Although the government has consistently referred to the private sector as the “backbone of the economy,” the share of its investment in Nepal’s gross fixed capital formation has been steadily declining over the years.

Investment in assets such as land, machinery, equipment, and intellectual property is critical for capital formation and long-term economic growth.

According to the recently released “Economic Survey 2024/25,” the average contribution of the private sector to gross fixed capital formation over the past decade was 67.7 percent. The government sector accounted for 23.5 percent, while public enterprises contributed 8.8 percent.

However, the private sector’s share has been on a downward trajectory. For the current fiscal year 2024/25, it is projected to fall to 60.8 percent—down from 61.6 percent in the previous fiscal. Notably, these figures exclude private investments made in public institutions and state-owned companies.

Meanwhile, the government’s share is estimated at 31 percent and public enterprises at 8.2 percent in the current fiscal.

Economists say the numbers reflect a stagnating investment climate in the country.

“The flow of credit to the private sector has dropped, weakening its capacity to invest in fixed assets,” said economist Keshav Acharya. He attributes the downturn to persistent policy instability, which has discouraged private investment.

Acharya also criticized the inefficiency of government institutions. “Agencies like the Office of the Company Registrar, the Department of Industry, the Investment Board, and the Customs Department are not providing services conducive to investment,” he said. “Entrepreneurs often have to run from office to office for weeks just to complete basic formalities. This kind of red tape kills business motivation.”

Economists added that investment insecurity, weak governance, and procedural hurdles have further eroded confidence among potential investors. Without structural reforms, they warned, private sector investment will continue to stagnate.

Private sector credit expansion has consistently fallen short of targets in recent years. Despite declining interest rates, banks and financial institutions are sitting on excess liquidity, as businesses hesitate to borrow in what they describe as an uncertain and unwelcoming environment.

Raghunandan Maru, president of the Nepal Cement Manufacturers Association, said frequent and unpredictable policy changes have left industrialists demoralized.

“Entrepreneurs are losing faith in the system,” Maru said. “With no guarantee of policy consistency or protection for their investments, many young people are choosing to migrate abroad instead of starting businesses at home. This exodus is affecting not just investment but domestic consumption as well.”

Maru also emphasized that bureaucratic complexity remains a key barrier. “Even though the government claims to have implemented a one-stop service system, it hasn’t worked in practice,” he said.

Industry insiders echoed similar concerns, warning that unless meaningful reforms are introduced, the country’s industrial ecosystem could deteriorate even further.

Nepal’s economy has struggled to regain momentum after the COVID-19 pandemic. The economy contracted in fiscal year 2019/20, and despite some recovery, it has yet to return to a path of robust growth.

For several consecutive years, economic growth remained below 4 percent. The Central Bureau of Statistics projects a growth rate of 4.61 percent for the current fiscal year—well short of the government’s 6 percent target.

A recent report by the High-Level Economic Reform Advisory Commission points to a sustained slump in aggregate demand and consumption as the primary reasons for the lack of dynamism in the economy.