Nepal Turns Economic Stability Into a Platform for Stronger Growth

Nepal Mission Chief Sarwat Jahan said the biggest achievement is not simply that major economic indicators have improved, but that reforms continued through an unusually difficult period.

Nepal has emerged from several turbulent years with a more stable economy, stronger financial buffers and improved economic institutions, even as earthquakes, floods, political changes and global pressures repeatedly disrupted its recovery. The country recently completed its first IMF-supported arrangement in nearly two decades, marking an important milestone after a reform programme that began in 2022.

Nepal Mission Chief Sarwat Jahan said the biggest achievement is not simply that major economic indicators have improved, but that reforms continued through an unusually difficult period. A consistent policy direction, adjustments to changing political conditions and technical support helped the country keep the programme on course.

Inflation Falls as Nepal Rebuilds Its Financial Buffers

The improvement can be seen clearly in inflation, foreign exchange reserves and government finances. Average inflation, which stood at 7.7% in fiscal year 2022–23, dropped to 1.7% in the first half of fiscal year 2025–26, easing pressure on household purchasing power. International reserves also strengthened from around nine months of import cover to more than twelve months, giving Nepal greater protection against currency pressures, expensive imports and disruptions in external trade.

Public finances became healthier as the budget gap narrowed substantially, while public debt remained at low risk of distress. These gains provide the government with more room to respond when economic emergencies or natural disasters require additional spending. Maintaining this progress was difficult because Nepal faced repeated setbacks.

A major earthquake struck in 2023, severe floods followed in 2024, and social unrest created further uncertainty. Higher energy prices associated with the war in the Middle East have added another source of pressure, while repeated disruptions have slowed the recovery and weighed on job creation. The experience has reinforced the importance of building economic resilience before a crisis arrives, particularly through stronger institutions and sufficient financial buffers that can soften the impact of unexpected shocks.

Institutional Reforms Could Have the Longest Impact

Nepal's reforms attracted less public attention because they focused on the institutions behind economic decision-making rather than immediate changes people could see. The country modernized the way its central bank conducts monetary policy and strengthened financial-sector oversight, including improvements to bank supervision and reviews of loan quality. Fiscal transparency increased through the publication of financial statements for state-owned enterprises, while authorities developed a revenue mobilization strategy and improved the planning and management of public investment.

Nepal upgraded its anti-money-laundering legislation and moved toward strengthening the central bank's legal framework and accountability. Together, these measures are intended to make economic policies more reliable and effective over time, reducing vulnerabilities that can become especially damaging when the country faces another major shock.

Stability Must Now Translate Into Jobs and Inclusive Growth

Nepal's next challenge is turning macroeconomic stability into improvements that people can experience through better jobs, higher incomes and stronger economic opportunities. Private investment remains too weak to generate the level of employment and growth the country needs. Vulnerabilities also remain within parts of the financial system, particularly among savings and credit cooperatives that provide financial services to large numbers of people.

Nepalese authorities have started an IMF Governance and Corruption Diagnostic to identify weaknesses, address governance gaps and help rebuild public trust. Completing the IMF-supported programme therefore represents a foundation rather than an endpoint. Continued priorities include strengthening the financial sector, improving social protection, attracting private investment and creating conditions in which economic growth can reach a broader share of the population.

Nepal has shown that reforms can continue even through political transitions, natural disasters and global economic shocks. Keeping that momentum could help the country create more employment, raise living standards and build greater protection against future crises, while the IMF has said it will continue supporting Nepal as the country moves from economic stabilisation toward stronger and more inclusive growth.