Nepal’s economy is showcasing a notable degree of resilience, characterized by moderating inflation and a strengthening external sector, according to the latest “Nepal Economy Update” report by CareEdge, a subsidiary of CARE Ratings Limited, India. This positive economic trajectory positions Nepal to better navigate potential global economic shifts.

The report highlights a significant easing of inflationary pressures. Nepal’s Consumer Price Index (CPI) inflation moderated to 2.8 percent year-on-year (y-o-y) in mid-May, a decrease from 3.4 percent in mid-April. This moderation was primarily driven by a decline in food and beverage inflation, which eased to 1.5 percent from 2.4 percent in the previous month.

Similarly, inflation in the non-food and services category also saw a reduction, dropping to 3.5 percent from 3.9 percent. While the y-o-y price index decreased in sub-categories such as vegetables, spices, and meat & fish within the food and beverage category, an increase was observed in ghee and oil, fruits, pulses and legumes, and non-alcoholic drinks.

In the non-food and services category, sub-categories including miscellaneous goods & services, education, clothes and footwear, furnishings & household equipment, and restaurant and accommodation services all experienced a rise in their y-o-y price index. This indicates a targeted moderation in price pressures, particularly in the food sector, contributing to overall economic stability.

Nepal’s external sector performance has been particularly robust. Foreign exchange reserves surged to a peak of USD 18.4 billion in mid-May, marking a substantial 20.5 percent rise since mid-July. These reserves are more than adequate, covering 14.6 months of anticipated merchandise and service imports.

This strong import cover significantly enhances Nepal’s capacity to absorb external shocks and maintain stability in its balance of payments. Remittance inflows also saw a healthy increase, rising to Rs 165.3 billion. To put this in dollar terms, using an approximate exchange rate of 1 USD = 133 Nepalese Rupees (NRs) for mid-May 2025, this translates to approximately USD 1.24 billion in remittances. The report specifies an increase from Rs 139.5 billion (approximately USD 1.05 billion) the month before.

In terms of trade, Nepal’s merchandise exports witnessed a notable surge to Rs 29.7 billion. This is approximately USD 223.3 million (using 1 USD = 133 NRs). This is a significant increase compared to Rs 12.2 billion (approximately USD 91.7 million) a year ago. This export growth was primarily fueled by an increment in the exports of soyabean oil, polyester yarn and thread, tea, jute goods, and oil cakes during the first ten months of the fiscal year.

Meanwhile, merchandise imports also rose by 21.1 percent (y-o-y) to Rs 164.7 billion, which is approximately USD 1.24 billion. Consequently, the trade deficit stood at Rs 134.9 billion (approximately USD 1.01 billion) in mid-May, a slight increase from Rs 133.9 billion (approximately USD 1.00 billion) in the previous month and Rs 123.8 billion (approximately USD 930.8 million) in mid-May 2024.

The overall Balance of Payments (BoP) continued to show a surplus, registering Rs 438.5 billion (approximately USD 3.30 billion) during the first ten months of the fiscal year, an increase from Rs 392.6 billion (approximately USD 2.95 billion) in the same period last year. This positive BoP was supported by a current account surplus of Rs 255.9 billion (approximately USD 1.92 billion), higher than the Rs 193.3 billion (approximately USD 1.45 billion) reported the previous year.

Net capital transfers also climbed to Rs 8.5 billion (approximately USD 63.9 million), and foreign direct investment (equity only) grew to Rs 10.6 billion (approximately USD 79.7 million). These figures collectively underline a healthy inflow of foreign currency and investor confidence in the Nepali economy.

The tourism sector, however, presented a mixed performance. In mid-May, Nepal experienced a sequential dip of 26 percent in tourist arrivals. Compared to the previous year, arrivals also decreased by 4.4 percent.

Despite this, Nepal welcomed a total of 1 million tourists during the first ten months of the fiscal year, a slight increase from the 990,000 recorded in the same period last year. This sequential decline in May could be attributed to seasonal factors or other specific events, warranting close observation in the coming months.

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