KATHMANDU: The International Monetary Fund (IMF) has advised the Nepali authorities to maintain rigorous monitoring of the country’s banking sector as Nepal gradually recovers from an economic slowdown. This caution comes after an IMF delegation led by Sarwat Jahan visited Nepal from September 11-12, 2024, to assess the country’s macroeconomic conditions and the progress of programs under the Extended Credit Facility (ECF).
In a press release issued following the visit, the IMF emphasized the importance of addressing vulnerabilities in the financial sector. The global financial institution stressed the need for heightened supervision of Nepal’s largest banks, as well as solutions to ongoing issues within the cooperative sector.
“As banks deal with elevated non-performing loans and capital constraints, continued vigilance is necessary. This includes further strengthening regulation and completing the loan portfolio review of the 10 largest banks,” the IMF said. It also underscored the urgency of addressing the challenges faced by savings and credit cooperatives.
The IMF has long encouraged Nepal’s central bank, Nepal Rastra Bank (NRB), to conduct a comprehensive review of the credit quality issued by major financial institutions. While NRB had initiated a tender process to appoint an international auditor for this purpose, the central bank canceled the process last month, leaving concerns about the sector’s health unaddressed.
Signs of Economic Recovery
Despite these concerns, the IMF expressed satisfaction with recent signs of recovery in Nepal’s economy. According to the IMF, “incoming high-frequency data” suggests that import growth has turned positive, tax collections are improving, and public investment is accelerating. Credit growth is also rebounding, albeit at a rate below nominal GDP growth.
Focus on Governance and Accountability
The IMF welcomed recent amendments to Nepal’s Anti-Money Laundering Act as a step in the right direction. However, it urged further reforms, including the completion of an external audit of NRB and amendments to the NRB Act. “Amending the Nepal Rastra Bank Act, completing NRB’s external audit, and enhancing transparency in public enterprises will strengthen governance and accountability,” the IMF said. The organization also highlighted the importance of passing the Investment Facilitation Act to improve Nepal’s investment climate.
High-Level Meetings
During their visit, the IMF team met with key government figures, including Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel, NRB Governor Maha Prasad Adhikari, and Vice-Chairman of the National Planning Commission Shiva Raj Adhikari. The team also engaged with private sector representatives and development partners to discuss the country’s economic recovery and financial health.
As Nepal works to stabilize its economy, the IMF’s recommendations emphasize the need for ongoing reforms and vigilance to ensure sustainable growth, particularly in the financial and cooperative sectors.