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By Dipesh Ghimire

Nepal’s Economic Performance Reflects Stability and Positive Momentum: NRB's 11-Month Report

Nepal’s Economic Performance Reflects Stability and Positive Momentum: NRB's 11-Month Report

Nepal Rastra Bank (NRB) has published the macroeconomic and financial report covering the first 11 months of the current fiscal year 2081/82 (July 2024 – June 2025). The data paints an optimistic picture of the economy, with notable improvements in external sector indicators, inflation control, and remittance inflows. However, structural challenges in public finance and domestic investment persist. The following is a detailed overview of the economic indicators and their implications.

Inflation Drops Significantly, Reflecting Market Stability

Nepal's annual point-to-point inflation, measured by the Consumer Price Index (CPI), declined to 2.72%—a substantial drop from 4.17% in the same period last year. This suggests easing price pressures, particularly in food and energy items. The inflation rate for food and beverages was exceptionally low at 0.54%, while non-food inflation stood at 3.94%. Regionally, inflation was highest in the Himalayan region (4.18%) and lowest in Gandaki province (1.75%).

This softening inflation indicates better supply chain performance, controlled demand, and effective monetary management. However, non-food inflation still reflects persistent price pressures in sectors like clothing, education, and healthcare, suggesting targeted interventions are needed to maintain cost-of-living stability.

Foreign Exchange Reserves Reach Historic High

Nepal’s total foreign exchange reserves reached NPR 2.57 trillion (USD 18.65 billion), marking a 25.9% year-on-year growth. In US dollar terms, reserves increased by 22.2%, driven largely by remittance inflows and lower import dependency. NRB’s own reserves rose by 23%, while commercial banks' holdings grew over 53%.

The reserves are sufficient to cover 17.6 months of merchandise imports and 14.7 months of goods and services, well above the global adequacy threshold. This buffer significantly strengthens Nepal’s ability to absorb external shocks and maintain currency stability.

Remittance Remains the Economy’s Lifeline

Remittance inflows continue to grow robustly, reaching NPR 1.53 trillion, a 15.5% increase compared to last year. May alone saw NPR 176.32 billion in inflows. In dollar terms, remittance rose by 12.7%, totaling USD 11.25 billion. The number of Nepali workers receiving labor approval for foreign employment also grew—452,324 new approvals and 308,067 renewal approvals.

Remittances are a key pillar of Nepal’s economy, directly supporting household consumption and rural economies. The increase in labor outmigration and inflows highlights the continued reliance on foreign employment, despite growing global uncertainties.

Exports Surge While Imports Grow Moderately

Exports registered a significant 77.8% growth, while imports increased by a moderate 13.1%. This helped narrow the trade deficit and improve the current account position. Though exports are starting from a low base, this shift indicates growing competitiveness and improved external demand for Nepali goods.

The expansion in exports could be attributed to rising production of manufactured goods, refined policies, and improved trade facilitation. Continued focus on logistics, value-chain support, and market diversification will be essential to sustain this momentum.

Current Account and Balance of Payments Record Surpluses

Nepal recorded a current account surplus of NPR 307.31 billion, compared to NPR 200.38 billion last year. The balance of payments (BoP) surplus stood at NPR 491.44 billion, up from NPR 425.67 billion. These figures are strong indicators of external sector health.

The surplus stems from strong remittances, lower trade deficits, and improved foreign investment inflows. In dollar terms, the current account and BoP also showed positive growth, reflecting increasing economic stability and international confidence in Nepal’s economy.

Government Spending Outpaces Revenue Collection

As of mid-June, the government had spent NPR 1.28 trillion, while revenue mobilization stood at NPR 1.016 trillion, indicating a fiscal shortfall. Internal borrowing grew by 3.4%, and on an annual point basis, it expanded by 6.0%. However, the net claim of the monetary sector on the government dropped sharply by 22.1%, suggesting tighter fiscal operations.

This trend underscores the need for better fiscal discipline and enhanced revenue collection efforts. With increasing reliance on debt, long-term fiscal sustainability could be challenged unless structural reforms are introduced.

Banking Sector Reflects Moderate Growth and Liquidity Absorption

The banking sector showed steady growth in both deposits and credit. Total deposit mobilization increased by 8.0%, and credit to the private sector rose by 8.0% (YoY: 8.7%). Broad money supply (M2) grew by 8.2%. NRB absorbed excess liquidity worth NPR 2.13 trillion, indicating limited credit off-take by financial institutions.

The liquidity absorption was carried out through various tools: NPR 278.48 billion via reverse repo and NPR 1.855 trillion through permanent deposit facility. This signals the central bank’s cautious stance against inflation and overheating.

Foreign Investment and Capital Transfers on the Rise

Nepal received NPR 11.09 billion in equity-based Foreign Direct Investment (FDI), compared to NPR 8.24 billion last year. Capital transfers also increased to NPR 8.96 billion, from NPR 5.46 billion. Though modest in size, this growth is encouraging for long-term capital formation and industrial development.

Improving the ease of doing business, strengthening regulatory frameworks, and offering investor incentives could help attract larger and more diversified FDI in future.

Exchange Market and Cross-Border Liquidity

In the foreign exchange market, NRB purchased USD 5.01 billion, injecting NPR 673.25 billion into the economy. It also sold dollars worth NPR 471.39 billion to acquire Indian rupees. These operations ensured currency stability and adequate liquidity in the system.

Additionally, interbank transactions among commercial banks totaled NPR 1.681 trillion, showing an active domestic money market despite tightened credit demand.

Nepal’s economy has shown strong external sector performance, subdued inflation, and stable financial indicators. The NRB’s 11-month report reflects a cautiously optimistic trajectory as remittances, reserves, and BoP continue to grow. However, challenges remain in domestic demand generation, government fiscal balance, and private sector credit expansion.

To build on this momentum, policymakers must focus on boosting domestic production, accelerating capital expenditure, and encouraging FDI. If managed prudently, Nepal may be poised for sustainable growth, stronger macroeconomic fundamentals, and greater economic independence in the coming fiscal years.

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