IMF Approves Sixth Review of Nepal’s ECF Program, Disburses Additional $43 Million Amid Political Uncertainty

KATHMANDU: The International Monetary Fund (IMF) Executive Board on October 1, 2025, completed the sixth review under the Extended Credit Facility (ECF) arrangement for Nepal, allowing the release of SDR 31.4 million (approximately USD 43.05 million) to the government. This brings the total disbursement under the ECF to SDR 251.1 million (around USD 341.2 million), providing crucial budgetary support to the Nepali economy amid ongoing political and economic challenges.

Approved on January 12, 2022, the three-year ECF arrangement of SDR 282.4 million (180 percent of Nepal’s IMF quota) has been instrumental in stabilizing the country’s economy. The IMF noted that Nepal has made “tangible progress” in implementing structural reforms, supporting macroeconomic stability, and protecting vulnerable groups even amid volatile political developments.

Youth-led protests reshape Nepal’s political landscape

Nepal’s political context has recently shifted dramatically following youth-led anti-corruption protests, which forced the formation of an interim government led by former Chief Justice Sushila Karki. The protests, which drew nationwide participation, reflected deep-seated frustrations over corruption, governance failures, and lack of employment opportunities.

Despite these disruptions, the IMF projects that economic recovery will continue in FY2025/26, supported by improved budget execution and a boost in private sector confidence. The report forecasts inflation within the Nepal Rastra Bank’s (NRB) target of 5 percent, while import growth and capital expenditure in reconstruction and hydropower are expected to accelerate.

IMF urges fiscal discipline and reform execution

Following the Board’s decision, IMF Deputy Managing Director Bo Li praised Nepal’s efforts but warned that sustained reform commitment is essential amid “a difficult political context and uncertain global conditions.”

“Nepal’s reform program supported by the ECF continues to underpin gradual economic recovery while preserving macroeconomic stability and protecting the vulnerable,” Li said. “Program performance remains broadly adequate despite political volatility. Continued ownership of economic reforms is of paramount importance to support growth, reduce poverty, and restore public trust.”

The IMF stressed the need for gradual fiscal consolidation, particularly to finance post-protest reconstruction while ensuring fiscal sustainability. It recommended improving public investment management, accelerating capital spending execution, and implementing reforms outlined in the Domestic Revenue Mobilization Strategy and Tax Expenditure Report.

The IMF also called for full implementation of the child grant program, expanding both its coverage and per-beneficiary support, to protect the poorest communities amid fiscal tightening.

Addressing financial sector and governance challenges

The Fund expressed concerns over rising financial sector vulnerabilities and urged the Nepal Rastra Bank to complete the Loan Portfolio Review and take “decisive action” against problematic savings and credit cooperatives.

It also emphasized strengthening NRB’s independence and governance through legal amendments to the NRB Act, while cautioning against hastily establishing an asset management company due to potential risks.

Nepal was further urged to accelerate progress on anti-money laundering (AML) measures to ensure a timely exit from the Financial Action Task Force (FATF) grey list, which continues to dampen foreign investment sentiment.

Long-term growth anchored in hydropower and private sector

The IMF noted that Nepal’s medium-term outlook remains favorable, supported by large-scale infrastructure investments, particularly in hydropower, and ongoing structural reforms aimed at enhancing productivity, competitiveness, and private sector-led growth.

However, the report warned that downside risks—including political instability, weak capital expenditure performance, potential natural disasters, and global trade headwinds—could derail recovery efforts.

“Strengthening the anticorruption framework and improving governance are critical to bolstering economic resilience and restoring investor confidence,” Li added.

Background and global relevance

Nepal’s engagement with the IMF through the ECF has been central to maintaining macroeconomic balance since the COVID-19 pandemic. The Fund’s financial and technical support has helped the government navigate external shocks, rising import bills, and liquidity constraints.

The IMF’s latest disbursement coincides with efforts by the interim government to restore investor confidence, revive employment, and promote sustainable, inclusive growth through fiscal transparency and private sector engagement.