Nepal’s external sector continues to show strong signs of recovery, with a solid current account surplus, soaring foreign exchange reserves, and easing inflation, but concerns over the growing trade deficit and subdued domestic demand have clouded the broader economic outlook.

According to the Current Macroeconomic and Financial Situation Report released by Nepal Rastra Bank (NRB) on Tuesday, the current account remained in a surplus of Rs 307.31 billion during the first eleven months of the current fiscal year (2024/25), up from Rs 200.38 billion in the corresponding period last year. This improvement reflects stronger inflows, particularly from remittances and capital transfers.

Remittance inflows—a key pillar of Nepal’s external stability—rose by 15.5 percent to Rs 1,532.93 billion. These inflows have supported household consumption and helped strengthen foreign exchange reserves, which jumped 25.9 percent to Rs 2,569.38 billion by mid-June 2025. The reserves are now sufficient to cover 17.6 months of merchandise imports and 14.7 months of total goods and services imports, providing a healthy cushion against external shocks.

The balance of payments (BOP) also posted a surplus of Rs 491.44 billion, up from Rs 425.67 billion in the same period of the previous year. Net capital transfers rose to Rs 8.96 billion, and foreign direct investment (equity only) reached Rs 11.09 billion—an increase from Rs 8.24 billion a year ago—signaling modest but sustained investor interest.

Consumer price inflation moderated to 2.72 percent in mid-June, down from 4.17 percent a year earlier. A sharp decline in food and beverage inflation—from over 10 percent in December 2024 to below 1 percent by June 2025—was a key factor in easing overall price pressures.

Despite these positive external indicators, concerns remain over domestic economic performance. President of the Confederation of Nepalese Industries (CNI) Rajesh Kumar Agrawal noted that although macroeconomic indicators appear sound—with inflation under control, interest rates down to single digits, and over Rs 650 billion in loanable funds in the banking system—borrowing and investment activity remain subdued.

“Entrepreneurs are not taking loans, and investments are not moving forward,” Agrawal said during the annual general meeting of CNI on Tuesday, attributing the weakness to low domestic demand. He also pointed out that industrial output has been hampered by irregular electricity supply, driving up production costs and deterring expansion.

Also, Nepal’s total trade deficit expanded by 6.3 percent to Rs 1,397.23 billion, indicating the country’s continued dependence on imports. The increase in the trade gap highlights underlying structural challenges even as the country enjoys stronger external receipts.

Economists note a growing disconnect in Nepal’s economy—while external indicators point to stability and resilience, persistent structural bottlenecks and weak domestic demand continue to weigh down real economic momentum.