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.

IMF completes the fourth review of ECF, releases Rs 5.51 billion

The Executive Board of the International Monetary Fund (IMF) on Tuesday 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 $41.3 million), which is approximately Rs 5.51 billion.

This brings total disbursements under the ECF for budget support thus far to SDR 188.3 million (about $247.7 million).

The ECF arrangement for Nepal was approved by the Executive Board on January 12, 2022 for SDR 282.42 million (180 per cent of quota or about $371.6 million).

Nepal has made good progress with implementation of the programme, which has helped mitigate the impact of the pandemic and global shocks on economic activity, protect vulnerable groups, and preserve macroeconomic and financial stability, a press note issued by the IMF reads.

The programme is also helping to catalyse additional financing from Nepal’s development partners.

The economy continues to face challenges as growth, projected around 3 per cent in fiscal year 2023-24, remains below potential in the context of subdued domestic demand and post-pandemic balance sheet repairs, it reads, adding that economic activity is expected to pick up with growth reaching 4.9 per cent in the fiscal year 2024-25, supported by stronger domestic demand. "The cautiously accommodative monetary policy stance, planned increase in capital expenditure in the fiscal year 2024-25 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 per cent, it adds.

However, the IMF warns of domestic risks dominating the outlook.

"Failure to raise the execution rate of capital projects would deprive the economy of much-needed stimulus and weigh on growth," it warns, adding that 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.

“Nepal has made important strides on its economic reform agenda," said deputy managing director and acting chair Bo Li, following the Executive Board discussion.

"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 fiscal year 2021-22," Li said, adding that reserves continue to rise without the need to use distortive import restrictions. "Fiscal discipline was maintained in fiscal year 2022-23 and so far in fiscal year 2023-24, 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 favourable 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 fiscal year 2024-25 budget, while maintaining fiscal discipline through domestic revenue mobilisation and rationalisation of current spending remains critical to boost growth and preserve medium-term fiscal sustainability," Li said, adding that 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," he adds.

Saying that continuing to strengthen Nepal’s financial system remains a top priority, he said, 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."

The IMF also welcomed Nepal’s commitment to strengthen its AML/CFT framework. "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, Li said, "It remains critical to ensure the effectiveness of the new legal framework."

The IMF has also suggested 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," Li said, adding that 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 programme to all districts in Nepal.

Nepal to get IMF debt relief

Nepal is going to receive debt relief from the International Monetary Fund (IMF) for six months as part of its response to help address the impact of the Covid-19 pandemic.
The global monetary advisor announced the debt service relief for the 25 countries – including Nepal, Afghanistan, Benin, Burkina Faso, Central African Republic, Chad, Comoros, Congo, DR, The Gambia, Guinea, Guinea-Bissau, Haiti, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, São Tomé and Príncipe, Sierra Leone, Solomon Islands, Tajikistan, Togo, and Yemen – today under its revamped Catastrophe Containment and Relief Trust. “As of December 2019, Nepal’s outstanding loans to be paid to the international institutions stands at SDR 38.5 million ($52.36 million),” according to the fund's website.
The SDR (Special Drawing Rights) are the units of account, which is like currency and pegged with a basket of important foreign currencies like the US dollar, euro, Chinese yuan and Japanese yen. One SDR is equivalent to $1.36.
Nepal had received loans from the fund after the devastating earthquake in April 2015. “Debt relief for six months means Nepal need not pay installment – including principal and interest – for six months.
The government had however requested IMF to provide debt relief for two years.
During a video conference with senior officials of multilateral development partners including IMF, the World Bank (WB), Asian Development Bank (ADB) and Asian Infrastructure Investment Bank (AIIB), finance minister Dr Yuba Raj Khatiwada had asked for a deferral of the loan repayment schedule and debt relief from development partners, though Nepal has forex reserve that can pay for the import of goods and services for 8 months.
The IMF provides grants to its poorest and most vulnerable members to cover their debt obligations for an initial phase over the next six months, under the scheme.
“This will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts,” managing director of the IMF Kristalina Georgieva said, adding that the Catastrophe Containment and Relief Trust can currently provide about $500 million in grant-based debt service relief, including the recent $185 million pledge by the UK and $100 million provided by Japan as immediately available resources.
“Others, including China and the Netherlands, are also stepping forward with important contributions,” the press note issued by the IMF reads.
Georgieva has also urged the development partners to help it replenish the Trust’s resources and boost further its ability to provide additional debt service relief for a full two years to its poorest member countries.

2016 bilateral borrowing agreements of about $ 433 billion

The terms of the 2016 Borrowing Agreements between the IMF and 40 members are now effective through end-2020, following approval by the IMF Executive Board and consents from all 40 creditors to a one-year extension of the terms of their respective agreements.
The extension of terms preserves the IMF’s overall lending capacity of about $1 trillion for an additional year and is a prudent step to provide confidence to members and markets that the Fund continues to have adequate resources to meet the potential needs of the membership. This step is part of a broader package of actions on IMF resources and governance reform—including support for maintaining the IMF’s current resource envelope and considering a doubling of the New Arrangements to Borrow (NAB) and a further temporary round of bilateral borrowing beyond 2020— endorsed by the IMF membership at the 2019 Annual Meetings.
The IMF has entered into several rounds of bilateral borrowing agreements over the past decade to supplement its quota and NAB resources and meet the potential financing needs of its members. In 2016, in view of continued uncertainty in the global economy, the membership committed to maintain access to bilateral borrowing, as a third line of defense (after quota and NAB resources) and under a revised governance framework, with an initial term through the end of 2019, extendable for a further year by the Executive Board and with creditors’ consents. Total commitments under the 2016 borrowing framework from 40 members amount to about SDR 318 billion ($433 billion) at end-September 2019 exchange rates.

2016 Borrowing Agreements
Member (Creditor)-Agreed Currency Amount(billions)
Algeria (Bank of Algeria)-$5
Australia-SDR4.61
Austria (Oesterreichische Nationalbank)-EUR6.13
Belgium (National Bank of Belgium)-EUR9.99
Brazil (Banco Central do Brasil)-$10
Brunei Darussalam-$0.3
Canada-SDR8.2
Chile (Central Bank of Chile)-SDR0.96
China (People's Bank of China)-$43
Czech Republic (Czech National Bank)-EUR1.5
Denmark (Danmarks Nationalbank)-EUR5.3
Finland (Bank of Finland)-EUR3.76
France-EUR31.4
Germany (Deutsche Bundesbank)-EUR41.5
India (Reserve Bank of India)-$10
Italy (Bank of Italy)-EUR23.48
Japan-$60
Korea-$15
Luxembourg-EUR2.06
Malaysia (Bank Negara Malaysia)-$1
Malta (Central Bank of Malta)-EUR0.26
Mexico (Banco de Mexico)-$10
Netherlands (De Nederlandsche Bank NV)-EUR13.61
New Zealand-$1
Norway (Norges Bank)-SDR6
Peru (Central Reserve Bank of Peru)-SDR1.1
Philippines (Bangko Sentral ng Pilipinas)-$1
Poland (Narodowy Bank Polski)-EUR6.27
Russia (Central Bank of the Russian Federation)-$10
Saudi Arabia-$15
Singapore (Monetary Authority of Singapore)-$4
Slovak Republic-EUR1.56
Slovenia (Bank of Slovenia)-EUR0.91
South Africa (South African Reserve Bank)-$2
Spain-EUR14.86
Sweden (Sveriges Riksbank)-SDR7.4
Switzerland (Swiss National Bank)-CHF8.5
Thailand (Bank of Thailand)-$4
Turkey (Central Bank of the Republic of Turkey)-$5
United Kingdom-SDR9.1782

SC issues interim order against Monetary Policy

The Supreme Court today issued an interim order against the implementation of Monetary Policy 2018-19.
The central bank has brought Monetary Policy for the current fiscal year. But advocate Swagat Nepal has filed a writ against the policy arguing that the provision allowing banks to obtain loans in Indian currency should be removed.
A joint bench of acting chief justice Deepak Raj Joshi, justice Om Prakash Mishra, justice Cholendra Shamsher Rana, justice Kedar Prasad Chalise and justice Ishwor Prasad Khatiwada issued the interim order and asked the central bank to provide clarification within a week and appear for a discussion on July 27.
The Nepal Rastra Bank (NRB) has on Wednesday brought Monetary Policy allowing banks to borrow in Indian currency and convertible foreign currencies up to 25 per cent of their core capital. Assuming that the banking industry currently has a combined core capital of Rs 320 billion, the Monetary Policy move will allow the banks to obtain loans amounting up to Rs 80 billion from the foreign sector.
The central bank allowed commercial banks to borrow in convertible currency from foreign banks based on the authority provided by the Foreign Exchange (Regulation) Act 1962 in April. The central bank has allowed banks to borrow in Indian currency too as there was no risk of fluctuations in the exchange rate.
Though, the central bank’s move was aimed at easing the shortage of loanable funds by injecting liquidity in the market, the writ petitioner claimed it to be against Nepal Rastra Bank (NRB) Act.
Advocate Nepal has argued that the Monetary Policy provision violates NRB’s Act to Provide for Enhancement of the Circulation of Nepalese Currency 1957. He pleaded that the new provision could bring instability in interest rates besides other problems, if India demonetises its currency like last year.
According to Nepal, it also violates the norms of the International Monetary Fund (IMF) that allows maintaining Special Drawing Rights (SDR) only in currencies such as the US dollar, pound sterling, euro, Japanese yen and Chinese yuan.
The central bank though has claimed that the provision could help ease the shortage of Indian currency (IC) – that is in high demand for trading with India as it is the major source of imports for Nepal – Nepal argued that it would deplete the US dollar reserve that is needed to buy IC.