Direct Investment Still Negative: Why FDI Inflows to Nepal Remain Low

Despite improvements in the overall Balance of Payments, foreign direct investment (FDI) in Nepal remains in negative territory, reflecting continued investor hesitancy and policy bottlenecks. The latest Nepal Rastra Bank BoP data shows that net FDI stood at USD −4.4 million in the first month of FY 2025/26, signaling more capital outflow than inflow.

This trend continues a worrying pattern seen in recent years, where reinvestment and new equity inflows have failed to offset profit repatriation and capital withdrawals. By contrast, remittances and reserves have surged, pushing the country’s financial account surplus to USD 577 million — but without significant productive investment to drive job creation or exports.

Analysts say Nepal’s weak FDI inflow reflects regulatory uncertainty, cumbersome repatriation procedures, and frequent policy shifts. Delays in project approvals, land acquisition issues, and inconsistent tax treatment have discouraged many international investors, particularly in hydropower, manufacturing, and IT sectors.

Experts also point out that political instability and bureaucratic hurdles have eroded investor confidence, even as neighboring countries like India and Bangladesh attract record inflows. The situation underscores Nepal’s structural challenge — an economy heavily sustained by remittances rather than by productive foreign investment.

Economists have urged the government to undertake comprehensive investment reforms — including streamlined approval systems, stable taxation, transparent dispute resolution, and reliable infrastructure — to convert external confidence into real capital inflows.