Nepal: Staff Report for the 2023 Article IV Consultation, First and Second Reviews Under the Extended Credit Facility Arrangement, Requests for Waivers of Nonobservance of Performance Criteria, Extension of the Arrangement, and Rephasing of Disburseme

Global developments have impacted Nepal’s import-dependent economy—particularly through higher commodity prices. The current account weakened and reserves declined in the first half of 2022. Pressure on reserves has subsided since then, thanks in part to monetary policy tightening and cooling domestic demand, but inflation remains elevated. Fiscal policy has been less expansionary than projected, but a recent fall in revenues is adding to near-term fiscal pressures. Non-performing loans are increasing, while capital adequacy ratios remain above regulatory minima. Risks are on the downside.