KATHMANDU: Nepal’s economic landscape for the fiscal year 2025/26 presents a compelling narrative of moderate growth, robust external stability powered by record-breaking remittance inflows, and notable domestic fiscal challenges. According to data released by Nepal Rastra Bank, while the country enjoys unprecedented foreign exchange reserves and comfortable external balances, domestic industrial demand, capital expenditure execution, and private sector credit expansion continue to face constraints.
Real sector performance and economic growth
The National Statistics Office estimated Nepal’s real economic growth rate at 3.85 percent for FY 2025/26, moderating slightly from 4.43 percent in the previous fiscal year. The service sector remains the backbone of the economy, accounting for 61.81 percent of the Gross Domestic Product (GDP) with a growth rate of 4.21 percent. Meanwhile, the industry sector demonstrated strong resilience, growing by 5.67 percent and raising its GDP share to 14.16 percent, whereas the agriculture sector grew by a modest 1.58 percent. Complementing this, installed electricity capacity reached 4,120 Megawatts, and tourist arrivals experienced a slight uptick to 1,158,459 visitors.
Price stability and inflation dynamics
Price stability remained well-contained throughout the fiscal year, with annual average consumer price inflation dropping to 3.08 percent from 4.06 percent the previous year, though year-on-year inflation stood at 5.14 percent by mid-July 2026. Food and beverage inflation averaged a negligible 1.04 percent annually, cushioned by a decline in vegetable, spice, and pulse prices. Conversely, non-food and services inflation averaged 4.21 percent, driven notably by miscellaneous goods and services and education costs.
External sector: Trade, remittances, and foreign reserves
The external sector served as the brightest spot in the macroeconomic matrix. Propelled by robust labor migration that saw 406,519 workers receive initial foreign employment approvals, remittance inflows surged by 37.1 percent in NPR terms to hit Rs. 2,363.13 billion. Although merchandise exports grew to Rs. 315.29 billion and imports reached Rs. 2,096.38 billion—widening the total trade deficit by 16.6 percent to Rs. 1,781.09 billion—massive remittances and a current account surplus of Rs. 923.56 billion drove the Balance of Payments to a surplus of Rs. 1,027.04 billion. Consequently, gross foreign exchange reserves escalated by 45.6 percent to Rs. 3,897.67 billion, providing an import cover of 19.6 months.
Fiscal position and government finance
Fiscal operations faced persistent hurdles, registering a budget deficit of 1.7 percent of GDP. Total outstanding public debt climbed to Rs. 2,927.90 billion, representing 45.07 percent of GDP. Total government expenditure reached Rs. 1,582.17 billion, out of which recurrent spending claimed the lion’s share while capital expenditure remained sluggish at just Rs. 190.84 billion, marking a 14.8 percent contraction.
Total revenue mobilization stood at Rs. 1,241.32 billion, heavily dependent on indirect taxes which comprised 65.0 percent of total receipts.
Monetary developments, banking, and financial stability
In the financial sector, broad money expanded by 13.4 percent and deposits at banks and financial institutions grew by 13.9 percent to reach Rs. 8,276.93 billion. However, private sector credit grew by a subdued 6.5 percent to touch Rs. 5,857.06 billion. This sluggish credit demand pushed down interest rates, with the weighted average commercial bank deposit rate dropping to 3.21 percent and lending rates averaging 6.55 percent. Meanwhile, financial soundness indicators noted that the average non-performing loan ratio rose to 5.66 percent, and the capital market index (NEPSE) closed the year at 2,597.80.
