Kathmandu, Feb 22: An International Monetary Fund (IMF) mission has reached a staff-level agreement with the Government of Nepal on policies and reforms required to complete the seventh review under the Extended Credit Facility (ECF), paving the way for additional financial support.

An IMF team led by Sarwat Jahan visited Kathmandu from February 6 to 20, 2026 for the 2026 Article IV consultation and program review discussions. Issuing a statement at the end of the mission, the IMF said the agreement remains subject to approval by its Executive Board.

Upon approval, Nepal will gain access to SDR 31.32 million (about US$ 43.2 million), increasing total IMF disbursements under the ECF program to SDR 282.42 million (around US$ 384.4 million).

The IMF noted that Nepal has made satisfactory progress in implementing reforms under the ECF-supported program despite a challenging domestic environment. All quantitative performance targets for mid-July 2025 were met, except for a marginal shortfall in the child welfare grant indicator.

Key reforms completed under the seventh review include adoption of a Customs Compliance Improvement Strategy, completion of onsite inspections under the Loan Portfolio Review (LPR), and alignment of asset classification regulations with Basel Committee guidelines. Agreement was also reached on draft amendments to the Nepal Rastra Bank Act, which are expected to be submitted to Parliament.

The IMF projected Nepal’s economic growth for fiscal year 2025/26 at 3 to 3.5 percent, citing protest-related disruptions, economic uncertainty, and delayed private investment decisions.

Inflation remained low at 2.4 percent year-on-year in January 2026 due to subdued demand. While fiscal revenue growth has been modest, Nepal’s external sector strengthened, supported by strong remittance inflows, resilient tourism earnings, and slower import growth. International reserves remain comfortably above adequacy levels.

The IMF warned that financial sector vulnerabilities have increased, with non-performing loans rising to 5.4 percent as of January 2026. The recently completed LPR is expected to reveal further asset quality concerns and recommend measures to strengthen bank balance sheets and regulatory oversight.

The financial condition of savings and credit cooperatives (SACCOs) also remains challenging, the IMF said.

Looking ahead, the IMF emphasized that a peaceful political environment would help restore business confidence and accelerate investment and domestic demand recovery. However, risks remain from political uncertainty, weak capital spending execution, financial sector vulnerabilities, and possible slowdown in remittances.

The IMF recommended continued reforms to strengthen macroeconomic stability, mobilize domestic revenues, improve public investment efficiency, and enhance monetary policy tools of Nepal Rastra Bank.

It also stressed the importance of strengthening anti-money laundering measures to support Nepal’s exit from the FATF grey list and improving governance to attract private investment and create jobs.

During the visit, the IMF team met Finance Minister Rameshore Prasad Khanal, National Planning Commission Vice-Chairman Prakash Kumar Shrestha, NRB Governor Biswo Nath Poudel, as well as private sector representatives and development partners.

The IMF expressed appreciation to Nepali authorities for what it described as “open and constructive discussions” during the mission.