The Executive Board of the International Monetary Fund (IMF) has granted Nepal Special Drawing Rights (SDF) of 31.4 million (about US$ 41.3 million) under the four year Extended Credit Facility (ECF) upon completing the fourth review of the ECF recently.

This brings total disbursements under the ECF for budget support so far to SDR 188.3 million (about US$ 247.7 million), the IMF said in a statement.

The IMF Executive Board had approved the ECF arrangement for Nepal on January 12, 2022 for SDR 282.42 million (180 percent of quota or about US$ 371.6 million).

Before disbursing each tranche of the extended credit facility, the IMF reviews previous commitments. For this review, the Deputy Division Chief and Resident Chief for Nepal under the Asia Pacific Division of the IMF, Tidiane Kinda, led a delegation to Nepal in late May. During their visit, the IMF delegation met with Finance Minister Barshman Pun and assured that the remaining amount under the ECF would be disbursed soon.

The IMF has been providing financial assistance to various countries through the ECF Fund to support structural and policy reforms, medium-term balance of payments, internal revenue mobilization, public investment management, and financial risk reduction.

Nepal has been utilizing the ECF funds as budgetary aid.

The IMF noted that Nepal has made good progress with implementation of the program, which has helped mitigate the impact of the pandemic and global shocks on economic activity, protect vulnerable groups, and preserve macroeconomic and financial stability. The program is also helping to catalyze additional financing from Nepal’s development partners, the IMF said.

The IMF, however, warned that the economy continues to face challenges as growth, projected around 3 percent in FY2023/24, remains below potential in the context of subdued domestic demand and post pandemic balance sheet repairs.

“Economic activity is expected to pick up with growth reaching 4.9 percent in FY2024/25, supported by stronger domestic demand. The cautiously accommodative monetary policy stance, planned increase in capital expenditure in the FY2024/25 budget, additional hydropower generation, and a continued increase in tourist arrivals are expected to boost domestic demand and growth,” reads the statement issued by IMF.

According to the IMF, inflation is expected to remain within the Nepal Rastra Bank’s (NRB) target ceiling of 5.5 percent.

The IMF statement further said that domestic risks dominate the outlook.

“Failure to raise the execution rate of capital projects would deprive the economy of much-needed stimulus and weigh on growth.”

Another factor that the IMF pointed out could disrupt policy continuity and reform implementation is fragile political stability. Intensification of financial sector vulnerabilities such as a further rise in NPLs or more failures of cooperative lenders could endanger banking system soundness, the statement added.

Externally, high commodity prices could slow the recovery in energy-intensive sectors, the IMF said, adding that Nepal remains vulnerable to natural disasters.