IMF approves $42.9m disbursement to Nepal after final ECF review

WASHINGTON, DC: The Executive Board of the International Monetary Fund (IMF) has completed the seventh and final review under Nepal’s Extended Credit Facility (ECF) arrangement. It approved an immediate disbursement of about $42.9 million to support the country’s budget.

The disbursement raises total IMF support under the programme, which began in January 2022, to roughly $384.1 million. The Fund said Nepal made substantial progress on institutional reforms that helped preserve macroeconomic stability and rebuild buffers against external shocks.

However, the IMF lowered its growth projection for fiscal year 2025/26 to 3%, citing several near-term setbacks. The downgrade reflects youth-led public protests in September 2025, reduced agricultural output after a delayed monsoon and autumn floods, and weaker private investment ahead of elections. The Fund also noted that economic pressures from the ongoing conflict in the Middle East have weighed on domestic demand.

Looking ahead, the outlook for fiscal year 2026/27 is brighter. The transition to a single-majority government after the March 2026 elections has eased political uncertainty, and an accommodative monetary stance together with an expansionary fiscal budget is expected to revive private sector activity. Inflation is forecast to edge up because of international oil prices but remain close to the 5% target of the Nepal Rastra Bank (NRB).

“The completion of the seventh review marks the conclusion of Nepal's reform program supported by the Extended Credit Facility, which has helped safeguard macroeconomic stability, rebuild buffers, and protect the vulnerable,” said Bo Li, Deputy Managing Director and Acting Chair of the Executive Board. He added that “Programme performance has been broadly adequate despite successive domestic and global shocks.”

The IMF highlighted structural reforms carried out during the programme, including modernisation of central banking operations, strengthened supervision of commercial banks, completion of a comprehensive loan portfolio review, and tighter anti-money-laundering rules.

Nevertheless, the Fund warned of rising domestic vulnerabilities. Commercial bank non-performing loans rose to 5.4% by mid-January 2026, posing risks to banking capital, and financial distress remains in savings and credit cooperatives.

To address these risks, IMF Executive Directors urged Nepal to closely monitor inflation and to implement the Financial Action Task Force (FATF) action plan promptly to exit the international grey list. They also recommended increasing public capital expenditure, improving medium-term fiscal planning, and providing temporary, targeted support to protect poor households from volatile energy and food prices.