IMF Reaches Agreement on 3rd Review

 The Nepali authorities and the International Monetary Fund (IMF) team reached a staff-level agreement for a disbursement of about $51.3 million under the third review of the Extended Credit Facility (ECF) arrangement. The agreement is subject to approval by the IMF’s Executive Board, according to a press release issued by IMF on October 5.

Nepal’s external position has strengthened, supported by prudent fiscal and monetary policies, buoyant remittances, and increasing tourism activity. Following a slowdown last year, growth is projected to recover to 3.5 percent in FY 2023/24, but to remain below potential, reflecting weak domestic demand. Inflation is declining but is still elevated, the press release stated.

It further stated that necessary balance sheet repairs have been limiting credit growth in spite of monetary relaxation. Reforms under the ECF aim to generate more stable, pro-growth credit while maintaining price and external stability. Accelerating the planned increase in capital spending, as envisaged in the budget, will help boost demand.

The Nepali authorities are diligently making progress to improve AML/CFT, including enacting amendments of AML laws to bring them in line with international standards.

The press statement was released upon the conclusion of an IMF team visit led by Tidiane Kinda from September 21 to October 5. The team held discussions on the policies and reforms that could lead to the completion of the 3rd review of the authorities’ economic programme supported by the IMF’s ECF. At the end of the mission, Mr. Kinda issued the following statement:

“Nepal continues to make progress with the implementation of the ECF-supported program. On the fiscal front, important achievements by the Ministry of Finance include the formulation of a fiscal risk register, the publication of the non-custom tax exemptions, and the implementation of a cash flow forecasting framework, all reforms aimed at strengthening transparency of public finances and further enhancing fiscal management," press stated.

The ECF is a scheme that provides financial assistance to countries with protracted balance of payments problems. It supports countries’ economic programs aimed at moving toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. It is also expected to help catalyse additional foreign aid. ---