On November 29, the Executive Board of the International Monetary Fund (IMF) completed the third review under the four‑year Extended Credit Facility (ECF) for Nepal, allowing the authorities to withdraw the equivalent of SDR 39.20 million (about US$ 52.25 million). This brings total disbursements under the ECF for budget support thus far to SDR 166.90 million (about US$ 222.5 million).
The ECF arrangement for Nepal was approved by the Executive Board on January 12, 2022 (see Press Release No. 22/6) in an amount equivalent to SDR 282.42 million (180 percent of quota or about US$ 376.5 million). Nepal has made good progress with the implementation of the program, which has helped mitigate the impact of the pandemic and global shocks on economic activity, protect vulnerable groups, and preserve macroeconomic and financial stability. The program is also helping to catalyze additional financing from Nepal’s development partners, said the press note.
Nepal’s post-pandemic rebound, fueled by a credit boom, ended last year as growth slowed markedly. Low domestic demand helped resolve external pressures but also deflated government revenue and led to a widening of the fiscal deficit despite expenditure control. Inflation is declining but remains high at 8.2 percent in September. Growth is expected to recover to 3.5 percent in FY2023/24, which is below potential, led by increased domestic demand, new hydroelectric capacity, and a continued recovery in tourism.
Risks are skewed to the downside. External sector risks dominate Nepal’s outlook given its high remittance income and dependence on imported goods. Domestically, further deterioration in bank balance sheets or lack of progress in addressing the deficiencies identified by the Asia Pacific Group of the Financial Action Task Force (FATF) could create financial system stress, it added.
