Nepal Posts Improved Economic Growth Despite Growing Trade Deficit

Nepal’s economy showed positive momentum in the fiscal year 2024/25 with robust remittance inflows, improved economic growth, moderating inflation, and a strong external position, according to the Current Macroeconomic and Financial Situation Report published by Nepal Rastra Bank (NRB) on Sunday. The report, however, highlighted increasing trade deficit as a major concern.

NRB, citing estimates from the National Statistics Office, projected Nepal’s economic growth at 4.61 percent for 2024/25, up from 3.67 percent in the previous fiscal year. Sector-wise, the agriculture sector is expected to grow by 3.28 percent, industry by 4.53 percent, and service sector by 4.21 percent, reflecting broad-based recovery. In terms of GDP composition, services contributed the largest share at 62.01 percent, followed by agriculture (25.16 percent) and industry (12.83 percent).

Inflation Moderates

Price pressures eased considerably, with the annual average consumer price inflation at 4.06 percent in 2024/25, down from 5.44 percent a year earlier. Year-on-year inflation in mid-July 2025 stood at 2.20 percent, compared to 3.57 percent in the same period last year, the report added.

Within the food basket, vegetable prices surged 10.71 percent, followed by ghee and oil (8.72 percent) and pulses and legumes (7.90 percent), while the prices of spices, and meat and fish categories declined by 2.62 percent and 0.34 percent respectively. Under the non-food category, miscellaneous goods and services posted the highest increase at 9.39 percent, followed by clothes and footwear (6.09 percent).

Remittance Inflows Surge

Remittance inflows — a lifeline for the economy — jumped 19.2 percent to Rs 1,723.27 billion, compared to an increase of 16.5 percent in the previous year. In the last month (mid-June to mid-July) of the review year, remittances stood at Rs 189.11 billion, up sharply from Rs 117.78 billion in the same period of the previous year.

External Sector Strengthens

According to the report, the current account recorded a surplus of Rs 409.20 billion, nearly doubling from Rs 221.71 billion a year ago. Similarly, the Balance of Payments (BoP) surplus widened to Rs 594.54 billion from Rs 502.49 billion last year.

Foreign exchange reserves jumped 31.2 percent to Rs 2,677.68 billion, enough to cover 18.2 months of merchandise imports or 15.4 months of goods and services imports, signaling robust external stability.

Tourism and Energy Expand

According to the NRB, tourist arrivals reached 1,147,834, marking a modest 1.7 percent increase over the previous year. Meanwhile, Nepal’s installed power generation capacity climbed to 3,591 MW, with hydroelectricity accounting for 3,390 MW, underscoring growth in the energy sector.

The NRB report however contradicts the recent claim made by Energy Minister Deepak Khadka that the country’s installed electricity capacity has reached 3,878 megawatts (MW) following the addition of 631 MW over the past year.

Widening Trade Deficit

Despite strong exports, the trade gap widened during last fiscal year indicating Nepal’s heavy reliance on import-driven economy backed by remittance.

Merchandise exports surged 81.8 percent to Rs 277.03 billion, driven by higher shipments of soybean oil, polyester yarn, jute goods, and tea.

According to the NRB report, exports of soybean oil, polyester yarn and thread, jute goods, tea, and shoes and sandals among others increased whereas exports of palm oil, zinc sheet, juice, ginger, and readymade garments among others decreased in the review year.

However, the improvement in exports was offset by the rise in imports by 13.3 percent to a massive Rs 1,804.12 billion.

The report further states that imports of crude soybean oil, transport equipment, vehicle and spare parts, rice/paddy, edible oil, and sponge iron among others increased whereas imports of petroleum products, aircraft spare-parts, gold, chemical fertilizer, and electrical equipment among others decreased in the review year.

As a result, the trade deficit grew 6 percent to Rs 1,527.09 billion, though the export-import ratio improved to 15.4 percent from 9.6 percent a year ago.