Private Investment Declines Sharply Despite Ample Liquidity: NRB

Private investment in Nepal has continued to decline in recent years despite historically low lending rates and ample investible funds in banks, the Nepal Rastra Bank (NRB) said on Tuesday.

Releasing its February 2026 Macroeconomic Report, the central bank said share of private investment to the gross domestic product (GDP) has been falling continuously since Fiscal Year 2021/22.

Private investment accounted for 21.7 percent of GDP in FY 2021/22. The share dropped sharply to 15.7 percent in FY 2022/23 and further declined to 14.7 percent in FY 2024/25, according to the report.

The contraction was particularly steep in FY 2022/23, when investment growth shrank by 28.1 percent. Although the pace of decline has slowed since then, investment activities remain subdued. “Demand for private investment is currently about 30 percent lower compared to FY 2021/22,” the report said, warning that the sustained downturn has weighed heavily on overall economic growth.

The NRB projected that the economy will expand by around 4 percent in the current fiscal year (2025/26), significantly below the government’s annual target of 6 percent.

The report attributed the slowdown in private investment largely to weak market demand. Domestic demand, which exceeded 131 percent of GDP in FY 2021/22, fell to 121.5 percent in FY 2024/25.

Although the economy is in a recovery phase, the improvement remains uneven and overall demand has yet to return to previous levels, the central bank said.

The decline in investment has occurred despite abundant liquidity and low interest rates. Short-term interest rates have fallen close to the lower bound of the interest rate corridor in line with the central bank’s monetary policy.

However, credit expansion remains sluggish, indicating that cheaper borrowing costs have not translated into stronger loan disbursement or fresh investment. The report said credit growth will depend on improved financial performance, increased government spending following elections, and a more stable investment climate.

Over the past decade, Nepal’s average economic growth has remained close to its estimated potential of 4.2 percent, according to the report. The structure of the economy has tilted increasingly towards the service sector, while the share of the industrial sector has shrunk from over 22 percent in the mid-1990s to 12.8 percent in 2025.

Although manufacturing, construction, and wholesale and retail trade have recently recorded positive growth, overall demand remains below its earlier peak.

The NRB said economic growth is likely to remain around 4 percent in the current fiscal year. “External sector pressures, supply-side disruptions, monsoon fluctuations and risks in the financial sector remain key challenges,” the report noted.

Despite easing inflation and high liquidity, weak private investment continues to be the main obstacle to faster economic expansion. “Unless investor confidence and capital expenditure improve sustainably, the economy is likely to remain stuck around 4 percent growth,” the report said.