IMF ECF Seventh Review Agreement Reached with Nepal

22nd February 2026, Kathmandu

The economic landscape of Nepal has reached a pivotal juncture with the official conclusion of the staff level agreement for the seventh and final review under the Extended Credit Facility (ECF). Following an intensive mission in Kathmandu from February 6 to 20, 2026, the International Monetary Fund (IMF) delegation, led by Mission Chief Sarwat Jahan, announced that Nepal is set to receive approximately 43.2 million US dollars (nearly 6 billion Nepali rupees). This disbursement is the final tranche of a multi-year financial assistance program aimed at stabilizing Nepal’s economy after the dual shocks of the global pandemic and subsequent inflationary pressures. The successful completion of this review signifies that the international community recognizes Nepal’s efforts in maintaining fiscal discipline and pursuing structural reforms despite a backdrop of domestic political transitions and a slowdown in the manufacturing and construction sectors.

IMF ECF Seventh Review

The Extended Credit Facility is a specialized lending tool used by the IMF to provide medium term support to low income countries facing protracted balance of payments problems. Nepal entered this arrangement nearly four years ago with a total commitment of approximately 395.9 million US dollars. The core objective was not merely to provide liquid cash but to act as a catalyst for deep-seated institutional changes. Over the course of the seventh review, the IMF team evaluated Nepal’s performance against several quantitative targets and structural benchmarks. One of the standout achievements noted by the mission was the meeting of all quantitative performance criteria through mid-July 2025. This indicates that the government has been successful in managing its net international reserves and controlling its primary fiscal deficit within the limits agreed upon with the fund.

Structural reforms have been the centerpiece of the ECF program. In this latest review, the IMF lauded Nepal for the implementation of its customs administration reform strategy and the completion of a comprehensive loan portfolio review for the banking sector. These measures are crucial for a nation that relies heavily on import-based revenue. Furthermore, the revision of asset classification regulations to align with international standards represents a major step toward making the Nepali banking system more transparent and resilient. The mission also highlighted the integration of recommendations from the 2021 Safeguards Assessment into the proposed amendments for the Nepal Rastra Bank Act. These legal updates are designed to enhance the autonomy and accountability of the central bank, ensuring that monetary policy remains insulated from short term political considerations.
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Despite the positive progress on the reform front, the IMF ECF Seventh Review has cast a cautious shadow on Nepal’s immediate economic growth outlook. The fund has projected a growth rate of 3 to 3.5 percent for the current fiscal year. While this is a slight improvement over previous low cycles, it remains significantly below the country’s inherent potential and the government’s own ambitious targets. The mission pointed to several factors dampening the economic momentum, including weak private sector confidence and the slow execution of capital expenditure. When the government fails to spend its development budget on time, it creates a liquidity crunch in the market and delays the creation of infrastructure that could drive long term productivity. The IMF stressed that restoring investor confidence will require a period of sustained political stability and a clear, predictable policy environment.

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Financial sector vulnerabilities remain a primary concern for both the IMF and local regulators. The Seventh Review explicitly noted the rising trend of non-performing loans (NPLs), which reached 5.4 percent in early 2026. This spike in bad debt is largely attributed to the prolonged slowdown in the real estate sector and the difficulties faced by small and medium enterprises in meeting their debt obligations. The IMF warned that if the banking sector’s capital base is not strengthened and if supervisory capacity remains stagnant, these risks could escalate into a broader systemic issue. Additionally, the mission emphasized the urgent need for Nepal to implement the recommendations of the Financial Action Task Force (FATF) to exit the grey list. Improving the legal framework to combat money laundering and the financing of terrorism is essential for maintaining Nepal’s access to the global financial system and ensuring that remittance inflows remain steady.

Revenue mobilization was another critical area of discussion during the high-level meetings between the IMF delegation and senior officials, including Finance Minister Rameshwar Prasad Khanal and NRB Governor Bishwanath Paudel. The IMF noted that while remittance inflows have provided a significant cushion to the balance of payments, the government must diversify its revenue sources. Enhancing the efficiency of the Internal Revenue Department and expanding the tax net to include the informal economy are vital for financing development projects without increasing the national debt to unsustainable levels. The mission recommended that the government focus on reducing tax exemptions and strengthening the digital infrastructure for tax collection to minimize leakages and corruption.

In conclusion, the completion of the IMF ECF Seventh Review marks a successful end to a major chapter in Nepal’s economic reform journey. The expected release of nearly 6 billion rupees will provide a timely boost to the nation’s foreign exchange reserves and signal to other multilateral lenders and foreign investors that Nepal is committed to a disciplined economic path. However, the mission’s findings serve as a reminder that the hard work of reform must continue even after the IMF program concludes. The focus must now shift to boosting domestic production, managing banking sector risks, and ensuring that the benefits of reform reach the grassroots level. As the IMF Executive Board prepares for the final approval in Washington DC, the responsibility lies with the Nepali leadership to maintain the momentum and transform these structural changes into tangible prosperity for the people.

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