DistantNews
Support us
🇳🇵 Nepal /Economy & Trade

Nepal's economy needs more than a two-thirds majority

From Kathmandu Post · () English

Translated from English, summarized and contextualized by DistantNews.

At a glance

News Sources not specified Context piece
  • Nepal's economy faces a gap between citizen expectations and state delivery, exacerbated by political instability and past economic shocks.
  • Despite advantages like a young population and ample loanable funds, the economy struggles to create jobs, leading to significant annual emigration.
  • The current slowdown is partly attributed to a credit clampdown that pushed activity into illegal imports, while issues like difficult business registration and lack of collateral credit persist.

Nepal's economy is grappling with a widening gap between what citizens expect and what the state can realistically deliver, a challenge the current government, elected on the back of Gen Z protests, has yet to fully address. This situation is compounded by a history of political turmoil and economic setbacks.

While Nepal possesses several advantages, including a median age of 25, approximately Rs1.4 trillion in loanable bank funds, low interest rates below 6 percent, and foreign reserves covering over 20 months of imports, these strengths are not translating into job creation. Annually, around 500,000 young Nepalis enter the labor market, but neither the state nor the private sector can absorb them. Consequently, roughly 700,000 people leave the country each year for work abroad.

Former banking association president Bhuwan Dahal points to a central bank clampdown on credit and imports, implemented when foreign reserves fell to six and a half months of cover, as the origin of the current economic slowdown. This measure, intended to curb demand, inadvertently pushed economic activity into illegal imports. Furthermore, bureaucratic hurdles remain significant, with registering a business requiring visits to up to seven agencies, and credit without collateral is practically unavailable. A crisis in cooperatives and microfinance has also disrupted informal credit lines essential for small traders.

The result is an economy operating in low gear. Households are saving rather than spending, investors are hesitant due to uncertain returns, and liquidity remains largely unused in the banking system. Compared to regional peers like Cambodia, which attracts over $4 billion in annual foreign direct investment, Nepal receives only about $100 million, with FDI remaining under 1 percent of GDP. This economic stagnation contrasts sharply with the potential suggested by the country's demographic and financial advantages.

The side effect? It pushed activity into illegal imports instead of curbing demand.

— Bhuwan DahalExplaining the unintended consequence of the central bank's credit and import clampdown.
DistantNews Editorial

Originally published by Kathmandu Post in English. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

More Stories

From Our Blog