Nepal Rastra Bank (NRB) has projected a positive economic outlook for the current fiscal year, despite banks grappling with excess liquidity and sluggish credit expansion—raising concerns about a widening gap between official projections and on-the-ground realities in the financial sector.
To manage surplus liquidity and stabilise interest rates, the central bank issued bonds worth Rs 25 billion on Sunday. Over the past week alone, the NRB has absorbed a total of Rs 75 billion from the banking system. Last Monday, demand for the one-year Nepal Rastra Bank Bonds surged far beyond expectations, with banks applying for Rs 1.22 trillion against an offered Rs 25 billion—nearly 49 times the intended amount.
Despite weak private-sector investment and slow credit growth, the NRB has forecast above-average economic growth for the current fiscal year. The central bank attributes this optimism to declining interest rates, subdued inflation, and improvements in external sector indicators.
In its Economic Activities Study Report 2024/25, the NRB stated that economic growth in FY 2025/26 is expected to be above average due to falling global fuel and food prices, lower lending and deposit rates, a sharp rise in hydropower generation, growth in exports and remittances, increased tourist arrivals, and a rebound in construction and manufacturing sectors supported by a flexible monetary policy.
The central bank further noted that ample liquidity, the government’s emphasis on good governance and reconstruction, and the prioritisation of large projects—through the suspension of funding for small and unprepared schemes—would keep economic activity buoyant.
However, bankers have questioned the credibility of this optimism. A senior banker, speaking on condition of anonymity, said many banks are struggling to recover bad loans despite regulatory relief measures. “Although the central bank has provided significant leniency through rescheduling and refinancing facilities, the actual situation is weaker than what the reports indicate,” the banker said.
NRB data show that total deposits of banks and financial institutions (BFIs) have reached a record Rs 7.592 trillion, while total credit disbursement stands at Rs 5.690 trillion. Consequently, the credit-deposit (CD) ratio has dropped to 74.11 percent—well below the regulatory ceiling of 90 percent—leaving BFIs with excess investable funds of around Rs 1.14 trillion.
Meanwhile, the National Statistics Office has estimated Nepal’s economic growth at 4.6 percent in FY 2024/25 at consumer prices, with agriculture, industry, and services contributing 25.2 percent, 12.8 percent, and 62 percent to GDP, respectively.
In contrast, the World Bank has projected Nepal’s economic growth to slow sharply to 2.1 percent in the current fiscal year, cautioning that growth could even turn negative if political instability continues.
