KATHMANDU: Nepal’s economy in fiscal year 2081/82 (mid-July 2024 to mid-July 2025) has experienced noticeable progress across several key economic indicators. Data from the first 10 months of the fiscal year indicate improvements in areas such as foreign trade, remittance inflows, inflation rates, and the banking sector’s credit and deposit activities. These trends suggest a degree of economic stabilization and growth despite ongoing global and domestic challenges.
According to the Nepal Rastra Bank (NRB), the country’s central bank, these developments point to a relatively stable macroeconomic environment and an increase in foreign currency reserves, alongside efforts to support private sector financing.
Strong Balance of Payments and High National Savings
One of the most important indicators of economic health is the balance of payments (BoP), which records all transactions between Nepal and the rest of the world. The data from the first 10 months of fiscal 2081/82 (2024/25) shows a historic surplus in Nepal’s BoP, amounting to NPR 438.52 billion. This is an increase of NPR 4.6 billion compared to the same period last year.
A BoP surplus means that Nepal is earning more foreign currency from exports, remittances, and foreign investments than it is spending on imports and foreign debt repayments. This high level of national savings strengthens the country’s financial stability and allows for the accumulation of foreign reserves, which serve as a buffer against economic shocks.
Current Account Surplus Reflects Resilience
The current account, a key component of the BoP that includes trade in goods and services and remittance flows, also recorded a surplus of NPR 255.93 billion. This surplus indicates that Nepal earned more foreign currency than it spent in cross-border transactions during this period. Total inflows into the current account stood at NPR 2.022 trillion, while outflows were NPR 1.766 trillion.
This positive balance demonstrates Nepal’s ability to generate foreign currency through exports, remittances, and income from abroad, which is essential for financing imports and sustaining economic growth.
The current account includes merchandise trade, services, primary income, and secondary income. While Nepal’s merchandise exports have surged impressively, imports have grown at a slower rate, contributing to this positive outcome.
However, a service sector deficit due to higher outbound tourism expenses offsets some gains, pointing to the need for more competitive service exports.
Declining Inflation Signals Price Stability
Price stability is crucial for economic confidence, and Nepal’s inflation rate in the first month of the new year (Baisakh 2082) declined significantly to 2.77 percent from 4.40 percent in the same month last year. This marked reduction shows improving control over price increases, which supports consumer purchasing power and encourages investment.
Breaking down inflation further, food and beverage prices rose modestly by 1.52 percent, while non-food items increased by 3.45 percent. Inflation in rural areas was higher at 3.21 percent compared to urban inflation at 2.61 percent.
Provincially, Lumbini experienced the lowest inflation at 2.15 percent, while Koshi Province saw the highest at 4.29 percent. Wholesale inflation also declined to 3.95 percent, suggesting that producer prices have moderated, which may help keep retail inflation low in coming months.
Record Export Growth Amid Rising Trade Deficit
Nepal’s export sector has performed exceptionally well, with merchandise exports growing by 72.7 percent compared to the previous year. This is a historic rise, bringing the total export value to NPR 217 billion. The substantial increase is attributed to improved production capacity, diversification of export products, and better market access.
Despite this export growth, imports also increased by 13.1 percent, totaling NPR 1.474 trillion. Consequently, the trade deficit—the gap between imports and exports—widened by 6.7 percent. This expanding deficit indicates that Nepal continues to import significantly more than it exports, which could strain foreign exchange reserves if not offset by remittances or other inflows.
In addition to merchandise trade, Nepal faces a service sector deficit of NPR 8.65 billion, largely due to high spending by Nepali tourists traveling abroad.
Tourism income increased by 8.3 percent to NPR 7.57 billion, but outbound tourism expenditures rose much faster by 17.9 percent to NPR 185.3 billion.
This imbalance suggests Nepalis are spending more overseas, highlighting a need to promote domestic tourism and improve competitiveness in the service sector.
Remittances Remain a Vital Economic Pillar
Remittance inflows continue to be a lifeline for Nepal’s economy. During the 10-month period, Nepal received NPR 1.356 trillion in remittances, a 13.2 percent increase over last year. These funds, sent home by millions of Nepali migrant workers, support household consumption, savings, and investments, thereby bolstering overall economic stability.
Labor migration also remained robust, with approximately 405,000 Nepalis receiving final labor approvals and 280,000 renewing their labor permits during this period. The steady flow of remittances supports foreign exchange reserves and helps maintain the current account surplus despite trade deficits.
Foreign Exchange Reserves Ensure Import Coverage
Nepal’s foreign exchange reserves reached NPR 2.211 trillion, or about USD 1.527 billion, with Indian currency accounting for 21.2 percent of this total. This level of reserves is sufficient to cover merchandise imports for 17 months and 12 days and goods and services imports for one full year. Such robust reserve coverage is critical for Nepal’s economic security, providing a cushion against external shocks and maintaining confidence among investors and trading partners.
Credit Growth Indicates Banking Sector Vitality
Credit growth, reflecting the banking sector’s lending activity, shows a mixed picture. Domestic credit expanded by 2.1 percent, a slower pace than last year’s 2.8 percent growth.
Notably, government borrowing from the banking system declined sharply by 24.1 percent, compared to a 12 percent decrease last year.
This reduction may reflect improved government revenue collection or a shift to non-bank financing.
Private sector credit, however, expanded by 7.6 percent, up from 5.7 percent in the previous year. Banks and financial institutions increased loans to the private sector by NPR 368.68 billion (7.3 percent growth), indicating growing confidence in private sector investment opportunities. Within private sector credit, 63.1 percent was directed to non-financial corporate entities, while individuals and households accounted for 36.9 percent.
Deposit Growth Supports Financial System
Deposits in Nepal’s banking sector grew by 6.2 percent to NPR 399.81 billion, slower than last year’s 7.8 percent. Deposit growth reflects the public’s confidence in banks and the availability of funds for lending. Of total deposits, savings deposits constituted 35.9 percent, fixed deposits 50.8 percent, and current deposits 5.5 percent.
Institutional deposits accounted for 35.4 percent, highlighting the participation of businesses and organizations. Healthy deposit growth supports banking sector liquidity, enabling banks to meet credit demand and sustain economic activity.
Overall Trends
The aggregated data offers a positive outlook for Nepal’s economic prospects. The balance of payments surplus, bolstered by strong current account performance, improved export dynamics, and rising remittances, lays a solid foundation for sustained growth.
Moderating inflation alleviates cost pressures on households and businesses, allowing for stable consumption and investment. Foreign currency reserves provide a strong cushion, enhancing economic resilience.
Credit growth to the private sector suggests that businesses and consumers have better access to financing, enabling expansion, employment generation, and poverty reduction. The steady deposit mobilization points to trust in financial institutions and the banking sector’s capacity to support credit demand.
Challenges and Outlook
While Nepal’s economic indicators paint a largely positive picture, challenges remain. The widening trade deficit requires careful management to avoid excessive pressure on foreign reserves. The service sector deficit, driven by growing outbound tourism expenditure, points to an imbalance that needs strategic intervention to boost domestic tourism and service exports.
Provincial disparities in inflation indicate uneven economic conditions across regions, necessitating targeted policies. Continued emphasis on controlling inflation will be critical to protect consumers’ purchasing power.
Furthermore, maintaining steady credit growth and managing government borrowing prudently will be essential for macroeconomic stability.
Strengthening export competitiveness, especially in value-added products, and diversifying the economy can reduce dependency on imports and enhance economic resilience.
Need for Further Economic Diversification
Nepal’s macroeconomic and financial performance during the first 10 months of fiscal year 2081/82 (2024/25) reflects a strengthening economy. Historic export growth, robust remittance inflows, controlled inflation, strong foreign exchange reserves, and vibrant banking sector activity collectively provide a solid foundation for sustained growth.
Despite persistent challenges such as trade and service sector deficits, provincial inflation disparities, and the need for further economic diversification, the overall outlook remains positive. Effective policy implementation aimed at enhancing exports, managing inflation, and fostering private sector investment will be crucial in ensuring Nepal’s economic stability and prosperity in the years ahead.
