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Nepal ranks as the world’s highest remittance-receiving country, according to the World Bank, with remittance inflows playing a vital role in sustaining household expenses. The ‘Nepal Development Update: International Migration and its Impact on Nepal’, published Wednesday, highlights that remittances contribute over a quarter of Nepal’s GDP, the highest ratio globally. This figure is nearly three times that of Pakistan, South Asia’s second-largest remittance recipient, where remittances account for 7.8 percent of GDP.

The report notes that remittance growth has strengthened Nepal’s foreign exchange reserves, with official remittance inflows recently reaching a nine-year high. It further emphasizes that remittances have significantly reduced poverty, cutting it by over 30 percent between 2011 and 2023.

David Sislen, the World Bank’s National Director for Maldives, Nepal, and Sri Lanka, praised Nepal’s reliance on foreign workers’ remittances. He stressed the importance of improving remittance management, fostering a robust domestic economy, and creating conditions that allow Nepalis to thrive both at home and abroad.

During a panel discussion titled ‘Making the Most of International Migration in Nepal’, Nepal Rastra Bank’s Deputy Governor, Dr Neelam Dhungana, discussed plans to increase remittance utilization, including encouraging formal remittance channels and offering a one percent additional interest rate for fixed deposit remittance accounts. Dr Dhungana also highlighted efforts to channel remittances into productive sectors.

Economic growth projected at 5.1 percent for 2024

Nepal’s economic growth is expected to rise, with the World Bank projecting a 5.1 percent growth rate for the fiscal year 2024, up from 3.9 percent in 2023. The increase is attributed to higher tourist arrivals, expanded hydropower production, and a boost in rice production. The report anticipates that Nepal’s economy will grow by 5.5 percent in 2025, largely driven by the private sector, thanks to a flexible monetary policy and relaxed regulatory provisions.

While the growth forecast does not factor in the impact of recent floods and landslides, the World Bank expects the construction, manufacturing, and wholesale and retail trade sectors to benefit from Nepal Rastra Bank’s policies. A projected 30 percent increase in tourism arrivals in 2024 is also set to stimulate growth in the service, transport, housing, and food sectors.

Hydropower production is forecasted to rise by 450 megawatts, while rice production is expected to grow by 4.3 percent, providing additional economic support. Sislen underscored the importance of maintaining this growth pace, calling for improvements in infrastructure, governance, human capital, and the private sector.

Inflation forecast

The World Bank forecasts inflation to hover around five percent in 2025 and 4.5 percent in 2026, following rates of 7.7 percent in 2023 and 5.4 percent in 2024. Private sector consumption is expected to rise by 1.8 percent in the 2024/25 fiscal year, with government sector consumption projected to increase by 5.8 percent. The current account surplus is expected to remain at 2.6 percent of GDP, and government revenue is predicted to grow by 20 percent.

Risks in the financial system

The report also highlights several risks to Nepal’s financial system, including high levels of non-performing loans that limit private sector credit growth, policy discontinuity that may hinder investment, and delays in capital expenditure implementation affecting infrastructure development. Additionally, regional instability and trade disruptions could negatively impact tourism and domestic demand.

The report also warns that economic shocks in Gulf countries and Malaysia, which host many Nepali migrant workers, could reduce remittance inflows, impacting household consumption, poverty alleviation, and human capital development. Migration from Nepal remains costly and unequal, with a challenging process for many.

Despite these risks, Vice-president of the National Planning Commission, Dr Shivraj Adhikari, remains optimistic. He emphasized Nepal’s gradual economic improvement, pointing to capital expenditure increases and budgetary process reforms as key steps towards macroeconomic stability. “The domestic product will increase, and more jobs will be created,” he stated.

The price of gold has increased by Rs 400 per tola in the domestic market on Friday.

According to the Federation of Nepal Gold and Silver Dealers’ Association, the precious yellow metal is being traded at Rs 161, 300 per tola today. It was traded at Rs 160, 900 per tola on Thursday.

Similarly, the silver is being traded at Rs 1,980 per tola today.

The route for electricity export from Nepal to Bangladesh has officially opened. With the signing of an electricity sale agreement between three companies from Nepal, India and Bangladesh on Thursday, Nepal is set to export electricity to a third country for the first time. Nepal has been exporting electricity to India for the past three years.

A tripartite Power Sale Agreement (PSA) was signed between the Nepal Electricity Authority (NEA), the Bangladesh Power Development Board (BPDB) and India’s NTPC Vidyut Vyapar Nigam Ltd (NVVN) during a program held in Kathmandu. As part of this agreement, Nepal will export 40 MW of electricity to Bangladesh in the first phase.

The agreement outlines that Nepal will sell the electricity, which will be transported through India’s transmission lines, and Bangladesh will purchase it. NEA Executive Director Kulman Ghising, BPDB President Rejul Karim and NVVN CEO Renu Narang signed the agreement.

The signing took place in the presence of Nepal’s Minister for Energy, Water Resources and Irrigation Deepak Khadka, and Bangladesh’s Minister for Forest, Environment, Climate Change and Water Resources, Syeda Rizwana Hasan. The Indian Ambassador to Nepal, Naveen Srivastava, was also present at the event.

Although the tripartite agreement was originally scheduled for July, it was postponed due to political protests in Bangladesh.

NEA Executive Director Ghising described the agreement as a milestone in South Asia’s energy cooperation, stating, “This is the culmination of our shared vision. It will open doors for subregional and regional cooperation.”

According to the agreement, NEA will export electricity to BPDB at a rate of about Rs 8.64 per unit (6.40 US cents).

For the export to Bangladesh, BPDB will pay a ‘wheeling charge’ to NVVN for using India’s transmission lines.

Nepal will install an electricity meter in Muzaffarpur, India, where the amount of electricity exported to Bangladesh will be recorded. NEA will bear the technical losses incurred up to that point, while Bangladesh will cover the technical losses from Muzaffarpur to its border. As a result, the price of electricity will increase from 6.4 cents to 7.6 cents per unit by the time it reaches Bangladesh.

Bangladesh will receive electricity through the Brahmapur (India)–Bheramara (Bangladesh) 400 KV transmission line, which it currently uses to import electricity from NVVN.

The agreement, which is valid for five years, stipulates that 144m units of electricity will be exported to Bangladesh annually, Ghising stated. He also noted that around Rs 1.21trn worth of electricity will be exported to Bangladesh each year.

The export will begin after receiving the necessary permissions from India, making Nepal the first country to export electricity to a third country, according to Ghising.

He added that Nepal aims to export 10,000 MW of electricity to India and 5,000 MW to Bangladesh in the future.

The NEA plans to export electricity generated by the 25 MW Trishuli and 22 MW Chilime hydropower projects—both built with Indian subsidies and owned by the authority—to Bangladesh. Both projects have received approval for electricity export to India.

For the next five years, the authority will sell 40 MW to Bangladesh during the rainy season, from June 15 to Nov 15 each year.

Bangladesh had previously decided to import 40 MW from Nepal. On Dec 20 last year, the Economic Affairs Committee of Bangladesh’s Council of Ministers under then Finance Minister Mustafa Kamal approved BPDB’s proposal to import 40 MW.

NEA and BPDB agreed on the electricity rate in late February. A tripartite agreement was prepared in Kathmandu on July 13, but it was delayed due to political unrest in Bangladesh.

With interest rates on savings coming down with every passing month, the proportion of fixed deposits in total deposits parked in banks and financial institutions (BFIs) is also declining.

This shows banks, awash with liquidity, are not making any efforts to attract fixed deposits where they need to provide higher interest rates.

Data released by the Nepal Rastra Bank (NRB) shows, BFIs had deposits totaling Rs 6,445bn in mid-August, of which fixed deposits accounted for 57.5 percent. This proportion was 61.3 percent in mid-Aug 2023.

With fixed deposits declining, the proportion of other saving products have increased. According to the NRB, regular savings products accounted for 26.7 percent of total deposits in mid-Aug 2023, which has increased to 30.3 percent in mid-August, 2024.

Bankers say the proportion of fixed deposits to total savings is declinding as BFIs earlier prioritized fixed deposits to increase their deposit base due to liquidity shortage in the banking system. With interest rates on deposits declining since the last fiscal year, the share of fixed deposits has also started to decrease. 

The banking system is in a liquidity surplus situation at present. The central bank has already absorbed nearly Rs 250bn from the banking system through different instruments since mid-July, with a plan to absorb another Rs 50bn underway. 

Central banks around the world injects money into the banking system when there is a liquidity shortage and absorbs from the system when there is excess liquidity. Bankers say banks are sitting on investable funds of approximately Rs 75bn.

As the liquidity situation improved, the Nepal Bankers’ Association—the association of commercial banks—ended the gentlemen’s agreement among Class ‘A’ banks in mid-July last year, allowing them to set interest rates on their own. The average interest rate on deposits fell to 5.66 percent in the first month of the current fiscal year 2024/25 (mid-Julty to mid-August) compared to eight percent in the same month of the previous fiscal year.

The proportion of fixed deposits rises when there is a shortfall of liquidity as banks compete with themselves to attract deposits by offering high interest rates. Since this is not the case now, banks, which are awash with loanable funds due to slow credit demand in the market, are not offering high interest rates on deposits.

According to the central bank’s directives, banks can offer a maximum of five percentage points higher interest on fixed deposits compared to the minimum interest rate on regular savings accounts. The difference between the maximum and minimum interest rates on all types of domestic currency deposit accounts, except for call deposits, should not exceed five percentage points.