IMF and Nepal Reach Preliminary Deal on Sixth Review of Loan Program

Kathmandu, June 11 — Simplified Summary

A team from the International Monetary Fund (IMF), led by Sarwat Jahan, recently wrapped up a two-week visit to Nepal. They reached a preliminary agreement with the Nepali government on key economic policies and reforms as part of the sixth review under the IMF's Extended Credit Facility (ECF). This agreement still needs final approval from the IMF's Executive Board.

If approved, Nepal will receive about $42.7 million more in financial support, bringing the total disbursed under this program to approximately $331.8 million out of a maximum of around $373 million.

The IMF says Nepal is doing well overall in meeting the goals of the program. The government has made good progress on tax reporting, managing public projects, and reviewing bank loans. Nepal's central bank, the Nepal Rastra Bank (NRB), is also working on recommendations from previous IMF reports. However, for this review to be fully completed, more progress is needed on reviewing bank loans, including hiring an independent international expert.

On the economic side, Nepal is gradually recovering. Growth in construction, manufacturing, hydropower, and a good harvest have helped the economy bounce back from the 2024 floods. The economy is expected to grow by over 4% in the 2024/25 fiscal year. Inflation is under control at 3.4%, and the external sector is improving, thanks to strong exports, remittances, and tourism.

Still, there are some concerns in the financial sector. Bad loans have risen to 5.2%, affecting banks' health, and savings and credit cooperatives (SACCOs) are still facing serious problems.

Looking ahead, the IMF expects Nepal’s economy to grow further in 2025/26 with inflation staying under control. But risks remain, such as delays in public investment, financial sector issues, global trade problems, and political uncertainty.

The IMF praised Nepal’s new budget for 2025/26, which focuses on responsible spending, increased investment in infrastructure, support for private businesses, and an expansion of the school meal program.

During their visit, the IMF team also met with top Nepali officials and representatives from the private sector and international partners. They thanked Nepal for the warm welcome and productive discussions.

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