Nepal's FDI commitments shrink as political turmoil dents investor confidence

Foreign direct investment commitments to Nepal dropped by 10% in the last fiscal year, a decline experts attribute to significant political instability. The fiscal year ending mid-July saw pledged investments fall to Rs58 billion across 1,117 projects, with the potential to create 28,645 jobs.

Large-scale industries attracted the most commitments at Rs32.84 billion, while agriculture and forestry led sector-wise with Rs23.18 billion. The energy sector followed with Rs7.16 billion, and tourism attracted Rs13.99 billion. China, India, and Hong Kong remained the top sources of FDI commitments.

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Nepal went through a major political crisis last year, which reduced investment commitments. Geopolitical tensions have also partly affected investor mood.

Prakash Kumar Shrestha, former vice-chairman of the National Planning Commission, stated that Nepal's political crises "significantly affected investor sentiment." He noted that geopolitical tensions also played a role. Investors are likely to adopt a "wait-and-watch approach" under the new government, prioritizing policy consistency for long-term commitments.

Shrestha added that attracting substantial foreign investment will remain challenging as long as domestic investors are hesitant, despite ample liquidity and low interest rates. Notably, while commitments decreased, actual foreign investment inflows saw a sharp increase, more than doubling in the first 11 months of the fiscal year.

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They will observe how stable Nepal's policies remain. Foreign investors are making long-term commitments, and policy consistency is one of their biggest considerations.