The IMF has assessed Nepal for the final tranche of the extended credit.
What you should know
The International Monetary Fund (IMF) has projected Nepal's economic growth rate to be limited to 3 to 3.5 percent this year. The Fund has made this projection, citing the destruction and economic uncertainty during the recent protests and agitations that have dampened the morale of the private sector and weakened the investment climate. This is lower than the previous IMF projection.
Earlier, the IMF had projected Nepal's economic growth rate to be 5.2 percent in the current fiscal year. A team of the Fund had come to Nepal for an on-site assessment regarding the seventh (final) tranche under Article Four and the Extended Credit Facility (ECF). The team revised its growth rate forecast to decline in a statement issued after the on-site review of Nepal.
A team of the Fund was in Nepal from February 6 to 20 for an on-site assessment. While in Nepal, the team held discussions with all stakeholders including the Ministry of Finance, the Nepal Rastra Bank, and other agencies. After the discussions, the team has prepared a report on Article Four and the Extended Credit Facility. The IMF has given information in this regard through a press release on Friday.
The annual inflation rate in January 2026 is limited to 2.4 percent, the fund has said. The inflation rate is low because market demand has not increased as expected. ‘Revenue growth in Nepal has remained normal.’ The mid-term review of the budget has reduced the size of the budget, while capital expenditure has been reduced accordingly,’ the statement said. ‘The external sector of the economy is strengthening due to increased remittances, stability in tourism income, and slowdown in import growth.’ Foreign exchange reserves are well above adequate levels.’
The fund has pointed out that financial risks in Nepal have increased. In January, bad loans reached 5.4 percent and are likely to increase further. The fund estimates that this will affect bank profits.
The International Monetary Fund has completed its on-site review of Nepal for the seventh (final) tranche under the Extended Credit Facility (ECF). “Nepali authorities and Fund staff have been able to complete the review of the seventh tranche under Article IV and the Extended Credit Facility for 2026. However, this will be subject to approval by the IMF Executive Board,” the statement said.
Nepal will receive the final tranche of US$43.2 million (about 6.25 billion rupees) after the report prepared by the team is approved by the IMF’s Management and Executive Committee. After that tranche, Nepal will receive a total of 56.56 billion rupees (384.4 million US dollars) from the IMF under this facility. With the final tranche, Nepal will receive all of its ECF funds.
‘Despite the challenging internal situation, Nepal is making good progress in implementing the ECF programs,’ the statement said. ‘The implementation of the program appears satisfactory, with all quantitative targets, except for the child welfare grant target, having been met by the end of Ashad (mid-July 2025).’
The IMF has considered the adoption of the customs compliance improvement strategy for the seventh review of the ECF, the review of the loan portfolios of banks and financial institutions, and the issuance of a circular on credit classification based on the Basel Banking Supervision Guidelines as achievements. ‘It was agreed to include the recommendations of the IMF’s 2021 Safeguard Assessment and the 2023 Financial Sector Stability Assessment Report in the revised bill of the National Bank Act. The submission of the bill to parliament is an important improvement,’ the statement said.
However, the Fund expects that the independent assessment of the big 10 banks will improve the regulation and supervision system of banks. But the financial condition of savings and credit cooperatives is still challenging, the statement said.
The Fund expects that peaceful political transformation will restore business confidence in the coming days, increase investment and consumption, keep inflation within the NRB's target, and improve domestic demand. However, the Fund says that risks remain, including political uncertainty, a slowdown in capital project implementation, increased financial sector risks, and a potential decline in remittances.
In the current situation, Nepal is advised to continue the pace of reforms to maintain macroeconomic stability and strengthen the policy framework. 'Development spending can be supported by increasing domestic revenue mobilization, and medium-term growth will be strengthened by increasing the efficiency of public investment and spending,' the statement said. 'The current monetary policy seems appropriate, but the NRB should continue to strengthen its policy instruments to improve liquidity management.'
As risks in the financial sector are increasing, vigilance and an effective strategy to improve banks' bad loan recovery are needed, the Fund has said. The Fund argues that improving the weaknesses in credit classification and provisioning pointed out by the supervision report of large banks is important for financial stability. The Fund claims that the amendment to the Rastra Bank Act will strengthen the independence and good governance of the central bank. The Fund has pointed out that effective implementation of the action plan and concrete efforts are necessary to exit the FATF's gray list.
The statement states that good governance and building strong institutional structures, promoting private investment, increasing productivity, creating quality jobs, reducing inequality, and achieving sustainable and inclusive growth are essential for Nepal.
