Nepal’s economy shows signs of recovery after two-year slowdown

KATHMANDU: After two years of sluggish economic activity, Nepal’s economy is beginning to show signs of recovery. With interest rates on loans and deposits at low levels, industrialists, entrepreneurs, and investors are being drawn toward production and investment expansion. Additionally, government construction projects have gained momentum since the beginning of December, while private housing construction has accelerated due to significantly reduced interest rates on residential construction loans.

The revival of the construction sector is evident, as prices of cement and steel have increased in response to heightened demand. The government has also cleared overdue payments to contractors who have completed required processes, further energizing the sector.

Increased Demand for Credit

The surge in construction and production activities has resulted in rising demand for working capital loans from banks and financial institutions. In the first four months of the current fiscal year, approximately NPR 46 billion in loans were disbursed through the banking system.

Compared to the same period last year, when working capital loans were negative by NPR 27.36 billion (a 3% decline), this year, they have shown a positive growth of 6.3%. Among these, loans for the industrial sector rose by NPR 29.17 billion, an increase of 12.5%, while loans for business and trade increased by NPR 13.84 billion (4.4%), and loans for the service sector grew by NPR 6 billion (4.5%). Similarly, residential construction loans of up to NPR 20 million surged by NPR 10.21 billion, reflecting a rapid pace of private housing projects.

Real Estate and Stock Market Trends

Real estate loans have also seen positive growth in the first four months of this fiscal year, increasing by 0.3% compared to a 2% decline during the same period last year.

The stock market has experienced both growth and corrections since the formation of the current government, with expectations of further growth as the economy stabilizes. Stock margin loans saw a significant increase of NPR 17.67 billion during this period, compared to only NPR 4.85 billion last year. Among these, loans up to NPR 10 million grew by 27%, totaling NPR 15.10 billion, while loans ranging from NPR 50 million to NPR 1 billion increased by 10.9%.

Other Credit Categories See Growth

Hire purchase loans, which declined by 19.1% last year, have grown by 2.1% in the first four months of this fiscal year. Similarly, credit card loans have increased by 13.5%, indicating a rise in consumption, even through borrowed funds.

Import-related loans surged by 22.1%, driven primarily by credit for industrial production imports, which grew by NPR 8.15 billion. Loans for the import of consumer goods increased by 27%, while service import loans rose by 6.2%.

Loan Adjustments and Total Disbursement

Overdraft loans have declined by 6.6% due to adjustments with term loans and cash credit, which increased by 2.7% and 0.6%, respectively.

Overall, by the end of November, total loan disbursement had reached NPR 118 billion, compared to NPR 102 billion during the same period last year, reflecting a significant improvement in credit activity across various sectors.

The growing credit demand and resurgent construction and production activities underscore a positive trajectory for Nepal’s economy, signaling potential for sustained recovery in the coming months.