Positive and Negative Aspects of Nepal’s Record High Foreign Exchange Reserves
Image source, EPA-EFE/REX/Shutterstock
Nepal’s foreign exchange reserves and remittance inflows have reached record amounts, according to statistics released by Nepal Rastra Bank.
The central bank reports that as of the end of Jestha (mid-June), foreign exchange reserves surpassed NPR 3.755 trillion.
During this period, remittance inflows increased by 38.2 percent, reaching over NPR 2.12 trillion.
Experts highlight both positive and negative aspects to the rise in foreign exchange reserves.
They note that unless large projects get underway in the country, there is little chance of the foreign currency reserves declining substantially.
What is the current situation?
The central bank has reported that total foreign exchange reserves have increased by 40.3 percent to NPR 3.755 trillion by the end of Jestha 2083 (mid-June 2026).
As of the end of Asar 2082 (mid-July 2025), Nepal’s foreign exchange reserves were NPR 2.677 trillion.
Measured in US dollars, the reserves grew 26.5 percent from $1.95 billion at Asar 2082 to $2.468 billion at Jestha 2083.
Within the total reserves, Nepal Rastra Bank held NPR 3.33 trillion as of Jestha 2083, marking a 37.9 percent increase from NPR 2.414 trillion at Asar 2082.
Image source, NRB
Foreign exchange reserves held by banks and financial institutions outside the central bank stood at NPR 425.57 billion by Jestha 2083, showing a 61.8 percent increase from NPR 263.4 billion at Asar 2082.
The central bank also notes that Indian currency accounts for 21.5 percent of total foreign exchange reserves as of Jestha 2083.
“Based on import data for 11 months of fiscal year 2082/083, the foreign exchange reserves held by banking sector can cover 22.5 months of goods imports and 19.1 months of goods and services imports, which is an all-time high,” said spokesperson Guruprasad Paudel.
As of Jestha 2083, the ratios of total foreign exchange reserves to gross domestic product, total imports, and broad money supply were 61.5 percent, 159.5 percent, and 43.7 percent respectively.
In comparison, these ratios were 43.8 percent, 128.1 percent, and 34.1 percent at Asar 2082.
How did the reserves increase?
Data from Nepal Rastra Bank indicates that foreign exchange reserves have been rising over recent months.
Former governor Krishna Bahadur Manandhar explains that two main factors have led to this increase.
“Firstly, remittance inflows have significantly increased recently. Secondly, sluggish imports have reduced expenditures,” he said.
Spokesperson Paudel concurs, adding: “We could not execute capital expenditures as expected.”
Capital expenditure decreased by 7.5 percent compared to the same period last year.
The central bank’s figures show increased imports of transport equipment and petroleum products, while raw material imports declined.
What are the positive impacts?
Foreign exchange reserves are vital to covering imports of goods and services, making their growth beneficial for any country, explained spokesperson Paudel.
Former governor Dipendra Bahadur Kshetri argues that for a landlocked nation like Nepal, maintaining sufficient foreign exchange reserves is particularly important.
“Our economy is always vulnerable to shocks. Therefore, it’s critical to have a substantial reserve at hand,” he said.
“The reserves are not simply idle; we’ve also earned interest through investing in foreign bonds.”
Former governor Manandhar added that the current high foreign exchange reserves provide Nepal with a comfortable cushion.
“With increased foreign currency inflows, we have reached a comfort zone. Even if imports rise over the next year, it is unlikely to negatively impact our capacity.”
What are the negative aspects?
Despite the positive implications, economists warn that excessive accumulation of foreign exchange reserves without effective utilization is not necessarily a good sign.
“The reserves increased not only because of higher foreign inflows but also due to reduced spending,” noted former governor Manandhar.
“While the growth in reserves is positive, a lack of increase in imports reflects sluggish economic activity, which could pose problems for the economy.”
According to former governor Kshetri, improper expenditure of remittance inflows is a major concern.
“This has led to increased imports and a worsening trade deficit. There is a neglect of production sectors, with a preference for imported goods,” he stated.
How to utilize the reserves effectively?
As remittances are primarily sent to households, former governor Kshetri suggests expanding investment opportunities for these families.
“Local bodies and provincial governments should focus on promoting entrepreneurship among remittance-receiving households,” he recommends.
“Providing training based on local potential and supporting market access for production could be beneficial.”
Former governor Manandhar points out that without investment in large infrastructure projects, foreign exchange reserves are unlikely to fall significantly.
“If development activities in large projects increase, it will have a long-term positive impact on the economy. Spending on consumer goods and vehicles alone cannot make significant contributions,” he said.