NRB warns capital expenditure lags threaten growth prospects

KATHMANDU: Nepal Rastra Bank (NRB) has indicated a positive economic outlook for fiscal year 2026/27, aiming for a 7% growth rate and linking the projection to the government’s budget for fiscal year 2026/27 and proposed policy reforms.

The Macroeconomic Report Analysis and Outlook, July 2026, released by the Economic Research Department of NRB, says the government’s projection of 7% growth is achievable provided global economic conditions stabilise and investor confidence returns. To support the expansion, the government has adopted a deficit budgeting policy and tabled a record budget of Rs 2,124.3 billion, a 25% increase over the previous year’s revised estimates, with emphasis on structural modernisation and tax reforms.

Despite the growth ambitions, the central bank maintains a 'cautiously accommodative' monetary stance. Inflation, which rose to 5.04% in May 2026, is projected to average around 5.5% in 2026/27. The NRB notes that crude oil prices are expected to moderate following recent diplomatic developments in West Asia, which may ease inflationary pressures.

The external sector continues to provide a buffer for the economy, with record foreign exchange reserves sustained by strong remittance inflows. These reserves have reached levels sufficient to cover nearly 20 months of imports.

However, challenges persist in the fiscal framework. Capital expenditure execution has lagged, with spending levels well below annual targets. The NRB emphasises that effective implementation of the new budget is essential and that government spending must shift towards productive investments to achieve the desired economic outcomes.

The central bank warns that without accelerated capital spending, the country will struggle to raise investment to generate growth rather than merely support consumption.