Foreign Exchange Reserves Rise Above $20 Billion – What It Means

Published on September 24, 2025

Nepal’s foreign exchange reserves have reached a historic level, surpassing USD 20 billion by mid-August 2082/83 (2025/26). This marks a sharp turnaround from just USD 9.5 billion in FY 2021/22, when the country faced severe external pressures and a widening current account deficit. Since then, continuous remittance inflows, a Balance of Payments surplus, and moderating imports have fueled a steady buildup of reserves. As of FY 2024/25, reserves stood at USD 19.5 billion, rising further to USD 20.03 billion in the first months of FY 2082/83.

This milestone carries significant implications for Nepal’s economy. On the positive side, such a large reserve stockpile provides import coverage for more than a year, ensuring stability in essential supplies like fuel, food, and medicine. It also builds confidence among investors, international partners, and credit rating agencies, signaling that Nepal can meet its external obligations without risk of a liquidity crisis. Strong reserves further strengthen the Nepali rupee, reduce volatility in foreign exchange markets, and give policymakers greater flexibility in managing monetary and trade policies.

However, the reserve build-up also raises structural questions. Much of it is fueled by remittance inflows (Rs. 1,723 billion in FY 2024/25) rather than export earnings or domestic production. While this ensures short-term stability, it highlights Nepal’s external dependence on migrant workers’ income. In addition, large reserves sitting idle may reflect underutilization of foreign exchange for growth-oriented investments, as capital formation remains low at 24.1% of GDP. In other words, Nepal has stability, but not necessarily dynamism.

The key challenge now is to leverage these reserves for long-term economic transformation. This means channeling remittance-driven liquidity into productive sectors, boosting industrial capacity, and financing strategic infrastructure projects. If reserves are used only to support imports and consumption, Nepal risks repeating past cycles of stability without structural change. But if effectively managed, this reserve cushion can serve as a foundation for stronger economic resilience, helping Nepal withstand external shocks while financing domestic growth.

Policy Lessons from India: Can Nepal Control Inflation More Effectively?

India has kept inflation relatively moderate through strong agricultural systems, buffer stocks, and inflation-targeting policies, while Nepal has historically struggled with food-driven volatility. Nepal’s CPI fell below India’s in 2025/26 for the first time in four years, but to sustain this trend, Nepal must strengthen supply chains, adopt buffer policies, and set clearer inflation targets.

Inflation Convergence in South Asia: What Nepal-India CPI Data Reveals

Nepal and India’s inflation rates, once far apart, have gradually converged—Nepal’s CPI dropping from 7.74% in 2022/23 to 1.68% in 2025/26, while India’s remained steadier around 2–5%. For the first time in four years, Nepal’s inflation fell below India’s, highlighting both shared regional cycles and unique domestic vulnerabilities.

Nepal vs India: Monthly CPI Comparison and Regional Economic Impact

Nepal’s inflation fell to 1.68% in August 2025/26, below India’s 2.07%, reversing a four-year trend. While both economies share similar seasonal inflation cycles, Nepal’s sharper food-driven spikes contrast with India’s steadier, monsoon-driven patterns. Regionally, this convergence impacts household costs, trade competitiveness, and economic stability.

Inflation Gap Narrows: Nepal’s Deviation with India Falls to -0.39% in 2025/26

In August 2025/26, Nepal’s CPI stood at 1.68%, lower than India’s 2.07%, with the inflation deviation dropping to -0.39% for the first time in four years. While Nepal gained from falling food prices, India’s inflation stayed higher due to agricultural pressures, though both countries continue to face rising service costs.

Cross-Border Inflation Trends: How Nepal and India’s Prices Move Together and Apart

Nepal and India’s inflation trends usually move in sync, reflecting shared regional and global factors. But in August 2025/26, Nepal’s inflation (1.68%) fell below India’s (2.07%) for the first time in four years, thanks to easing food prices in Nepal, while India faced higher agricultural pressures.

Nepal vs India Inflation 2025/26: Why Nepal’s CPI Fell Below India’s for the First Time

In August 2025/26, Nepal’s inflation dropped to 1.68%, falling below India’s 2.07% for the first time in four years. While food price declines drove Nepal’s slowdown, India’s inflation held slightly higher due to agricultural pressures. However, Nepal’s service costs remain a long-term challenge, even as headline CPI looks favorable.