KATHMANDU: Economic Digest presents a brief yet comprehensive roundup of major business developments in Nepal, delivered in clear and accessible summaries.
Nepal’s latest policy and development updates reveal a widening gap between ambitious public investment plans and persistent implementation challenges. While the government is pushing ahead with major infrastructure goals—including expanding electricity generation, strengthening transmission networks, and advancing cross-border railway connectivity with India—economic activity remains subdued, as reflected in excess banking liquidity and weak credit demand.
New agricultural support price mechanisms and World Bank-backed clean air investments signal efforts to improve rural incomes and environmental sustainability, yet rising construction costs have stalled road projects, and critical health equipment worth millions remains unused due to operational bottlenecks.
At the same time, tax reforms, local gender-focused incentives, and stricter traffic enforcement indicate a broader push toward governance and social development. Taken together, these developments suggest that Nepal’s primary challenge is no longer a lack of policy initiatives or funding commitments, but the effective execution of projects and the creation of conditions that can translate investment and reforms into tangible economic growth and public service delivery.
Government aims to expand electricity generation capacity to 5,335 MW
The government plans to increase Nepal’s installed electricity capacity to 5,335 MW during the next fiscal year by adding 1,040 MW of new hydropower generation. Under the annual development program, the Ministry of Energy, Water Resources and Irrigation intends to speed up hydropower construction, expand transmission networks, and encourage private-sector participation. Targets include extending 66 kV transmission lines to 7,808 circuit kilometers and 33 kV lines to 8,429 circuit kilometers. The plan also seeks to raise per capita electricity consumption to 511 kWh, generate additional power from micro-hydro and solar projects, and expand irrigation coverage. Officials believe that completing 12 major transmission line projects will enhance electricity distribution, support industrial development, and promote balanced regional growth.
Nepal and India review progress on cross-border broad-gauge railway projects
Nepal and India have concluded a two-day bilateral meeting in Kathmandu focused on advancing cross-border railway connectivity. During the 10th Project Steering Committee and 8th Joint Working Group meetings, technical teams from both countries assessed progress on the Jayanagar–Bijalpura–Bardibas and Jogbani–Biratnagar broad-gauge railway projects, which are being financed through grants from the Government of India. The two sides also discussed operational arrangements for a planned passenger rail service linking Janakpur and Ayodhya and reviewed final survey findings for the proposed Raxaul–Kathmandu railway line aimed at strengthening future transport and logistics networks.
NRB faces rising liquidity pressure as deposits continue to outpace lending
Nepal Rastra Bank (NRB) and commercial banks are increasingly burdened by excess liquidity as deposit growth continues to exceed credit expansion. According to NRB figures, total deposits have climbed to Rs 8.017 trillion, while outstanding loans stand at Rs 5.915 trillion, reducing the average credit-to-deposit ratio to 73.10 percent—well below the regulatory limit. Bankers attribute the surplus funds to slow economic activity, subdued demand in the real estate and stock markets, and a shortage of attractive investment opportunities. To manage the excess liquidity, NRB has been injecting funds back into the banking system through interest-bearing instruments, with costs expected to surpass the more than Rs 10 billion spent last year. Economists caution that unless large-scale infrastructure investments and alternative financial instruments are introduced, lending demand is likely to remain weak and continue to weigh on economic growth.
New directives require minimum support prices before crop planting
The Ministry of Agriculture, Forest and Environment has introduced the Minimum Support Price and Minimum Purchase Price Determination Directives 2026, establishing a legal framework for setting guaranteed crop prices before planting seasons begin. The directives, approved through a ministerial decision and formally registered with the Ministry of Law, Justice and Parliamentary Affairs, set the support price for summer paddy in fiscal year 2026/27 at Rs 3,660 per quintal for coarse varieties and Rs 3,860 per quintal for medium-grade rice. The ministry is also preparing a Cabinet proposal to introduce Nepal’s first minimum support price for spring maize.
World Bank approves $57 million package to tackle air pollution
The World Bank has approved a combined financing package of USD 57 million—including a USD 52 million concessional loan and a USD 5 million grant—to support the Nepal Clean Air and Prosperity Project (NCAP), valued at Rs 8.71 billion. The five-year initiative, led by the Department of Environment and the Department of Industry, aims to reduce harmful PM2.5 pollution levels, which remain significantly above international standards in the Kathmandu Valley and Terai region. The project will support cleaner industrial technologies by offering subsidies for electric and biomass-based systems, while also facilitating long-term concessional financing and private investment. In addition, air-quality monitoring infrastructure will be strengthened through upgrades to monitoring stations. The program aims to reduce annual PM2.5 emissions by 500 metric tons and greenhouse gas emissions by 110,000 tons, benefiting industries, workers, and communities across Nepal.
Rising fuel and material costs delay most road projects in Sudurpaschim
Sharp increases in the prices of bitumen, diesel, and other construction materials have disrupted nearly 70 percent of ongoing road-paving projects under the Mahendranagar Road Division Office in Sudurpaschim Province. The absence of price-adjustment provisions in original contracts has made it difficult for contractors to absorb rising costs, slowing progress and affecting spending targets for fiscal year 2025/26. One major casualty is the 31.06-kilometer periodic maintenance project on the Attariya–Sahajpur road section. Asphalt paving has also been suspended on nine road segments under the Alternative Assistant Highway Development Program in Kailali and Kanchanpur districts, with only limited repair work continuing on the Chisapani–Gaddachauki corridor.
New income tax provisions apply to local employees of foreign missions
The government has introduced new income tax requirements for Nepali citizens employed by foreign embassies and international organizations through provisions included in the Financial Bill 2026. Under the new rules, local employees of United Nations agencies and other international missions who are not covered by diplomatic tax exemptions under the Vienna Convention must obtain a Permanent Account Number (PAN) and submit outstanding income tax returns for fiscal years 2022/23 through 2025/26. Individuals who settle their principal tax obligations and pay an additional 1 percent fee by December 15 will be eligible for a full waiver of accrued interest charges and penalties.
Myagdi local government launches cash incentive for newborn girls
Annapurna Rural Municipality in Myagdi has introduced a financial incentive program for families with newborn daughters to promote gender equality, improve child welfare, and discourage sex-selective practices. Implemented under the Daughter Born Incentive Program Implementation Procedure 2026, the initiative has been allocated Rs 500,000 for fiscal year 2025/26. Parents or legal guardians of girls born after July 17, 2025, can apply for a one-time cash grant of Rs 12,000 per child by submitting the required documents before June 21.
Unused dialysis machines worth Rs 97 million sit idle nationwide
Dialysis equipment valued at approximately Rs 97 million remains unused in hospitals across Nepal due to funding shortages and operational challenges. At Sahid Smriti Hospital in Bardaghat Municipality-14, six dialysis machines worth Rs 12 million donated by the Rotary Club of Dhulikhel during fiscal year 2024/25 have yet to be put into service. Likewise, five dialysis units valued at Rs 85 million donated to Sunwal Municipality remain idle despite growing demand for kidney treatment. As a result, patients continue to travel to the overcrowded dialysis center at Prithvichandra District Hospital in Ramgram for treatment.
Mohan Kumar Dangi assumes presidency of IPPAN
Mohan Kumar Dangi has become president of the Independent Power Producers’ Association, Nepal (IPPAN), in accordance with the organization’s constitutional provisions. During the association’s 24th Annual General Meeting, Uttam Blon Lama was elected unopposed as senior vice president after the withdrawal of rival candidate Balram Khatiwada. Other leadership positions were also filled unopposed, including General Secretary Teknath Acharya, Deputy General Secretary Kabita Pokharel, and a five-member secretary team. Shankar Basyal won the position of treasurer, defeating Mithun Prasad Paudel by a margin of 267 votes to 82.
Traffic police collect over Rs 1.7 million in fines within a day
The Kathmandu Valley Traffic Police Office collected more than Rs 1.7 million in fines within 24 hours after taking action against 2,598 motorists for various traffic violations. Enforcement records show that 199 drivers were penalized for drunk driving, while others were cited for offenses including unauthorized ride-sharing operations, traffic signal violations, speeding, lane discipline breaches, excessive horn use, illegal parking on sidewalks, and driving on one-way roads. The fines were deposited into the government treasury as part of ongoing road safety enforcement efforts.
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