Nepal's revenue and debt under pressure as private investment falters

The Kathmandu Post reports on a critical juncture for Nepal's economy, where weak private investment is casting a long shadow over the government's ambitious plans for a $100 billion economy. The article highlights how the private sector, typically a powerhouse of investment, has faltered, contributing to a worrying decline in revenue and an increased dependence on public debt for even basic expenditures. This situation is particularly concerning given the recent formation of a new government, which had initially sparked optimism within the business community.

Economists point to a complex mix of factors hindering recovery, including the lingering effects of the COVID-19 pandemic and the government's own demand-suppression policies. The article also touches upon the significant financial losses businesses incurred during the recent Gen Z protests, underscoring the fragility of the economic environment. Investors are now keenly awaiting concrete policy signals and the upcoming budget before committing capital, a testament to the prevailing uncertainty.

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When estimating gross fixed capital formation, indicators such as construction activity, imports of machinery, domestic production of machinery, breeding livestock, cultivated trees for fruit or long-term production, research and development, computer software and data, and weapons are taken into account. These investments may come from the government, public enterprises or the private sector. So when overall capital formation rises while public investment declines, the remaining share is interpreted statistically as an increase in private investment.

Adding a layer of complexity, the article delves into statistical nuances. Dhundiraj Lamichhane, deputy chief statistician, explains how a dramatic 33 percent drop in government investment in the fiscal year 2025-26 has artificially inflated the apparent share of private investment. This statistical anomaly, while showing an increase on paper, masks the underlying challenges and the urgent need for genuine policy interventions. From our perspective at The Kathmandu Post, these findings underscore the imperative for the government to implement targeted incentives and foster a stable environment to truly revive private sector confidence and steer Nepal towards its economic aspirations.

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If capital formation is delayed in one year, it is likely to materialise in the following year, which often creates this kind of statistical pattern.