Rebuilding Economic Confidence
Nepal stands at an important economic crossroads. After years of political instability and economic uncertainty, the formation of a government with a near two-thirds majority has created renewed hope for stability and development. The government has pledged to accelerate economic growth, raise per capita income, generate employment, expand electricity production and build a more prosperous economy. The real test, however, is whether these commitments can be translated into investment, production, employment and sustainable economic growth.
Ample Capital, Weak Investment
One of Nepal’s biggest economic paradoxes is that financial resources are available, but investment demand remains weak. Around Rs. 1.25 trillion in investable funds is available with banks and financial institutions, while interest rates have fallen considerably. Yet, businesses are not borrowing and investing at the expected level. This indicates that the central problem is no longer simply the availability or cost of money, but confidence. Entrepreneurs invest when they believe policies are stable, regulations predictable, markets fair and investments protected.
Economic Challenges Have Built Up Over Time
Nepal’s economic difficulties have accumulated over several years, particularly since the COVID-19 pandemic. GDP contracted by 2.09% in Fiscal Year 2076/77, while pressure on foreign exchange reserves led to restrictive measures. Although some interventions were necessary, inadequate assessment of their impact on businesses created unintended consequences. Many businesses subsequently suffered erosion of their capital base, while numerous entrepreneurs entered the banking blacklist. The economy therefore requires a comprehensive reform programme rather than a series of short-term measures.
Restoring Trust Is the Key Reform
The most important reform today is the restoration of trust. Entrepreneurs understand and accept commercial risks, but they cannot reasonably bear risks created by unstable government policies. Major economic laws and regulations should be introduced only after assessing their potential impact on investment, employment, production, taxation and competitiveness. Regulatory impact assessment should become standard practice, while consultation with the private sector should be institutionalised rather than conducted only occasionally.
A Predictable Business Environment Is Essential
Nepal needs a dignified, fair and exciting stable business environment. Strong enforcement against financial crimes, money laundering and illegal activities is necessary, but legitimate entrepreneurs should not be treated as criminals without an established offence. Nepal’s transition from an informal to a formal economy has created genuine documentation challenges because wealth accumulated through agriculture, traditional trade, small businesses and inheritance was not always systematically recorded. Regulation should prevent crime without creating unnecessary fear and uncertainty among legitimate businesses.
Rebuilding the Private Sector’s Capital Base
The private sector is facing serious erosion of its capital base. Years of economic slowdown have weakened the equity and working capital of many small and medium-sized businesses, while loan repayments and asset auctions have increased pressure on enterprises. The government and financial institutions should distinguish between businesses deliberately avoiding repayment and viable enterprises facing temporary financial difficulties. For the latter, loan restructuring and rescheduling should be considered. This is not a demand for blanket loan waivers, but a mechanism to help genuine businesses survive, rebuild capital and return to productive activity.
Domestic Investors Must Also Be Protected
Nepal must also encourage domestic investors while seeking foreign investment. Foreign investors require policy stability, investment protection, efficient approval procedures and transparent mechanisms for repatriating legitimate returns. Domestic investors need the same level of confidence. It is difficult to attract foreign capital when Nepali entrepreneurs themselves hesitate to expand. Appropriate mechanisms should also be developed to manage currency-related risks and strengthen Nepal’s attractiveness as an investment destination.
From Import Dependence to Production
Nepal’s economic model must gradually move from dependence on imports and remittances towards productive sectors with utilisation of national resources, value addition and exports. Remittances remain essential, but Nepal should aspire to export products, services and technology rather than relying primarily on the export of labour. Hydropower, agriculture, tourism, information technology, manufacturing, food processing and natural resources offer substantial opportunities. Expanding production will create jobs, generate income, reduce import dependence and strengthen export capacity.
Competitive Taxation and the Open Border
Nepal seeks tax and customs competitiveness being open border with India. When the same product is significantly cheaper across the border, consumers naturally seek lower-priced alternatives. Enforcement alone cannot solve this problem if tax, customs duty, VAT and excise structures make legitimate goods substantially more expensive. Nepal therefore needs competitive tax rates and a rational customs system that encourages formal economic activity and broadens the tax base.
Creating Conditions to Retain Capital
Capital naturally moves toward safety, predictability and opportunity. Nepal cannot retain investment simply through appeals. Investors need confidence that their businesses, property and capital are secure and that the economy provides safety and sufficient productive opportunities. Investment protection should therefore apply equally to domestic investors, while policies must create conditions that encourage capital to remain within the country and support sustainable economic growth.
Reforming the Capital Market
Nepal’s capital market also needs structural reform. A healthy capital market should mobilise savings and channel them toward productive investment. Excessive restrictions on share supply, conversion, sales and lock-in periods can reduce liquidity and encourage speculative behaviour. Nepal needs a transparent, competitive and mature capital market where investment decisions are increasingly based on company performance and long-term value. A stronger capital market can play an important role in directing domestic savings toward productive sectors.
A Clear Reform Agenda
Nepal does not lack opportunities; it lacks the confidence and institutional environment required to convert those opportunities into investment. The government should prioritise policy stability, regulatory impact assessments, restructuring support for viable businesses, competitive taxation, an effective one-window investment mechanism, protection of domestic investors, promotion of production and exports, stronger capital markets and efficient commercial dispute resolution. Regular and meaningful dialogue between the government and private sector must also become institutionalised.
From Hope to Action
Nepal’s private sector remains hopeful about the future, but hope must now be converted into confidence, and confidence into investment. Political stability has created an opportunity to establish economic stability. We cannot build a prosperous Nepal by depending indefinitely on remittances and imports. We need an economy where entrepreneurs invest, industries produce, workers find jobs, young people find opportunities at home and Nepali products compete successfully in international markets.
The government has the political mandate to lead this transformation, while the private sector has the capital, entrepreneurship and willingness to contribute. What Nepal needs now is a genuine partnership based on trust. The next phase should not be about announcing more reforms, but about implementing the right reforms consistently, predictably and transparently. Only through such an approach can political stability be transformed into investment, production, employment and lasting economic prosperity.
Agrawal is President of Nepal Chamber of Commerce
