Nepal: Third Review Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Nepal

This paper presents Nepal’s Third Review under the Extended Credit Facility (ECF) Arrangement. Nepal has made good progress with the 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. Nepal’s post-pandemic rebound, fuelled by a credit boom, ended last year as growth slowed markedly. Low domestic demand helped resolve external pressures but also deflated government revenue and led to a widening of the fiscal deficit despite expenditure control. Policy priorities for sustained growth include enhancing capital expenditure while maintaining overall fiscal discipline and advancing reforms in areas such as banking regulation, governance, and business climate. Continued progress on the structural front is also needed to foster investment and growth that is more inclusive. These include improving the business climate, building human capital, and continuing to improve social safety nets, in particular the coverage of the child grant program.