Nepal: 2026 Article IV Consultation and Seventh Review under the Extended Credit Facility Arrangement-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for Nepal

This paper presents Nepal’s 2026 Article IV Consultation and Seventh Review under the Extended Credit Facility arrangement. Nepal has made tangible progress in implementing reforms under the program which has helped preserve macroeconomic and financial stability and build buffers to mitigate the impact of global shocks and domestic uncertainty on economic activity. Growth momentum is expected to pick up, underpinned by reduced domestic uncertainty following the post-elections smooth transition of power and a supportive policy mix for FY2026/27. The outlook is subject to downside risks, given heightened global uncertainty and domestic vulnerabilities. Strengthening governance and institutional credibility will enhance the effectiveness of the broader structural reform agenda, aimed at improving the business environment, creating jobs, and enhancing public service delivery. The accommodative monetary policy stance should be adjusted if second-round price and external sector pressures arise. Vigilance is needed to address rising financial sector vulnerabilities, including strengthening bank credit practices and risk-based supervision. Expanding the Loan Portfolio Review diagnostic to remaining banks and developing a resolution regime for problematic savings and credit cooperatives remain critical.