Rising Overseas Education Costs Deepen Service Account Deficit Despite Strong Remittances

Nepal’s service account has come under increasing strain in the first four months of fiscal year 2082/83 (up to mid-November 2025), as rapidly rising overseas spending—particularly on education—has far outpaced the growth of service income. Latest balance of payments indicators released by Nepal Rastra Bank show that the net service account recorded a deficit of Rs 32.91 billion, a sharp increase from the Rs 22.37 billion deficit in the same period last year.

At the core of this widening gap is the imbalance between modest service exports and accelerating service imports. While some recovery is visible in tourism-related earnings, it has not been sufficient to offset the growing outflow of funds for foreign services, highlighting structural weaknesses in Nepal’s service sector.

Travel income, a key source of service receipts, increased only marginally during the review period. It rose by 0.9 percent to Rs 27.15 billion, compared to Rs 26.90 billion a year earlier. Analysts say the slow pace of growth suggests that although tourist arrivals may be improving, spending per visitor remains low. Shorter stays, budget-oriented travel and limited diversification of tourism products continue to restrain income growth.

In contrast, travel expenditure expanded sharply by 11.8 percent to Rs 75.74 billion, widening the gap between inflows and outflows. A striking feature of this increase is the surge in education-related spending, which alone accounted for Rs 48.26 billion. This represents a substantial jump from Rs 37.77 billion in the same period last year, reflecting both rising tuition fees abroad and a growing number of Nepali students pursuing education overseas.

Economists warn that the escalating cost of foreign education is emerging as a major structural drain on the service account. The trend underscores long-standing gaps in the domestic higher education system, pushing families to seek opportunities abroad despite the heavy foreign currency burden.

Despite these pressures, Nepal’s external sector has received strong support from migrant workers. Remittance inflows increased by 31.4 percent to Rs 687.13 billion during the review period, up from Rs 523.07 billion a year earlier. The robust growth in remittances has played a crucial role in offsetting deficits in both the service and trade accounts, helping maintain overall balance of payments stability.

However, another area of concern is the sharp decline in foreign investment. Foreign direct investment, limited to equity inflows, fell by 56.7 percent to Rs 2.49 billion, down from Rs 5.76 billion last year. Analysts see this drop as a warning sign, pointing to persistent challenges related to policy uncertainty, regulatory hurdles and investor confidence.

Taken together, the latest data paint a complex picture of Nepal’s external economy. Strong remittance inflows continue to act as a stabilizing force, but rising service-sector outflows—driven largely by overseas education spending—and weakening foreign investment highlight underlying vulnerabilities. Economists argue that improving domestic education quality, expanding high-value tourism services and creating a more predictable investment environment will be essential to reduce long-term pressure on the service account and strengthen Nepal’s external position.