The Nepal Rastra Bank's latest macroeconomic report shows that Nepal's economy in fiscal year 2025/2026 (mid-7 to mid-7 of 2025) demonstrated strong resilience, with growth estimated at 3.85% and average inflation expected to remain below 3.5%, staying within a moderate and manageable range. The central bank believes that with ongoing policy reforms, improved private sector confidence, and stronger domestic consumption and investment demand, economic growth in the new fiscal year is likely to accelerate.
The services sector is a key driver of Nepal's economic growth, contributing 61.81% to GDP, with active performance in finance, wholesale and retail, and transportation. The industrial sector expanded steadily, driven by improved power supply and the commissioning of hydroelectric projects, raising its contribution to 14.16% of GDP. Agricultural output slowed due to drought and erratic rainfall.
In goods trade, Nepal's 2025/2026 fiscal year saw double-digit growth in both imports and exports. Although the import growth rate slightly exceeded that of exports, robust increases in remittances and investment income helped maintain a surplus in Nepal's overall balance of payments. By the end of the fiscal year, foreign exchange reserves reached nearly 3.9 trillion Nepalese rupees (1 RMB equals 22.7 NPR), representing a more than 40% increase from the start of the fiscal year and reaching an all-time high. Remittances remain the core driver supporting these reserves, with inflows in 2025/2026 fiscal year growing by nearly 40% year over year.
However, constrained by weak corporate investment appetite, bank capital adequacy requirements, and rising non-performing loans, domestic credit demand in Nepal has recovered slowly. Private sector credit growth was only about 6.5%, far below the central bank's target of 12%. Fiscal spending also requires optimization. While total government revenue grew, capital expenditure fell significantly short of budget targets. High proportions of rigid expenditures, such as debt servicing, have limited fiscal support for infrastructure and productivity improvements. Additionally, the Nepalese rupee depreciated substantially against the U.S. dollar this fiscal year, increasing import costs and the burden of external debt.
To further boost the economy, the country has significantly increased its fiscal budget and introduced measures such as raising capital expenditure and cutting personal income tax and business taxes. These actions aim to strengthen domestic demand and improve supply. Recently, the Nepal Rastra Bank announced its monetary policy for the new fiscal year, maintaining a "cautiously flexible" stance. It will keep key policy interest rates unchanged to ensure ample liquidity in the financial system and favorable financing costs, creating conducive conditions for the recovery of private sector credit.
The World Bank estimates that recent natural disasters have damaged Nepal's power, transport, and service sectors. Economic growth is projected to slow to 3.7% in fiscal year 2026/2027, but is expected to rebound to 5.2% in fiscal year 2027/2028 driven by reconstruction efforts. The IMF analysis indicates that a stabilizing political environment, accommodative policy stance, and expansionary fiscal policies will support a gradual recovery of Nepal's private sector.