Convertible vs Inconvertible Reserves: How Nepal’s FX Mix is Changing in 2025/26

Nepal’s foreign reserves composition is shifting in 2025/26, revealing both strengths and vulnerabilities in the country’s external sector. As per Nepal Rastra Bank’s latest data, convertible reserves — held in widely accepted currencies like US dollars, euros, pounds, and yen — reached Rs. 2.14 trillion, accounting for 76.6% of total reserves. Meanwhile, inconvertible reserves, largely in Indian rupees (INR), climbed to Rs. 656 billion, or 23.4% of the total. This subtle shift reflects a growing reliance on India-linked reserves, up from 22.6% a year earlier.

Experts note that convertible reserves provide Nepal with stronger flexibility for international trade, debt repayments, and interventions in global markets. Their steady growth is mainly supported by record-high remittances, which crossed Rs. 176 billion in just one month, predominantly sent in hard currencies. However, the rising share of inconvertible reserves highlights Nepal’s deep dependence on India, as most essential imports — including petroleum, electricity, construction materials, and food — are sourced from the southern neighbor.

While the surge in overall reserves has pushed Nepal’s import cover to 20.4 months for merchandise and 16.6 months for goods and services, policymakers caution that over-reliance on INR reserves could pose risks if India faces currency or trade shocks. The challenge for Nepal will be balancing its reserve portfolio to ensure both global liquidity and regional trade stability.