Kathmandu -A team from the International Monetary Fund (IMF) held meetings last week with the Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel, the National Planning Commission Vice-Chairman Dr. Shiva Raj Adhikari, the Nepal Rastra Bank Governor Dr. Biswo Nath Poudel, and other senior government and central bank officials. 

The IMF team also met with representatives from the private sector, think tank and development partners.

Following the meeting, the IMF mission team has continued discussions with central bank officials to assess the implementation of the Extended Credit Facility (ECF) program.

The IMF and the Government of Nepal have reached a staff-level agreement on the sixth review of the program. 

Once the IMF Executive Board gives its approval, Nepal is set to receive around USD 42.7 million. With this, the total disbursement under the ECF would reach approximately USD 331.8 million.

When the ECF agreement was initially signed, the IMF and the government laid out a set of conditions. 

These included structural reforms to the tax system, amendments to both the Nepal Rastra Bank Act and the Bank and Financial Institutions Act (BAFIA), and independent audits of the 10 largest commercial banks. 

The agreement also called for external audits of the Office of the Auditor General and Nepal Rastra Bank.

According to the IMF, tax system reforms have already been implemented. Progress in improving oversight at the Auditor General’s office and the central bank has also moved forward, although only partially.

The amendment process for BAFIA is underway and is currently being discussed in the Finance Committee of the House of Representatives.

However, no progress has been made on amending the Nepal Rastra Bank Act.

The IMF has recommended that the Governor's appointment go through Parliament and that the law be revised to allow for three Deputy Governors. 

While the central bank appears to support the proposal, the government has yet to agree. Even though the central bank prepared a draft and submitted it to the Ministry of Finance, the ministry has returned it multiple times.

The audit of the top 10 commercial banks has also hit a roadblock. A contract with the previously selected auditor, KPMG, was canceled following disagreements over financial terms. 

After cancelling that process, Nepal Rastra Bank issued a fresh tender and has now technically selected a Bangladeshi firm, Howldar Yunus & Co., asking the company to submit its financial proposal.

The IMF has expressed frustration over the lack of satisfactory progress on several reform commitments.

During the fifth review, the IMF had stated that independent audits of the 10 largest banks were underway. On that basis, the Fund approved a disbursement of Rs 5.8 billion.

Nepal initially agreed to borrow USD 398.8 million under the ECF in December 2021 (Poush 2078), aimed at supporting reforms in the financial and monetary sectors.

The IMF released the first installment of USD 110 million on January 12, 2022. Sixteen months later, the second and third tranches — USD 55 million and USD 52.2 million, respectively — were disbursed. 

In July 2023 (Ashar), Nepal received the fourth installment of USD 41.3 million. 

The IMF plans to release the full amount over seven tranches within 38 months. As of now, two installments totaling USD 98.5 million remain.