Nepal: Fifth Review Under the Extended Credit Facility Arrangement and Request for Modification of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Nepal

This paper presents Nepal’s Fifth Review under the Extended Credit Facility Arrangement and Request for Modification of a Performance Criterion. Nepal has made tangible progress in implementing economic reforms under the program, despite a challenging political environment and disruptions caused by the September 2024 floods. The growth recovery is expected to continue in FY2024/25, supported by increased capital spending including on reconstruction, an accommodative monetary policy stance, and additional hydropower generation. Monetary policy should maintain the current cautious, data-driven approach to preserving price and external stability. Executing the planned increase in capital spending and modernizing public investment management are critical to support domestic demand and medium-term growth prospects. Domestic revenue mobilization is needed for development spending and to preserve medium-term fiscal sustainability. To support the most vulnerable, eligibility for the child grant should be expanded. Ongoing efforts to improve the anticorruption framework and enhance anticorruption institutions by amending the corresponding legal acts should continue.