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August 19, 2026/IMFBlog
Nepal has faced several unusually challenging years in the face of repeated shocks. The country was recovering from the pandemic when it was hit by natural disasters, political transitions, and external shocks. Despite this, it recently completed its first IMF-supported arrangement in nearly two decades carrying out important reforms. Country Focus spoke with Nepal Mission Chief Sarwat Jahan about these achievements and what comes next.
What is the biggest takeaway from the program?
Jahan: Nepal’s economy is much more stable today than it was when the reform effort began in 2022. Inflation has fallen sharply, international reserves have increased, and the primary fiscal deficit is lower. Equally important, the country has improved some of the institutions that support economic policymaking. This progress is notable because Nepal endured several government transitions, natural disasters, and global shocks over the course of the program. Despite that difficult environment, the reform effort stayed on track. These reforms succeeded because Nepal maintained a consistent policy anchor, tailored the program to its evolving political situation, and received strong capacity development support.
How much did the economy strengthen?
Jahan: The improvement was broad based. Inflation fell from an average of 7.7 percent in fiscal year 2022-23 to 1.7 percent in the first half of fiscal year 2025-26. International reserves rose from about nine months of import cover to more than twelve, a meaningful cushion. Public finances also improved, with the budget gap narrowing sharply and debt kept at low risk of distress. These are not just abstract figures. Lower inflation protects people’s purchasing power, larger reserves guard against currency and trade pressures, and healthier public finances give the government a buffer to respond when the next crisis hits.
How have shocks tested the economy?
Jahan: Shocks have tested the economy repeatedly. Nepal was hit by a major earthquake in 2023, severe floods in 2024, and social unrest last year, each adding more uncertainty. More recently, higher energy prices linked to the war in the Middle East significantly added to the pressure. Each shock interrupted the recovery, and together they weighed heavily on job creation. The experience underlined a hard lesson: resilience must be built in advance. Countries that strengthen institutions and rebuild buffers before a crisis are far better placed to absorb the next one.
Which reforms will have the most lasting impact?
Jahan: The most durable changes, particularly those to institutions, were not necessarily the most visible. Nepal modernized how its central bank conducts monetary policy and improved oversight of the financial sector, including stronger bank supervision and a review of loan quality. It increased fiscal transparency by publishing financial statements of state-owned enterprises, developed a strategy to mobilize revenues, and strengthened how public investment is planned and managed. It also improved governance by upgrading its anti-money-laundering law and moving to strengthen the central bank’s legal framework and accountability. These reforms improve the quality of economic policy making, and ensure that macroeconomic policies are more effective over time.
Which priorities still need attention?
Jahan: There are several. Nepal still needs to foster higher private investment and generate more jobs creation. These reforms are essential for growth that reaches ordinary people. Parts of the financial system remain vulnerable, including savings and credit cooperatives that serve many people. Deeper institutional reforms are also ongoing and reform momentum needs to continue. For example, to keep addressing governance gaps and rebuild public trust, the authorities have begun an IMF Governance and Corruption Diagnostic. Stability, in other words, is the foundation for growth, not the finish line.
Completing the IMF-supported program is an important milestone, but reforms will continue. Priorities include strengthening the financial sector, improving social protection, and creating the conditions for stronger, more inclusive growth. Nepal has demonstrated its commitment to implementing critical reforms despite a difficult environment. If reforms continue, Nepal will be well placed to raise living standards, create job opportunities, and withstand future shocks. The IMF will remain a steadfast partner as Nepal pursues those goals.
The Nepal team includes Sarwat Jahan, Arpitha Bykere, Melih Firat, Yaroslav Hul, Rekha Ghimire, Pranav Gupta, Paul Leonovich, Saraswti Sharma, Galen Sher, and Yichen Xu.