IMF completes fifth review of Nepal’s ECF, approves $41.8 million disbursement

KATHMANDU: The International Monetary Fund (IMF) has successfully completed the fifth review of Nepal’s Extended Credit Facility (ECF), paving the way for the disbursement of approximately NPR 5.81 billion (equivalent to USD 41.8 million). The decision was announced in a press release issued on Friday following the IMF Executive Board meeting.

Despite challenges posed by political instability and devastating floods in October last year, the IMF commended Nepal for making notable progress in its economic reforms. The fund highlighted several factors contributing to Nepal’s economic resilience this year, including increased capital expenditure, post-earthquake and flood reconstruction efforts, flexible and accommodative monetary policies, and a rise in hydropower production. These developments are expected to bolster Nepal’s economic growth in the ongoing fiscal year.

Nepal first accessed the ECF in 2022, securing a facility worth USD 395.9 million—equivalent to 180% of its Special Drawing Rights (SDR) quota with the IMF—to address a weakening balance of payments and dwindling foreign exchange reserves. The funds are being disbursed in multiple tranches over four years to support budgetary financing.

An IMF review team, led by Jarkko Turunen, visited Nepal in late December to assess the country’s economic performance. The IMF noted that while domestic demand remains subdued and the economy faces multiple challenges, Nepal’s economic growth is projected to reach 4.2% in the current fiscal year. The disruptions in supply chains caused by floods and landslides are expected to resolve soon, with average inflation likely to hover around the Nepal Rastra Bank’s target of 5%.

“The government’s revenue mobilization efforts will support development spending and help maintain fiscal stability,” the IMF stated. “However, risks such as delays in capital expenditure implementation, financial sector vulnerabilities, and political instability persist.”

During the Executive Board meeting, IMF Deputy Managing Director Bo Li praised Nepal’s progress in implementing its economic reform program despite political uncertainties and recent flood-related disasters. Nonetheless, he emphasized the need for policymakers to remain vigilant, given the diverse risks clouding the economic outlook.

“To ensure fiscal stability, Nepal must accelerate economic growth, strengthen social safety nets, and boost domestic revenue collection,” Li was quoted as saying in the press release. “Amendments to the Nepal Rastra Bank Act are necessary to enhance its administrative autonomy and accountability. Additionally, addressing financial sector risks requires improving the management of savings and credit cooperatives, aligning financial regulations with international standards, and advancing loan portfolio reviews.”

The IMF also flagged Nepal’s inclusion on the Financial Action Task Force (FATF) grey list, urging greater vigilance in combating money laundering and terrorist financing. It recommended prioritizing regulatory reforms to address these concerns.

To foster an investment-friendly environment, the IMF stressed the need for institutional strengthening to reduce business operation costs, enhance governance, and curb corruption. Furthermore, it underscored the urgency of initiatives to mitigate the impacts of climate change-induced natural disasters.

With this latest disbursement, Nepal continues to navigate its economic recovery with IMF support, balancing short-term challenges with long-term structural reforms.