Nepal's Balance of Payments Surplus Surges Post-COVID, Showing Signs of Stabilization in FY 2024/25

Nepal’s external sector has demonstrated a dramatic turnaround in its Balance of Payments (BOP) performance over the past five fiscal years, signaling strong recovery and stabilization in the post-COVID economic landscape. In fiscal year 2019/20, Nepal recorded a BOP surplus of Rs. 282.4 billion. This was followed by a sharp drop in FY 2020/21, where the surplus nearly evaporated to a mere Rs. 1.2 billion—indicating a near-zero balance scenario triggered by global pandemic-related disruptions, subdued remittance growth, and plunging exports.

The most critical shock was observed in FY 2021/22, where Nepal plunged into a BOP deficit of Rs. 252.4 billion—the worst figure in this dataset. This sharp downturn reflected soaring import bills driven by high global fuel prices, declining remittance inflows in real terms, and reduced tourism earnings. This period marked a phase of external pressure and foreign reserve depletion, which alarmed policymakers and the central bank.

However, from FY 2022/23 onwards, Nepal’s BOP position rebounded strongly. That year, the country returned to a surplus of Rs. 285.8 billion, largely due to import restrictions, improved remittance inflows, and gradual recovery of tourism and exports. The fiscal year 2023/24 saw a record annual BOP surplus of Rs. 502.5 billion, the highest in recent history. This exceptional performance was supported by a combination of tighter monetary policies, increased remittances, and a restrained trade deficit.

Mid-April 2024 data from the current fiscal year 2024/25, however, shows a slight moderation in the surplus. The BOP surplus stood at Rs. 346.2 billion—lower than the Rs. 365.2 billion recorded in the same period of the previous year. While this still indicates a healthy external position, the marginal drop hints at rising imports and a possible plateauing of remittance growth. It underscores the need for sustained export promotion and diversification of foreign income sources.

Overall, Nepal's Balance of Payments trajectory showcases a strong macroeconomic rebound with promising signs of external stability. Yet, the recent slight decline in BOP surplus may prompt the need for prudent fiscal and external sector management in the remaining months of FY 2024/25.