The International Monetary Fund (IMF) reported on Monday that Nepal's economy is displaying early signs of recovery, emphasising the importance of addressing vulnerabilities within savings and credit cooperatives as a national priority.

"Incoming high-frequency data shows import growth is turning positive, tax collections are improving, and public investment is gaining momentum," stated an IMF staff team, led by Sarwat Jahan, following their visit to Kathmandu, which concluded on Sunday.

The 12-day visit, which commenced on 11 September, focused on recent macroeconomic developments and the implementation of the IMF’s Extended Credit Facility (ECF)-supported programme.

The IMF’s statement noted, "Credit growth is recovering, while remaining appropriately below nominal GDP growth. Inflation has continued to decelerate, reaching around 3.6 percent by mid-July, partly due to favourable commodity prices and weak demand. International reserves are on the rise, supported by strong remittances, recovering tourism, and still subdued imports."

The statement stressed the importance of accelerating reform efforts to place the economy on a path of sustainable, strong, and inclusive growth.

"This will require enhancing the execution of public investment, further strengthening domestic revenue mobilisation, and ensuring the prompt disbursement of Child Grants."

The IMF also highlighted the need for continued vigilance as banks manage elevated non-performing loans and capital constraints, recommending further strengthening of regulations and the completion of loan portfolio reviews for the ten largest banks.

Addressing vulnerabilities within savings and credit cooperatives remains a key priority. "The recent amendments to the Anti-Money Laundering Act are a positive step. Amendments to the Nepal Rastra Bank Act, the completion of the NRB’s external audit, and increased transparency in public enterprises will enhance governance and accountability. Additionally, the Investment Facilitation Act will improve Nepal’s investment climate."

The IMF commended the government’s ongoing efforts to meet key commitments under the Fund-supported programme, with the support of IMF technical assistance.