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The Nepali economy sustained significant shocks over the past several years, and finds itself at a pivotal juncture. In the wake of global and local disruptions—such as the Covid-19 pandemic, geopolitical conflicts and strained supply chains—the country is showing signs of recovery. Despite encouraging export numbers, improved foreign exchange reserves and moderating inflation, Nepal’s recovery remains fragile and uneven.

The last five years have been tumultuous for Nepal. A contraction of 2.37 percent in the fiscal year 2019-20, due to the pandemic, led to a short but promising recovery, with growth rates of 4.84 and 5.63 percent in 2020-21 and 2021-22. However, due to an ongoing liquidity crisis and restrictive import measures, the economy slowed again in 2022-23, recording a paltry growth of 1.98 percent. The current fiscal year (2024-25) has seen projections for growth at 4.61 percent. While this signals progress, it is still not the transformational shift required to stabilize Nepal’s economy and ensure inclusive prosperity.

One of the few bright spots in the recent data is Nepal’s export performance. Over the last year, exports surged by 77.8 percent, totaling Rs 247.57bn. This was primarily driven by higher exports to India, China and other countries, particularly in items such as soybean oil, polyester yarn, jute goods and tea. Such increases indicate stronger global demand for Nepali products and reflect a degree of improved competitiveness in select sectors. While this growth is encouraging, it hasn’t been enough to fully offset the country’s dependency on imports. The nation’s import bill also saw an increase of 13.1 percent, leading to a widening trade deficit of 6.3 percent to Rs 1,397.23bn. Nepal’s trade deficit is persistent, and despite export growth, the structural imbalance between what the country consumes and what it produces remains entrenched.

The economy’s dependence on remittances is also a key factor in its stability. During the eleven-month period of 2024-25, remittances increased by 15.5 percent in Nepali rupee terms and 12.7 percent in USD terms, amounting to Rs 1,532.93bn ($11.25bn). This inflow continues to support the balance of payments surplus, which rose to Rs 491.44bn. However, this reliance on remittances underscores the vulnerability of Nepal’s economic recovery. The country’s economic stability is heavily tied to the employment prospects for Nepalis abroad, particularly in the Gulf countries, and any adverse shift in the global labor market could have a negative impact on the flow of remittances. Moreover, the increasing trend of young Nepalis seeking employment abroad is a reminder of the limited job opportunities at home and the lack of sufficient growth in Nepal’s productive sectors.

In the meantime, the nation’s inflationary pressures have eased somewhat. Consumer price inflation stood at 2.72 percent year-on-year in mid-June 2025, compared to 4.17 percent at the same point in the previous year. A major driver of this moderation was a 0.54 percent decline in food inflation. However, non-food inflation has remained higher, standing at 3.94 percent, and this continues to reflect pressures in areas like education, clothing and miscellaneous goods. While the easing of inflation is a welcome development, it must be noted that Nepal’s inflation is still heavily influenced by global market conditions, especially with regard to fuel and food prices, which make up a large portion of household expenditures. Due to Nepal’s import-dependent nature, inflation remains vulnerable to shifts in international commodity markets.

The country’s foreign exchange reserves have reached an all-time high, rising to $18.65bn by mid-June 2025, representing a 25.9 percent increase from the previous year. These reserves are now sufficient to cover over 17 months of merchandise imports, providing Nepal with a cushion against external shocks. The increase in reserves is partly driven by the influx of remittances and favorable trade balances, but it also signals greater stability in Nepal’s external sector. The country’s gross reserves stood at Rs 2,569.38bn, and the reserve-to-import ratio reached 122.9 percent. This means that Nepal is in a relatively stronger position than in previous years when the country struggled with low reserves and was vulnerable to external shocks.

However, this financial stability is not yet reflected in robust domestic economic activity. While the external sector appears to be holding up, the internal economy remains relatively sluggish. Government spending continues to be inefficient. Total government expenditure stood at Rs 1,282.94bn while capital expenditure remained disappointingly low at just Rs 143.39bn. Government revenue mobilization increased by 10.5 percent, reaching Rs 1,016.09bn, but the failure to meet capital expenditure targets suggests that the government has not been able to effectively implement its development projects. In many sectors, such as roads, schools and hospitals, critical infrastructure projects remain incomplete, and delays are a sign of systemic inefficiencies, planning deficiencies and a lack of accountability within public institutions. This inability to execute capital projects hinders the country’s long-term development potential, leaving many communities without basic services and further contributing to unemployment.

The private sector, too, is facing challenges. Investment in the economy has declined by 1.3 percent, reversing the gains made in the previous year. Domestic credit growth remains low, and credit flow to productive sectors has been insufficient. The lack of confidence among domestic and foreign investors is evident in the stagnation of private sector investment. As long as the business environment remains uncertain—due to bureaucratic delays, regulatory challenges and ineffective governance—investment will remain subdued. Without adequate investment, Nepal will continue to struggle with low productivity, lack of technological advancement and limited job creation.

Despite these challenges, Nepal’s financial sector has shown signs of resilience. The country’s banking system has witnessed growth in deposits and private sector credit. Deposits at banks and financial institutions increased by eight percent, while private sector credit rose as much. The NEPSE index has also climbed to 2,655.39, indicating investor optimism in certain segments of the market. The stock market capitalization rose to Rs 4.42trn, signaling positive sentiment in the financial markets, although this may not necessarily reflect a broader recovery in the real economy.

One of the most concerning long-term trends is the country’s per capita income growth. Nepal’s per capita income has seen marginal growth, projected to reach $1,496 in 2025. However, much of this income is tied to remittances, rather than domestic economic activities. The fact that many young Nepalis are increasingly seeking work abroad lays bare the lack of opportunities at home. Job creation is not keeping pace with demand, and productivity in many sectors remains stagnant. The country’s inability to generate sufficient domestic employment is one of the most pressing challenges facing Nepal in the coming years.

Nepal’s current economic model—heavily reliant on remittances and consumption—needs to evolve. The country’s growth must be driven by increased productivity, technological advancements and greater investments in both human and physical capital. Development projects must be executed efficiently to create infrastructure that can support long-term growth. The government needs to improve its policy framework to encourage investment and job creation. Reforms in education, health and infrastructure are critical to improving the quality of life for Nepalis and ensuring sustainable economic growth.

The fiscal policy has a prominent role in this and it must focus not just on allocating funds but on ensuring that those funds are spent effectively and transparently. Public institutions must be reformed to be more agile, accountable and capable of delivering results. Only then can Nepal build an economy that is capable of meeting the aspirations of its citizens, especially the younger generation, who are the future of the nation.

Nepal’s economy is at a crossroads. The country has shown resilience in the face of external shocks and internal challenges. However, significant reforms are required to move from recovery to sustainable growth. The focus must shift from short-term fixes to long-term structural transformation. With the right policy interventions, better governance and increased investment in productivity, Nepal can ensure that its recovery leads to lasting prosperity for all its people. The time for reinvention has arrived, and Nepal must seize the moment.

Poland has reintroduced temporary border controls with Germany and Lithuania due to a rise in undocumented migrants, mainly from Venezuela and Colombia.

Polish Prime Minister Donald Tusk said the move aims to redirect migration routes bypassing the Belarusian border and entering via Latvia and Lithuania, BBC reported.

The decision comes as several EU countries, including Germany, have tightened border checks. Warsaw argues Germany’s tougher stance has shifted the burden onto Poland.

Recent violent incidents involving foreign nationals have heightened public tension, prompting far-right groups to patrol borders. Rights groups warn such actions fuel xenophobia and call for fact-based migration policy, according to BBC.

Five Israeli soldiers were killed and 14 injured in northern Gaza’s Beit Hanoon after Palestinian fighters set off explosive devices. Israeli raids that followed killed at least 54 Palestinians, according to Al Jazeera.

Hamas’s Qassam Brigades claimed the attack, calling it a strike in what Israel thought was a secure area. The deaths add to pressure on Isareli Prime Minister Netanyahu, who is in Washington for ceasefire talks with US President Donald Trump.

Israeli opposition leaders urged an end to the war, saying soldiers are dying to keep Netanyahu in power, Al Jazeera reported.

A malaria treatment specifically for newborns and infants under 4.5kg has been approved, addressing a long-standing treatment gap. Developed by Novartis with the Medicines for Malaria Venture, the drug—Coartem Baby—will be rolled out in African countries within weeks, according to BBC.

Previously, babies were treated with adjusted doses meant for older children, risking overdose. In 2023, malaria caused nearly 600,000 deaths, mostly in Africa, with children under five accounting for the majority.

Experts call the approval a vital step in reducing child mortality. Novartis plans to offer the drug on a not-for-profit basis in high-risk regions, BBC reported.