Current Account Turns Surplus: Structural Change or Temporary Relief?

Nepal’s external sector has undergone a striking turnaround in the past two years. After posting a record current account deficit of Rs. -623 billion in FY 2021/22, the balance improved dramatically to Rs. -45.9 billion in FY 2022/23, and then shifted into surplus with Rs. 221.7 billion in FY 2023/24. By FY 2024/25, the surplus widened further to Rs. 409 billion, and by mid-August 2082/83, it had already reached Rs. 78.1 billion. This reversal has stabilized foreign reserves (USD 20 billion by mid-August 2082/83) and strengthened investor confidence. But the bigger question remains: is this a structural shift or a temporary relief?

The primary drivers of the surplus suggest that the improvement may be more cyclical than structural. The surge in remittances—which reached Rs. 1,723 billion in FY 2024/25—has been the single largest contributor to external stability, supporting household incomes and foreign currency inflows. At the same time, export performance has improved sharply, with annual growth of 81.8% in FY 2024/25 and 95.7% in mid-August 2082/83. This rebound has narrowed the trade gap somewhat, but imports still remain overwhelmingly larger at Rs. 1,804 billion annually.

On the other hand, structural weaknesses remain intact. Nepal’s export base is still narrow, concentrated in low-value-added goods and hydropower sales to India, while the import basket is dominated by fuel, machinery, and consumer goods. Moreover, a large part of the adjustment has come from reduced consumption and investment-related imports during periods of economic slowdown, rather than from lasting diversification of production. The decline in Gross Fixed Capital Formation (24.1% of GDP in FY 2024/25) highlights that Nepal is not building enough productive assets to sustain a surplus through higher domestic output.

This means the current account surplus is a relief, but not yet evidence of a structural transformation. Unless Nepal leverages the strong inflows to boost domestic investment, diversify exports, and reduce import dependency, the surplus risks being temporary. A shift in global labor demand, a slowdown in remittances, or a rebound in imports could quickly swing the balance back into deficit.