KATHMANDU: Economic Digest offers a concise yet comprehensive overview of significant business happenings in Nepal, presented in easily digestible summaries.
Nepal’s recent economic developments reflect a complex interplay of reform, risk, and restrained growth. While the government has taken bold steps—such as liberalizing outward FDI, tightening hydropower IPO regulations, and halting unstrategic road projects—to improve governance and global integration, the banking sector faces a liquidity surplus due to weak credit demand and underwhelming economic activity.
The IMF’s upcoming sixth review of Nepal’s Extended Credit Facility underscores ongoing reform pressures, including the need for enhanced fiscal discipline and financial regulation.
Meanwhile, efforts like the appointment of a Bangladeshi auditor for major banks and the launch of the Beema Pratibimba insurance report signal a push toward greater transparency.
However, persistent structural challenges—from rising loan defaults and limited productive investment to local opposition to hydropower projects—highlight the fragile balance between policy ambition and implementation capacity in Nepal’s evolving economic landscape.
KATHMANDU: Economic Digest offers a concise yet comprehensive overview of significant business happenings in Nepal, presented in easily digestible summaries.
Nepal’s banking sector faces liquidity glut amid low credit uptake
Nepal’s banking sector is experiencing a liquidity surplus as deposit levels outpace loan demand. Deposits at development banks and finance institutions have reached Rs. 6.892 trillion, while total lending stands at Rs. 5.529 trillion.
Although interest rates have dropped to an average of 8.22% at commercial banks, borrowing remains subdued due to sluggish economic activity. Banks are currently sitting on around Rs. 674 billion in excess funds, with Rs. 363 billion parked at the Nepal Rastra Bank (NRB) through tools like the Standing Deposit Facility (SDF).
IMF to conduct sixth review of Nepal’s extended credit facility program
An International Monetary Fund (IMF) team will be in Nepal from Jestha 11 for a two-week mission to assess the sixth phase of the Extended Credit Facility (ECF). This visit follows the release of the fifth installment of funds and aims to evaluate Nepal’s reform efforts.
The delegation will meet with top officials, including the Finance Minister and the Nepal Rastra Bank (NRB) Governor. Nepal was granted $398.8 million in ECF support in 2022, and five tranches have already been released.
The IMF has recognized progress despite challenges like political instability and natural disasters but continues to push for stronger fiscal management, governance, and financial regulation.
Hydropower firms can issue IPOs only after power generation begins
To address financial irregularities by hydropower developers, the government now mandates that public share offerings can only occur once a project is operational and generating electricity.
The change, based on recommendations from a high-level reform panel led by former Finance Secretary Rameshore Prasad Khanal, is part of the “Economic Reform Implementation Action Plan 2082.” The Finance and Energy Ministries will implement the policy under the coordination of the Prime Minister’s Office. It seeks to prevent inflated costs and misuse of funds before project completion.
Bangladeshi firm chosen to audit top banks’ loan portfolios
Bangladesh’s Howladar Yunus & Co. has been preliminarily selected to audit the loan books of Nepal’s 10 largest commercial banks. The NRB has asked the firm to submit its financial bid by Jestha 25.
The contract will be finalized if the company meets financial criteria. Previously, India’s KPMG was chosen but later rejected due to problems with its financial proposal, delaying the review. The audit is a requirement under the IMF-backed ECF agreement, which is currently under its sixth review.
Nepal Insurance Authority launches monthly sector report ‘Beema Pratibimba’
In celebration of its 57th anniversary, the Nepal Insurance Authority has rolled out a new monthly report titled Beema Pratibimba, offering comprehensive data on the insurance industry. Modeled after NRB’s Vartamane report, it provides consolidated and detailed statistics to support policy decisions. Though the first edition was delayed, future issues will be released on schedule to guide government planning.
Beni-Kaligandaki Hydropower Project faces mixed reactions
The 50.5 MW Beni-Kaligandaki Hydropower Project in Myagdi and Parbat is moving ahead with a call for investment under the BOOT (Build-Own-Operate-Transfer) model, issued on May 10.
While residents in Jaljala support the project for its potential job and income benefits, opposition from Beni locals and political leaders has intensified over concerns that water diversion could harm religious and cultural practices tied to the Kaligandaki River.
Small borrowers suffer amid economic slowdown
A report from the Deposit and Credit Guarantee Fund shows that over 238,000 small borrowers lost loan protection over the past two fiscal years, with numbers dropping from 1.75 million in FY 2078/79 to 1.51 million in FY 2080/81. Despite a decrease in total borrowers, the average loan amount rose by 30%.
Concerns are growing over potential “evergreening” practices, where banks issue new loans to pay off old ones. Although revenue from loan guarantees increased by 14%, default claims—especially in microfinance—also rose, highlighting deeper financial risks.
Government freezes new major road projects in hill regions
As part of a broader infrastructure reform, the government has decided to halt new large-scale road construction in hill areas, following recommendations from the 2081 High-Level Economic Reform Commission. The new policy prioritizes projects based on strategic value and prevents budget allocation for unapproved plans. It also restricts staff transfers during project implementation, potentially causing administrative hurdles and slowing development in the affected regions.
Nepal eases outward FDI rules to strengthen global economic footprint
The government of Nepal has relaxed its restrictions on outward foreign direct investment (FDI), now permitting domestic businesses to invest abroad. The updated policy allows companies to invest up to USD 1 million annually, subject to regulatory approval.
This strategic shift aims to help Nepali firms enter international markets, adopt cutting-edge technologies, and improve supply chain resilience—ultimately enhancing Nepal’s global economic competitiveness.
However, several barriers remain, including foreign currency limitations, regulatory complexities, and weak institutional capacity. Experts stress the importance of transparent regulations, simplified approval processes, and institutional strengthening to ensure the policy delivers long-term benefits for the national economy.
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