Recently, a high-level IMF delegation led by Dr. Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, along with Dr. Sarwat Jahan, the Mission Chief for Nepal and Deputy Division Chief in the same department, visited Nepal.
As Director of the Asia and Pacific Department, Dr. Srinivasan oversees the IMF’s work across 37 countries in the region, including Nepal. With over three decades of experience at the IMF, he has previously served in the Western Hemisphere, European, and Research Departments. Dr. Srinivasan is also the editor of several books and author of numerous research papers. He holds a PhD in International Finance from Indiana University.
Dr. Sarwat Jahan leads the IMF’s Nepal mission from its headquarters in Washington, D.C. She previously served as the IMF Resident Representative for Sri Lanka, helping the country navigate a difficult economic period. Since joining the IMF in 2009, Dr. Jahan has worked across various departments and assignments. Before joining the IMF, she worked at the World Bank. She holds a PhD in Economics from Cornell University.
In an interview with Onlinekhabar, they discussed the region’s overall economic performance, the IMF’s engagement in Nepal—particularly ongoing reforms under the Extended Credit Facility (ECF)—the country’s economic challenges, and the IMF’s support following the recent youth-led movement.
Excerpts:
Welcome to Nepal, Dr. Srinivasan. As a senior IMF official, this visit is significant after a long time. Could you please share the main purpose of your three-day visit?
Dr. Srinivasan: Thank you for the question. This is my first visit to Nepal, and I’ve had an excellent trip so far. Not only have I met policymakers, private sector representatives, and think tank members, but I’ve also had a chance for some cultural immersion. This trip is meaningful for me because, staying in Washington, you don’t often get to hear directly from people on the ground about how things are.
This visit has provided an opportunity to engage with a wide group of stakeholders, including policymakers- we’ve met with the Prime Minister, the Finance Minister, the Governor- as well as participants from the private sector, think tanks, civil society organizations, and others. So, for me It’s important to get information directly from people on the ground, and in that sense, this visit has been very meaningful.
Welcome also to Dr. Sarwat. As the Mission Chief for Nepal, I understand that you have visited Nepal several times. How would you describe your engagement here?
Dr. Jahan: Thank you for the warm welcome. I have been to Nepal before; this is actually my fourth visit. Every time I come to Nepal, I am amazed by the beauty of the country but even more so by the resilience of the Nepali people.
I am part of a larger IMF team, with several experts in our head office in Washington DC and a resident representative office here in Kathmandu. Our collective engagement has been very productive. Each visit allows for candid discussions, not just with authorities but also with various stakeholders. Because of these open candid discussions, we have been able to engage in numerous policy changes and reforms. This is also why Nepal has been able to maintain the course on its home-grown reforms.
Dr. Srinivasan, as the Director of the Asia-Pacific Department, you have a holistic view of the performance of the region. What highlights would you like to share with Nepal?
Dr. Srinivasan: Excellent question. This is a region, which is extremely dynamic. For this year, growth is expected at 4.5%, slowing to 4.1% next year. Broadly speaking, it’s a very fast-growing region and very resilient. There are three main factors for this resilience:
First, there’s been an export boom- export frontloading from countries, reflecting the agility of the private sector.
Second, there’s a tech boom, with increased tech exports from countries like Korea and Japan.
In addition, many countries have have provided macro-policy support, whether it’s monetary policy support, in some cases, fiscal policy support, and some countries both. And financial conditions have been very supportive.
So, these reasons put together, the region is showing a lot of resilience.
However, resilience is not the only thing. Going forward, there are some reasons of concern. The regional growth is slowing compared to the pre-pandemic period, which is a concern. This slowing of growth is partly due to falling productivity in many countries, in many countries population is aging, and weak consumer confidence, and high youth unemployment in other countries. These are all risk factors for future prospects.
Even in the near term, there are some risks to the outlook. For example, why has growth been resilient ? One thing I said is because exports have been booming . The tariffs which were imposed by the US in April have been coming down following new trade deals. However, uncertainty remains regarding these trade agreements. So, there are some down-side risks with the trade tensions.
Financial conditions, which have been supportive, could also change. So, while the region currently contributes 60% to global growth, there are downside risks that need to be addressed through policies in the both near-term and medium-term.
Dr. Sarwat, Amidst the global headwinds that Dr. Srinivasan, just mentioned – how do you see Nepal’s growth trajectory? What are the biggest risks to achieving this growth, and what steps does the IMF recommend to mitigate them?
Dr. Jahan: We are seeing that there is a recovery in place in Nepal. In fiscal year 2023, GDP growth was just 2%. Since then, growth has accelerated—reaching 3.7% in the year ending in July 2024, and we estimate growth was well above 4% for the year ending July 2025. The government projects real GDP growth between 4.6 to 4.7%. Thus, real GDP growth has more than doubled in a few short years.
For the current fiscal year, we are confident the recovery will continue, though the pace may moderate due to the complex domestic situation and lingering global uncertainty.
Our projections are based on several assumptions. Most critically, we expect growth will be underpinned by strong investment, specially from the budget measures to execute capital expenditure, accompanied by fiscal discipline that the authorities have shown in the past.
What we mean by this is that the authorities are expected to enhance revenue generation while keeping expenditures aligned with that revenue. Monetary policy has been accommodative in the past, and we expect this approach to continue, particularly now that price stability has been achieved in Nepal.
We strongly believe that structural reforms and good governance are essential for this growth trajectory.
But of course, as in any type of projections, there’s always some risks to the outlook. Risks include weaker-than-expected capital execution. In fact, that’s why we place a strong emphasis on capital expenditure targeted towards strategic projects to continue. So, these projects should be quite productive.
And another risk is ongoing political uncertainty, which could dampen consumer and investor confidence.
We also see vulnerabilities in the financial sector—rising non-performing loans and weaknesses among cooperatives. If these vulnerabilities persist, they could disrupt credit flows and financial stability.
Nepal, like other countries, is also exposed to external risks as it is an interconnected world. If Nepal’s large trading partners, like India or China face some kind of shock or if there are some issues with Nepal’s remittance source countries, clearly there will be some spillovers in Nepal.
However, Nepal can mitigate these risks through strong, targeted public investment in productive projects, fiscal discipline, supportive monetary policy, and improvements in governance to create a conducive investment climate.
Let’s talk about the geopolitical context. India is a rapidly growing global economy, yet neighboring economies like Nepal haven’t fully benefited from its spillover effects. Based on your experience across different regions, could you elaborate on the reasons behind this?
Dr. Srinivasan: Yes, India is currently growing very fast—6.6 percent this year, expected to slow slightly to 6.2 percent next year, with a medium-term outlook of 6.5 percent. As Sarwat mentioned, Nepal’s projected growth over the next couple of years is around 5 percent.
The two economies are closely integrated—Nepal imports about 60 percent of its goods from India, and many Nepali citizens work there. So, if India performs well, it positively affects Nepal, both through trade and employment opportunities.
However, Nepal’s progress ultimately depends on its own domestic policies and structural reforms. In Nepal’s case, the macroeconomic fundamentals are relatively strong—growth is holding up well, inflation is down, the fiscal deficit is contained, and foreign reserves remain high.
What remains crucial, though, is improving the micro fundamentals through necessary structural reforms. For example, private investment is still weak. Why is that? Issues related to governance, corruption, the rule of law, security, and political instability continue to weigh on confidence and private sector activity.
For Nepal to achieve faster growth, particularly by stimulating private investment and creating more jobs, these fundamental reforms need to be addressed.
Moving to the IMF program in Nepal, the program is now at the very tail end with only one review remaining. Could you share your views on what progress Nepal has made so far under the program?
Dr. Jahan: Let’s reflect back on the journey. Back in January 2022, Nepali authorities had approached the IMF for a program. At that time, COVID had had a big toll on the Nepali economy.
The primary goals were to help the authorities respond to the pandemic, maintain macroeconomic and financial stability, and, crucially, protect the poor and vulnerable.
Almost four years have passed since the IMF-supported program started, and there has been tangible progress. In a few short years, real GDP growth came from only 2% to now well over 4%. So, double the pace. Krishna had mentioned about the macroeconomic big picture. To give an example with numbers, international reserves at about 20 billion USD now cover a year’s worth of imports-—an impressive achievement.
Inflation is below 2% and within the Nepal Rastra Bank’s target. And, because of fiscal discipline, Nepal’s debt has remained manageable and stable, unlike many other countries emerging from COVID-19.
Nepal has also achieved a few milestones in structural reforms. Nepal had developed its own domestic revenue mobilization strategy, which helps the country focus on how to generate revenues without hurting growth. In addition, Nepal had produced a Tax Expenditure Report and Fiscal Risk Strategy Statement.
Nepal also amended National Project Bank guidelines to improve the selection and execution of capital projects. In the financial sector, monitoring of the banking sector has been strengthened. A loan portfolio review for the country’s ten largest banks is underway, and steps are being taken to amend the Nepal Rastra Bank Act to strengthen it’s autonomy, independence, and governance. Holistically, Nepal has implemented strong reforms and restored stability in these four years.
And we congratulate the people of Nepal to do these strong reforms and to bring back stability in the country. But one thing I must stress and I echo Krishna’s words here is that Nepal is not really out of the woods yet. On the macro picture, the story is very good. But in the micro part, we still see weak domestic demand and lack of investor confidence. Now, Nepal must focus on fostering resilient growth founded on good governance and job creation.
What requirements does Nepal need to fulfill before the final review?
Dr. Jahan: As you had said before, we’re at the tail end. With only one review left out of seven, Nepal has already completed six successfully.
Under this review four important structural benchmarks remain: amending the Nepal Rastra Bank Act; completing the loan portfolio review to ensure a strong and resilient financial sector; revising asset classification regulations for a complete picture of banking sector health; and developing a customs strategy to improve revenue generation.
Youth-driven movements have brought corruption, transparency, and inclusive development to the forefront. How is the IMF supporting Nepal in building an accountable governance framework that fosters broad-based economic participation for all?
Dr. Srinivasan: Very good question. If you look at the performance of the program, the key objective of macroeconomic stability has been achieved. The question of course is has there been sufficient inclusive growth? Growth has been quite strong, but youth unemployment remains high—not only in Nepal, but across the region. To go further, Nepal must boost private investment, which depends on improvements in governance, transparency, rule of law, and security.
In our program, although we place strong emphasis on macroeconomic and financial stability, the pillar of governance—and specifically anti-corruption—is also very prominent. To give a few examples, as Sarwat mentioned: for instance, regarding the Central Bank, making sure its institutional, financial, and personnel autonomy has been crucial for good governance. Similarly, as Sarwat noted, fiscal transparency has been a key pillar of revenue mobilization.
Additionally, going back to the Central Bank, the financial statements of the Nepal Rastra Bank are now being audited by internationally recognized auditors. These elements of the Fund’s program address governance and anti-corruption.
Nevertheless, there are still people who feel disenfranchised and believe their voices need to be heard more.
That’s why there must be greater emphasis on governance reform and anti-corruption, which are priorities we intend to address. Ultimately, it’s important to remember that growth must be both strong and inclusive. Achieving this requires further effort, as policymakers must tackle the challenge of creating meaningful job opportunities.
You see an exodus of Nepali citizens going abroad., as seen in the remittance figures. But the question is should they be going out? How can we create jobs within the country? This comes back to the issue that private investment remains weak, and stimulating it is essential for progress.
With a stronger investment climate, more gainful employment opportunities can be created for young people and students, helping ensure that growth in Nepal is not only strong but also inclusive.
Finally, let’s talk a bit about the recent Gen-Z uprising and political uncertainty. Following the “Gen-Z uprising” on September 8-9, 2025, Nepal has seen a major political shift, including a new government and an announced election. How does the IMF assess the impact of these recent political changes on Nepal’s short- and medium-term economic outlook?
Dr. Jahan: On behalf of the IMF team working on Nepal, let me express our sympathies for the loss of lives, injuries, and damages caused during the social unrest. We were deeply saddened by these events, but also heartened by the resilience of the Nepali people as they strive for a better future.
In the near term, as previously discussed, we expect growth to continue during this fiscal year. In the near term, we expect economic recovery although it could be at a more moderate pace. We believe that the appropriate policies will be in place, stronger investment, specially in strategic capital projects, as well as supportive macroeconomic policies and there would be fundamental changes in structural reforms.
Over the medium term, Nepal’s outlook is broadly favorable. Nepal has a lot of potential, especially greater investment in hydropower projects would be a big source of growth. We also think that the IT sector could help development as well.
The interim government has pledged to combat corruption, improve governance, and create jobs— this is the fundamental reform that has to to take place in Nepal for it to reach its potential. The IMF remains a steadfast partner in supporting Nepal to achieve these objectives.
With elections scheduled for March 2026, what are the Fund’s expectations regarding the new government’s commitment to ongoing reforms?
Dr. Srinivasan: We don’t comment on politics or elections, we stay out of that. However the youth have expressed their feelings towards various aspects, notably on governance and corruption. One would hope that whichever government comes to power in March, takes this into account more seriously and works on improving the climate for investment, improve governance, and advance anti-corruption measures. These steps would go a long way toward addressing the key concerns raised by the youth, which are important for the country.
At the end of the day, what you need to do is to create meaningful jobs for young people and make sure everyone feels included in the development process—what we mean by inclusive growth. The recent focus on governance issues must now be matched by meaningful reforms.
The IMF has been a partner so far to every government. We will remain a steadfast partner to the government and we will help provide support not just in terms of policy advice, we also have to provide capacity development support and technical assistance. We will continue working with whichever government is in power to help ensure the hopes and aspirations of Nepal’s youth are well addressed.
Dr. Jahan: If I may add, Krishna had started the discussion with the outlook of the global economy including on the Asia-Pacific region. Asia’s story in 2025 is a story of resilience.
But I’d like to remind everyone, so too is Nepal’s. While we have talked about growth and macroeconomic stability, Nepal must now take a step further: translate stability into sustained, durable growth that creates jobs and equal opportunities for all. As Krishna mentioned, we look forward to continuing our engagement with Nepal on these important issues.
