ILLUSTRATION: ÁLVARO BERNIS
IN EARLY April, with some $23.5bn of foreign currency in its banks, Nepal’s cabinet added Sunday to the Saturday holiday for government offices and schools. The aim was to save fuel. A war that began on February 28th, when America and Israel attacked Iran, had all but closed the Strait of Hormuz, and the Nepal Oil Corporation had just raised pump prices for the third time in 18 days or so. Nepal has no oil of its own and relies almost entirely on India for refined fuel. Dollars were not the constraint, meaning availability in Nepal depends on what India is able to ship.
By mid-August gross foreign-exchange reserves had reached $25.84bn (Rs3.95trn), up from $25.31bn a month earlier, according to Nepal Rastra Bank (NRB), the central bank. That would pay for 21.8 months of merchandise imports, or 18.8 months of goods and services together. Dr Biswo Nath Poudel, the governor, has said that seven months of cover is the usual yardstick of adequacy. At the start of the fiscal year in mid-July 2025 the figure was $19.5bn. By the end of the year the rise was 45.6% in rupees but 29.8% in dollars; the difference is the rupee’s slide against the dollar, from 137.0 to 153.72.
Nepalis working abroad supplied the money. They sent home Rs2.36trn ($16.19bn) in the fiscal year, 37.1% more than the year before in rupees and 28.1% more in dollars, a sum that topped the government’s Rs1.96trn budget. Exports paid for 15% of imports (Rs315bn against Rs2.10trn), which left a trade deficit of Rs1.78trn; remittances kept the current account in surplus. Fewer Nepalis left for a first job abroad (406,519, against 505,957 the year before), while renewals of existing permits rose to 385,783 from 333,309. The inflow, in other words, leans on workers who are already abroad.
Holding the money is not free of cost. Dr Swarnim Wagle, the finance minister, noted in his budget speech that the stock could cover over 18 months of imports yet earned only about 4% a year. Dr Poudel told a parliamentary committee that about 60% of the reserves sit in American Treasuries, which exposes them to swings in international interest rates. At home, commercial banks lend at an average of 6.55%. Yet deposits grew 13.9% to Rs8.28trn while private-sector credit grew just 6.5%, and the economy expanded by 3.85%, down from 4.43% a year earlier. Cheap money is available; borrowers are scarce.
The budget, presented on May 29th, proposed to channel a portion of the reserves into a sovereign wealth fund (a state investment pool) whenever the reserve position is comfortable, and to set up an asset-management company for it by mid-January 2027. It also proposed a “Motherland Fund” for strategic projects, among them fuel storage for at least three months of supply and what the budget calls AI factories. The central bank began a study in June to settle how the fund would work. No fund yet exists.
Dipendra Bahadur Chhetri, a former governor, argued in July that reserves are held to safeguard external stability and are normally placed in secure foreign government securities. Moving part of them into a domestic fund, he said, would put Nepal’s credibility at risk if it could not meet its external obligations or return foreign investors’ capital. Nepal allows free convertibility only on the current account; the capital account is partly open. The same budget removed the requirement that foreign investors obtain central-bank approval before taking profits or capital out. Nor does the whole total belong to the central bank: in mid-April it held Rs3.08trn of the Rs3.49trn gross figure, and the rest sat with commercial banks.
Then the Bhotekoshi river flooded. On August 26th flash floods swept through settlements in five districts north of Kathmandu. A preliminary government assessment put damage and economic losses at Rs408bn, of which Rs151bn fell on hydropower and transmission; 13 hydropower projects and five solar plants, with 759MW between them, were hit. A government assessment put the cost of rebuilding at Rs723bn ($4.7bn), nearly a fifth of the reserves. It is also nearly four times the Rs191bn the state spent on capital projects in the whole of 2025/26, a figure that fell by 14.8% in the year. Only the imported share of the bill needs dollars.
Storage for three months of fuel, the one item in the Motherland Fund that speaks to April, would put physical stock inside the country. The asset-management company is due by mid-January 2027. By then the festival months, when monthly remittances crossed Rs200bn for the first time last October, will have shown whether the money that filled the vault is still arriving at the same pace. ■
