Nepal maintains macroeconomic stability in early FY 2025-26

KATHMANDU: Nepal’s macroeconomic and financial indicators show notable stability and improvement during the first four months of the fiscal year 2025-26, driven by subdued inflation, a sharp rise in remittances, strong export growth, and a comfortable foreign exchange reserve position, according to the latest data released by Nepal Rastra Bank (NRB).

Inflation Remains Exceptionally Low

Consumer price inflation eased significantly, standing at 1.11 percent year-on-year in mid-November 2025, compared to 5.60 percent a year earlier. Food and beverage prices declined by 3.32 percent, largely due to a sharp fall in vegetable prices, while non-food and services inflation stood at 3.69 percent. Average inflation during the first four months of the fiscal year remained at 1.53 percent, well below last year’s level.

Regionally, inflation varied modestly, ranging from 0.26 percent in Sudurpashchim Province to 1.80 percent in Koshi Province, while inflation in the Kathmandu Valley stood at 1.16 percent. Wholesale price inflation also moderated to 2.65 percent, down from 5.16 percent a year ago.

External Sector Shows Strong Performance

Nepal’s external sector remained robust during the review period. Merchandise exports surged by 77.5 percent, reaching Rs. 93.50 billion, led by strong growth in exports to India and higher shipments of soybean oil, cardamom, palm oil, jute goods, and footwear. Imports increased at a more moderate pace of 18.7 percent, totaling Rs. 609.45 billion.

As a result, the trade deficit widened by 12.0 percent to Rs. 515.96 billion, though the export-import ratio improved significantly to 15.3 percent, up from 10.3 percent a year earlier.

Remittances Drive Balance of Payments Surplus

Remittance inflows remained a key pillar of external stability. During the first four months of FY 2025/26, remittances increased by 31.4 percent to Rs. 687.13 billion, while inflows in US dollar terms rose by 25.3 percent to USD 4.88 billion. In the Kartik month alone (mid-October to mid-November), remittances amounted to Rs. 133.82 billion.

Supported by strong remittances and higher net transfers, the current account recorded a surplus of Rs. 279.65 billion, nearly double the surplus of the same period last year. The overall balance of payments surplus stood at Rs. 318.40 billion.

Foreign Exchange Reserves Reach Record Levels

Gross foreign exchange reserves rose by 14.1 percent to Rs. 3,055.52 billion (USD 21.52 billion) by mid-November 2025. These reserves are sufficient to cover 17.4 months of prospective merchandise and services imports, reflecting a strong external buffer. The reserve-to-GDP ratio increased to 50.0 percent, underscoring improved external resilience.

Fiscal Position: Spending Outpaces Revenue

On the fiscal front, the Nepal Government’s total expenditure reached Rs. 468.88 billion during the review period, with recurrent spending accounting for the largest share. Capital expenditure, however, declined by 26.7 percent compared to the previous year.

Revenue mobilization stood at Rs. 326.55 billion, showing marginal growth of 1.0 percent, as higher tax revenue was offset by a sharp fall in non-tax revenue. The government’s cash balance with NRB improved to Rs. 202.98 billion by mid-November 2025.

Moderate Monetary Expansion and Credit Growth

Broad money (M2) increased by 3.0 percent during the review period and expanded 12.5 percent year-on-year. Deposits at banks and financial institutions (BFIs) rose by 3.1 percent, while private sector credit increased by 1.2 percent, reflecting cautious lending behavior amid economic normalization.

Interest rates continued to ease. The weighted average interbank rate declined to 2.75 percent, while the 91-day Treasury bill rate stood at 2.37 percent. Commercial banks’ average lending rate fell to 7.38 percent, down from over 9 percent a year earlier.

Financial System Remains Stable

Nepal’s banking sector maintained adequate capital and liquidity. The capital adequacy ratio stood at 12.89 percent, while the non-performing loan (NPL) ratio was 5.26 percent as of mid-October 2025. Digital financial transactions expanded rapidly, with mobile banking and QR payments recording strong growth.

Capital Market Shows Mild Correction

The Nepal Stock Exchange (NEPSE) index stood at 2,540.58 in mid-November 2025, down from 2,748.79 a year ago. Market capitalization declined to Rs. 4,265.68 billion, equivalent to 69.85 percent of GDP. Despite the correction, new listings and approvals for public issuance remained active during the review period.

Outlook

Overall, Nepal’s economy in the early months of FY 2025/26 reflects macroeconomic stability, supported by low inflation, strong remittance inflows, rising foreign exchange reserves, and a surplus in the balance of payments. However, challenges remain in boosting capital expenditure, sustaining export momentum, and stimulating private sector credit growth to support long-term economic expansion.