Nepal

Political uncertainty remains high with another change of government in July 2024—the fifth since the beginning of the Fund-supported program. Substantial flooding and landslides in September 2024 further weighed on sluggish domestic demand, though conversely helping strengthen the external position and easing inflation pressures. Non-performing loans have risen, bank profitability has weakened, and the financial health of savings and credit cooperatives (SACCOs) has deteriorated. Growth is expected to pick up to 4.2 percent in FY2024/25, supported by further expansion in hydropower generation and a higher execution rate of public capital expenditure, including on post-flood reconstruction. Average inflation is expected to remain close to the authorities’ target of about 5 percent.