KATHMANDU, OCTOBER 5

Nepali authorities and the International Monetary Fund team have reached staff-level agreement for disbursement of about $51.3 million under the third review of the Extended Credit Facility arrangement.

The agreement is subject to approval by the IMF's executive board.

An IMF team led by Tidiane Kinda had held discussions on policies and reforms that could lead to the completion of the third review of economic programme supported by the IMF's ECF.

Kinda issued a statement saying, 'Nepali authorities and IMF staff reached staff-level agreement on the policies and reforms needed to complete the third review under the ECF.

The agreement is subject to approval by the IMF's executive board. Completion would make available SDR 39.20 million (about $51.3 million), bringing total disbursements under the ECF thus far to SDR 156.9 million (about $205.4 million), from a total of SDR 282.42 million (about $369.8 million).'

The statement further said Nepal continued to progress with implementation of the ECF-supported programme.

On the fiscal front, important achievements by the Ministry of Finance include the formulation of a fiscal risk register, the publication of non-customs 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. Regarding monetary and financial sector matters, major achievements of Nepal Rastra Bank (NRB) include full implementation of the Supervisory Information System (SIS) for Class A, B and C banks (excluding onsite module) and issuance of a new set of bank asset classification regulations, which appropriately aimed at strengthening monitoring capability and improving bank asset quality.

'Nepal's external position has strengthened, supported by prudent fiscal and monetary policies, buoyant remittances, and post-pandemic rebound in tourism, despite spikes in regional food prices. However, on the domestic front, growth is estimated to have slowed in fiscal year 2022-23, reflecting last year's import restrictions and regulatory uncertainty on land markets and construction licensing, lower credit flows, and weaker domestic demand in a context of large post-COVID emigration outflows. The ensuing shortfall in revenue pushed the 2022-23 fiscal deficit upward, but to a level that remains consistent with a sustainable level of public debt, reflecting budget discipline.'

Growth is projected to recover to 3.5 per cent this fiscal due to weak domestic demand'.

Necessary balance sheet repairs after the credit boom and sluggishness in the real estate market have been limiting credit growth in spite of monetary relaxation. Inflation remained high at 7.5 per cent in August but is expected to recede.

Nepal's medium-term outlook remains favourable as strategic investments in infrastructure, especially in the energy sector, are expected to support growth.

'Against this background, the policies and reforms envisaged in the ECF remain wellplaced to facilitate the needed transition to more stable, progrowth credit while ensuring macroeconomic and financial stability. Pursuing cautious data-driven approach to monetary policy is essential to maintain price and external stability. Accelerating planned increase in capital spending, as envisaged in the fiscal 2023-24 budget, will help boost aggregate demand.'

On reforms, Nepali authorities and IMF staff agreed on giving priority to the formulation of a Domestic Revenue Mobilization Strategy to improve tax collection, develop an action plan to improve efficiency of public investment spending, launch a loan portfolio review of the banking system, continue to strengthen the NRB's SIS onsite module, and amend the NRB Act.

'Other future important reforms include publication of a comprehensive tax expenditure report, publication of annual financial statements by public enterprises, audit of financial statements of the four-priority public enterprises, and reporting consolidated financial information of all extra-budgetary operational funds.'

A version of this article appears in the print on October 6, 2023, of The Himalayan Times