Nepal's Economy Sees Gains in FY25 Despite Trade Deficit

In mid-May 2025, Nepal’s economy experienced moderating inflation and a surge in foreign exchange reserves. Price pressures in the food and beverage category have been witnessing sustained moderation. Foreign exchange reserves have reached 18.4 billion, enhancing the economy’s resilience to external disruptions. The trade deficit stood at Rs 134.9 billion in mid-May. During the first ten months of the fiscal year, the balance of payments continued to show a surplus.

Nepal’s consumer price inflation eased to 2.8% year-on-year (y-o-y) in mid-May from 3.4% in mid-April. This moderation was driven by a decline in food and beverage inflation, which eased to 1.5% from 2.4% in the previous month. At the same time, inflation in the non-food and services category reduced to 3.5% from 3.9%. Within the food and beverage category, the y-o-y price index decreased in the vegetables, spices, and meat & fish sub-categories. In contrast, an increase was seen in sub-categories such as ghee and oil, fruits, pulses and legumes, and non-alcoholic drinks. In the non-food and services category, the y-o-y price index rose for sub-categories including miscellaneous goods & services, education, clothes and footwear, furnishings & household equipment, and restaurant and accommodation services.

In the non-food and services category, the y-o-y price index rose for sub-categories including miscellaneous goods & services, education, clothes and footwear, furnishings & household equipment, and restaurant and accommodation services.

External Sector 

In mid-May, Nepal's foreign exchange reserves hit a peak of USD 18.4 billion, marking a 20.5% rise since mid-July. These reserves adequately cover 14.6 months of anticipated merchandise and service imports. Remittance inflows rose to Rs 165.3 billion in mid-May, compared to Rs 139.5 billion the month before.

In mid-May, Nepal's merchandise exports surged to Rs 29.7 billion compared to Rs 12.2 billion a year ago. Export growth was majorly driven by an increment in the exports of soyabean oil, polyster yarn and thread, tea, jute goods, and oil cakes during the first ten months of the fiscal year. Meanwhile, merchandise imports rose 21.1% (y-o-y) to Rs 164.7 billion. The trade deficit stood at Rs 134.9 billion in mid-May, from Rs 133.9 billion in the previous month, and Rs 123.8 billion in mid-May 2024.

During the first ten months of the fiscal year, Nepal's current account stayed in surplus at Rs 255.9 billion, higher than the Rs 193.3 billion reported the previous year. Net capital transfers climbed to Rs 8.5 billion, a rise from Rs 5.3 billion in the same period last year. Meanwhile, foreign direct investment (equity only) grew to Rs 10.6 billion, up from Rs 7 billion. Additionally, the balance of payments (BoP) registered a surplus of Rs 438.5 billion during the first ten months, compared to Rs 392.6 billion in the same period of the previous year.

Tourism 

In mid-May, Nepal's tourism sector experienced a sequential dip of 26% in tourist arrivals. Moreover, compared to the previous year, arrivals decreased by 4.4%. In total, Nepal welcomed 10 lakh tourists during the first ten months of the fiscal year, from the 9.9 lakh recorded in the same period last year.