- The Nepali authorities and the IMF team have reached staff-level agreement to conclude the seventh and final review of Nepal's economic reform program supported by the IMF's Extended Credit Facility (ECF) arrangement. The completion of the review is subject to approval by the IMF Executive Board which will give Nepal access to about US$ 43.2 million in financing.
- Growth in FY2025/26 is projected to slow against economic uncertainty, low private sector confidence, and slow execution of public capital projects. A peaceful political transition, supported by policy measures to accelerate capital spending, strengthen the financial sector, and improve governance, would lay the foundation for stronger, durable and inclusive growth.
- Submission of the Nepal Rastra Bank Act amendments to Parliament remains a critical component of the reforms under the program.
Washington, DC: An International Monetary Fund (IMF) team led by Ms. Sarwat Jahan visited Kathmandu during February 6 to February 20, 2026 [1] . After constructive discussions, Ms. Jahan issued the following statement at the end of the mission:
"The Nepali authorities and IMF staff conducted discussions for the 2026 Article IV consultation and reached staff-level agreement on the policies and reforms needed to complete the seventh review under the ECF (see Press Release No. 22/6 ). [2] The agreement is subject to approval by the IMF's Executive Board. Upon completion of the Executive Board Review Nepal would have access to SDR 31.32 million (about US$ 43.2 million), bringing the total IMF financial support disbursed under the ECF to SDR 282.42 million (about US$ 384.4 million).
"Despite a challenging domestic environment, Nepal continues to make progress with the implementation of the ECF-supported program. Program performance has been satisfactory, with all quantitative performance targets for mid‑July 2025 met except for the indicative target on child welfare grants, which was missed marginally. Notable reforms that have been completed as part of the seventh review include adoption of a Customs Compliance Improvement Strategy, completion of the onsite inspection as part of the Loan Portfolio Review (LPR), and realignment of the asset classification regulations with Basel Committee on Bank Supervision (BCBS) Guidelines. Agreement was reached on the draft Nepal Rastra Bank (NRB) Act amendments to incorporate key recommendations from the IMF's 2021 Safeguard Assessment and 2023 Financial Sector Stability Report. Submission of the NRB Act amendments to Parliament is a critical component of the reforms under the program.
"Protest-related damages and economic uncertainty have weighed on economic activity and private sector confidence, delaying investment decisions. Growth in FY2025/26 is projected at 3 to 3.5 percent, well below potential. Inflation remained low—at 2.4 percent y/y in January 2026—reflecting in part due to subdued demand. Fiscal revenue growth remained modest and mid-year budget revised projections for capital expenditure. The external position continued to strengthen, with buoyant remittances, resilient tourism receipts, and subdued import growth. International reserves increased further and remain comfortably above adequacy levels.
"Financial sector vulnerabilities have intensified further, with non‑performing loans (NPLs) of the financial sector rising to 5.4 percent in January 2026 and are expected to be revised higher based on the recently completed LPR, impacting banks' capital. The LPR will likely provide recommendations for further strengthening bank balance sheets and enhancing the NRB's regulatory and supervisory approach to more accurately assess bank asset quality. The financial health of the savings and credit cooperatives (SACCOs) remains challenging.
"Looking ahead, a peaceful political transition is expected to restore business confidence, support pick-up in investment and consumption, and accelerate the recovery in domestic demand. Inflation is expected to remain within the NRB's policy target ceiling. However, the outlook is subject to important downside risks, including political uncertainty, under-execution of capital projects, an increase in financial sector vulnerabilities and remittance slowdown.
"Against this background, reform momentum should continue to preserve macroeconomic stability and strengthen Nepal's policymaking framework. Further efforts to mobilize domestic revenues would support development spending, while efforts to boost public investment and improve spending efficiency would enhance medium-term growth. The current accommodative monetary policy stance remains appropriate, and the NRB should continue to strengthen its monetary policy toolkit to enhance liquidity management.
"Rising financial sector vulnerabilities warrant increased vigilance and the design of a comprehensive strategy to improve bank NPL recoveries. Addressing any deficiencies in loan classification and provision that are highlighted in the LPR report will be critical to more accurately reflect asset weaknesses on bank balance sheets and ensure that banks are well provisioned and capitalized, essential to underpinning financial stability. Amendments to the NRB Act would strengthen the central bank's independence and governance and make the bank resolution regime more robust. The planned creation of an Asset Management Company must incorporate international best practices. Achieving concrete results in implementation of the anti-money laundering framework is key to expediting Nepal's exit from the FATF grey list.
"Good governance and strong institutions are central to boost private investment, improve productivity, create quality jobs, reduce inequality, and foster inclusive and durable growth. The authorities' plan to formulate a blueprint on improving governance and delivery of service is welcome, as is their commitment to the IMF's TA on Governance and Corruption Diagnostics.
"The IMF team held meetings with the Honorable Finance Minister Mr. Rameshore Prasad Khanal, the National Planning Commission Vice-Chairman Honorable Dr. Prakash Kumar Shrestha, the Nepal Rastra Bank Governor Dr. Biswo Nath Poudel, and other senior government and central bank officials. The IMF team also met with representatives from the private sector, think tank, and development partners.
"The IMF team is grateful to the Nepali authorities for their hospitality and for open and constructive discussions."
[1] Virtual discussions were held during February 2–3, 2026.
[2] The Extended Credit Facility (ECF) 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. The ECF is expected to help catalyze additional foreign aid.
