IMF Approves $43.05 Million Disbursement for Nepal

The Executive Board of the International Monetary Fund (IMF) has approved a disbursement of $43.05 million (approximately Rs 6.12 billion) for Nepal, following the completion of the sixth review under the four-year Extended Credit Facility (ECF).  

In a statement issued on Thursday, October 2, the IMF announced that its Executive Board had completed the review on October 1, allowing Nepalese authorities to withdraw the equivalent of SDR 31.4 million (about $43.08 million) under the ECF. With this latest installment, total disbursements under the facility for budget support have reached SDR 251.1 million (about US$ 341.2 million).

The IMF initially approved the ECF arrangement for Nepal on January 12, 2022, with a total commitment of SDR 282.4 million.  

Nepal has made tangible progress in implementing reforms under the program, which has supported an ongoing economic recovery while preserving macroeconomic stability and protecting the vulnerable, said the IMF statement, adding the change in political landscape following the youth-led protests—reflecting long-standing grievances related to corruption, governance, and inequality which were exacerbated by relatively subdued growth and lack of job opportunities—culminating in the formation of an interim government. 

“Despite the socio-economic challenges, economic recovery is projected to continue in FY2025/26, underpinned by budget measures to improve project execution and boost private sector confidence, while monetary policy remains accommodative,” read the statement. “Inflation is expected to remain within the Nepal Rastra Bank’s target of about 5 percent.”

Recovery in imports is expected to pick up momentum, driven by pent-up demand and higher execution of capital expenditure—particularly on reconstruction and energy, the statement further added. 

According to the IMF, efforts to mobilize revenues will support development spending and ensure fiscal sustainability. 

“The medium-term outlook remains favorable, anchored by strategic infrastructure investments—including in the hydropower sector—and ongoing structural reforms aimed at boosting productivity, enhancing competitiveness, and fostering private sector-led growth,” the statement added.

However, the IMF noted that the downside risks have intensified. 

Added the statement: “It is critical to address risks stemming from capital expenditure under-execution, financial sector vulnerabilities, natural disasters, social discontent and political uncertainty, alongside global headwinds related to trade tensions. Safeguarding targeted social protection will lead to a more inclusive and sustainable growth.”

Following the Board discussion, IMF Deputy Managing Director Bo Li said Nepal’s reform programme “continues to underpin a gradual economic recovery while preserving macroeconomic stability and protecting the vulnerable,” even amid political volatility.

“Given the difficult political context, continued program ownership and commitment to economic reforms remain of paramount importance to support growth, reduce poverty, and foster public trust,” Li said.

He urged the government to pursue gradual fiscal consolidation while meeting reconstruction needs and maintaining sustainability. Strengthening public investment management, ensuring full execution of the child grant budget, and expanding social protection coverage were among the key recommendations.

On monetary policy, the IMF advised the NRB to maintain a data-driven and accommodative stance, while limiting any regulatory forbearance to targeted and time-bound measures. It also called for vigilance to address “rising financial sector vulnerabilities,” including timely completion of the loan portfolio review and resolution of problematic cooperatives.

The Fund also encouraged the NRB to enhance its governance and independence through amendments to the central bank law and to exercise caution in establishing an asset management company. It further highlighted the need for tangible progress in implementing the anti–money laundering framework to help Nepal exit the Financial Action Task Force (FATF) grey list.

Strengthening anti-corruption institutions, improving governance, and enhancing the investment climate remain vital to sustaining growth and ensuring it is both inclusive and resilient, the statement added.