External Sector Resilience Amid Domestic Liquidity Glut

In a historic shift for the Himalayan economy, Nepal’s external sector has reached an unprecedented “fortress” level. Driven by a relentless surge in worker remittances and a moderate recovery in exports, the nation’s foreign exchange (FX) reserves have climbed to a record-breaking $22.47 billion as of mid-January 2026.

This financial “war chest” now provides Nepal with a staggering import cover of 21.4 months for merchandise, a cushion virtually unmatched in the country’s modern economic history.

The Remittance Engine: A $7.5 Billion Influx

The primary architect of this liquidity surge is the Nepali migrant worker. According to the latest Nepal Rastra Bank (NRB) macroeconomic report, remittance inflows skyrocketed by 32.3% in USD terms, reaching $7.5 billion in the first six months of the 2025/26 fiscal year.

A single-month record was shattered between mid-December and mid-January (the month of Poush), when over Rs 192.62 billion flowed into the country. Analysts attribute this to the massive outflow of labor—with over 402,000 labor permits issued or renewed in the review period—and the increasing shift toward formal banking channels following the 2025 digital remittance incentives.

Trade and Balance of Payments: Widening Surplus

While the trade deficit remains a structural challenge, the growth in exports has significantly outpaced imports in percentage terms.

• Exports: Surged by 43.8%, reaching Rs 142.02 billion. Key drivers include high-value crops like large cardamom and a rebound in processed oils.

• Imports: Rose more moderately by 14.2% to Rs 939.02 billion.

• Balance of Payments (BoP): The overall BoP stands at a massive surplus of Rs 501.24 billion, compared to a surplus of Rs 273.52 billion in the same period last year.

The Paradox of Plenty: Stable Reserves vs. Sluggish Credit

Despite the “dollar-rich” status, the domestic economy is sending mixed signals. Inflation has cooled to a remarkably low 2.42% (mid-January data), down from 5.41% a year ago. However, this disinflation is partially a symptom of weak internal demand.

Banks are currently flush with liquidity, yet private sector credit growth remains a modest 3.6%. The central bank has responded by adopting an accommodative stance, lowering the Policy Rate to 4.25% and encouraging lending into new sectors like Information Technology (IT) and Hydro-energy.

Turning Reserves into Revenue

While the record reserves provide absolute protection against external shocks (like the 2022 liquidity crisis), the “lazy money” sitting in the banking system is not yet fueling the 3.5% GDP growth targeted for the year. The government’s immediate priority must be to transition from a “remittance-reliant” economy to one where this capital is utilized for capital expenditure and infrastructure development.

Note: The NRB has recently indicated it will expand “directed lending” to the IT and Tourism sectors to absorb the excess liquidity currently present in the market.

Key Economic Indicators (FY 2025/26 Mid-Year)

Indicator	Current Value (Mid-Jan 2026)	Change (Y-o-Y)
FX Reserves	$22.47 Billion	+15.2%
Remittance Inflow	$7.50 Billion	+32.3%
CPI Inflation	2.42%	-2.99% (Points)
BoP Position	Rs 501.24 Billion (Surplus)	+83.4%
Import Capacity	21.4 Months (Goods)	Improved