The Executive Board of the International Monetary Fund (IMF) approved disbursement of US$41 million for Nepal on Tuesday.

Concluding its fourth review under the four-year Extended Credit Facility (ECF), the international organisation allowed authorities to withdraw the equivalent of US$41.3 million, taking the total disbursement of financial support to Nepal under the programme to US$247.7 million.

“Nepal has made good progress with the implementation of the programme, which has helped mitigate the impact of the pandemic and global shocks on economic activity, protect vulnerable groups, and preserve macroeconomic and financial stability,” the IMF said in a statement.

According to the global financial agency, Nepal’s projected economic growth for fiscal 2023/24, which is around 3 percent, remains below potential in subdued domestic demand and post‑pandemic balance sheet repairs as the economy continues to face challenges.

However, economic activity is expected to pick up with growth reaching 4.9 percent in FY2024/25, supported by stronger domestic demand.

“The cautiously accommodative monetary policy stance, planned increase in capital expenditure in the FY2024/25 budget, additional hydropower generation, and a continued increase in tourist arrivals are expected to boost domestic demand and growth,” the statement further reads.

Inflation is expected to remain within the Nepal Rastra Bank’s (NRB) target ceiling of 5.5 percent.

The IMF has also warned that a failure to raise the execution rate of capital projects would deprive the economy of much-needed stimulus and weigh on growth as ‘domestic risks dominate the outlook.’

Despite the country’s cautiously accommodative monetary policy, fragile political stability could disrupt policy continuity and reform implementation.

“Intensification of financial sector vulnerabilities such as a further rise in non-performing loans (NPL) or more failures of cooperative lenders could endanger banking system soundness,” the agency said, adding that “high commodity prices could slow the recovery in energy-intensive sectors.”

“As monetary policy transmission is still weak in a context of balance sheet repair, a cautious and data dependent monetary policy remains appropriate to preserve price and external stability,” said Bo Li, deputy managing director and acting chair of the IMF’s executive board.

“Continuing to strengthen Nepal’s financial system remains a top priority. Financial policy should remain vigilant and focused on building regulatory frameworks that promote sustainable credit growth while proactively addressing emerging vulnerabilities in the savings and credit cooperatives sector.”

Li added that a cautious and data dependent monetary policy remains appropriate to preserve price and external stability as monetary policy transmission is still weak in a context of balance sheet repair.

“Continued progress on the structural front—improving the business climate, building human capital, and continuing to improve social safety nets—remains needed to foster investment and more inclusive growth,” he added.

Li suggested that Nepal should also emphasise the full execution of the child grant budget, followed by an expansion of the program to all districts in Nepal.