ILLUSTRATION: KATMANDU JOURNAL
The world owes Nepal more than Nepal owes the world. That is a novelty. As of mid-2023 the country’s international investment position (IIP)—the tally of what it owns abroad against what it owes—was negative by NPR 177bn ($1.3bn). Twelve months later, the figure had swung to a surplus of NPR 306bn, with NPR 783bn projected by mid-2025. Such creditor status is usually associated with energy exporters or high-income economies, not a remittance-dependent state wedged between India and China.
Kathmandu officials hail the numbers as proof of prudence. Central bankers point to healthier reserves and tighter oversight. Their balance sheets are not misleading. Nepal’s external assets grew by 35% last year (fiscal year ending mid-July 2024) and are forecast to rise by a further 31% in 2025. Nearly nine-tenths of the stock sits in official reserves, now worth over NPR 2.5trn. Liabilities—mostly concessional loans and the modest trickle of foreign direct investment (FDI)—are climbing more slowly.
The turnaround is stunning yet it says more about caution than dynamism. The surplus reflects the hoarding of reserves rather than entrepreneurial expansion. There is no record of outbound FDI, no portfolio holdings abroad and no foreign money in local securities. Imports have weakened, but not because domestic factories have displaced them. Exports remain narrow and underpowered.
The composition of assets underlines the imbalance. Currency deposits, loans and receivables abroad remain trivial. The private sector is absent. Nepali firms appear constrained either by capital controls or by their limited scale. A genuine internationalisation of corporate balance sheets is nowhere to be seen.
On the liability side, the picture is equally narrow. Loans make up nearly three-quarters of external obligations and are expected to pass NPR 1.5trn. FDI rose 2.2% year on year to NPR 340bn, disappointing when Nepal needs vast injections of capital and know-how. Foreign portfolio flows are zero, as expected.
Critics argue Nepal’s macroeconomic conservatism masks institutional inertia. Advocates counter the reserve pile insulates the economy from external turbulence and enhances creditworthiness. Both perspectives have merit. Yet neither changes the fact foreign surpluses rooted in reserves do little to stimulate productivity or support private enterprise.
The underlying policy stance is defensive. Capital account openness is limited with strict controls on outward investment and inward flows. Regulators prefer stability over experimentation. That leaves private firms as spectators in the country’s financial integration. They neither venture abroad nor invite much in. The costs are twofold: exposure to concentration risks on the asset side, and missed opportunities for technology transfer on the liability side.
Fixing that means more than careful reserve management. FDI cannot be conjured by tax breaks alone. It depends on reliable infrastructure, legal clarity alongside predictable regulation. Outbound investment needs lighter controls and institutions that can manage cross-border risk. Deeper domestic capital markets would help, giving both local and foreign investors more confidence in the domestic financial system.
The IIP surplus is not meaningless. It shows Nepal has avoided external distress at a time when other emerging economies have struggled. It suggests an ability to self-insure against shocks. Yet it also shows the limits of a growth path built on remittances, consumption and conservative official balance sheets. The private sector has yet to feature in the story.
A positive IIP looks impressive in a statistical table. Its real worth will be measured by what it unlocks—whether capital markets open, firms venture abroad and investors arrive with skills and technology. Nepal has put its external books in order. The trouble is to make those numbers matter. ■
