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Asia and Pacific > Nepal

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Cover IMF Staff Country Reports
Nepal: Fourth Review Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Nepal
International Monetary Fund. Asia and Pacific Dept
This paper focuses on Nepal’s Fourth Review under the Extended Credit Facility (ECF) Arrangement. Nepal has made good progress with implementation of the program, despite a challenging political environment. With growth below potential, executing the planned increase in capital spending, as envisaged in the FY24/25 budget, while maintaining fiscal discipline through domestic revenue mobilization and rationalization of current spending remains critical to boost growth and preserve medium-term fiscal sustainability. Monetary policy should maintain the current cautious, data-driven approach to preserving price and external stability. Avoiding further boom-bust credit cycles is critical to establish a more stable, pro-growth equilibrium. Continued progress on the structural front remains needed to foster investment and more inclusive growth. These include improving the business climate, building human capital, and continuing to improve social safety nets, in particular aiming for full execution of the child grant budget, followed by an expansion of the program to all districts in Nepal.
Keywords:
ECF arrangement; UML-NC coalition; Nepali authorities; ECF program implementation; accommodative monetary policy stance; Credit; Debt relief; Global; Asia and Pacific
Cover IMF Staff Country Reports
Nepal: Third Review Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Nepal
International Monetary Fund. Asia and Pacific Dept
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.
Keywords:
Nepali authorities; authorities of Nepal; ECF program; development partner; monetary policy transmission; governance framework; Credit; Debt relief; Fiscal risks; Global; Asia and Pacific; South Asia
Cover IMF Staff Country Reports
Nepal: Technical Assistance Report—Financial Sector Stability Review
International Monetary Fund. Statistics Dept. and International Monetary Fund. Monetary and Capital Markets Department
This Technical Assistance (TA) paper on Nepal highlights the financial sector stability review. The mission conducted a diagnostic review of the financial sector oversight capacity and proposed a Technical Assistance Roadmap (TARM) to support the authorities’ efforts to strengthen the identification, analysis, and mitigation of risks to financial stability in Nepal. The Nepal Rastra Bank has developed its approach to supervision and continuing to strengthen its capacity will help improve the resilience of the banking sector. Payment systems modernization efforts have gained momentum, but further progress is needed to improve the safety and efficiency of payment systems to support monetary policy and financial stability. Financial sector statistics in Nepal have scope for improvement. Currently, the monetary and financial statistics cover the central bank, and other depository corporations comprising of commercial banks, development banks, and finance companies, which accept deposits. The mission’s diagnostic review supports a TA plan. The main recommendations are summarized and the comprehensive TARM is provided in this paper.
Keywords:
working capital; Nepal FSSR TA roadmap; liquidity regulation; request of the Nepal Rastra Bank; NRB regulation; payment legislation; NRB senior management; IMF to IMF executive directors; IMF MCM; macro-financial risk; payment Systems Department; modernization effort; NRB staff; Payment systems; Stress testing; Real time gross settlement systems; Financial sector stability; Global
Cover IMF Working Papers
Coping with Climate Shocks: Food Security in a Spatial Framework
Diogo Baptista, John A Spray, and Ms. Filiz D Unsal
We develop a quantitative spatial general equilibrium model with heterogeneous house-holds and multiple locations to study households’ vulnerability to food insecurity from cli-mate shocks. In the model, households endogenously respond to negative climate shocks by drawing-down assets, importing food and temporarily migrating to earn additional income to ensure sufficient calories. Because these coping strategies are most effective when trade and migration costs are low, remote households are more vulnerable to climate shocks. Food insecure households are also more vulnerable, as their proximity to a subsistence requirement causes them to hold a smaller capital buffer and more aggressively dissave in response to shocks, at the expense of future consumption. We calibrate the model to 51 districts in Nepal and estimate the impact of historical climate shocks on food consumption and welfare. We estimate that, on an annual basis, floods, landslides, droughts and storms combined generated GDP losses of 2.3 percent, welfare losses of 3.3 percent for the average household and increased the rate of undernourishment by 2.8 percent. Undernourished households experience roughly 50 percent larger welfare losses and those in remote locations suffer welfare losses that are roughly two times larger than in less remote locations (5.9 vs 2.9 percent). In counterfactual simulations, we show the role of better access to migration and trade in building resilience to climate shocks.
Keywords:
Agriculture; Food Security; Trade, Migration; Climate change; Climate shocks; welfare loss; food consumption; migration cost; loss from climate; losses from climate change; Consumption; Migration; Income; Global