1 per cent by December.

While the country’s external position has improved thanks to strong remittance inflows and subdued imports, the IMF warned of growing vulnerabilities in the financial sector. Non-performing loans in the banking sector climbed to 4.4 percent in October 2024, and the financial condition of savings and credit cooperatives (SACCOs) has deteriorated further.

Looking ahead, the IMF projects Nepal’s economy to grow by over 4 per cent in the fiscal year 2024-25, supported by increased public capital expenditure and post-flood reconstruction. Imports are also expected to rebound in the second half of the fiscal year, while food inflation is likely to ease as transportation links are restored and agricultural production recovers.

However, the outlook remains fragile. “The growth trajectory faces risks from delays in capital spending, rising financial sector stress, and potential setbacks to policy continuity and reform momentum,” the IMF cautioned.

During the visit, the IMF delegation held consultations with deputy prime minister and finance minister Bishnu Prasad Paudel, National Planning Commission (NPC) vice-chair Dr Shiva Raj Adhikari, Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari, and other senior officials. The team also engaged with private sector representatives and development partners.