FNCCI calls for policy reforms, credit measures to revive economy

KATHMANDU: Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has called for urgent policy stability, legal reforms, and targeted credit measures to tackle sluggish growth, weak domestic demand, and severe climate disruptions.

Business confidence among private sector operators has hit its lowest level in 36 years, according to a press release issued by the umbrella organisation of private sector. Manufacturing plants are operating at an average of just 44.5% of their total capacity, reflecting severe domestic stagnation.

Meanwhile, World Bank projections for 2026 place Nepal's economic growth at 3.7%, trailing the South Asian average of 6.9%. National Statistics Office data show growth slowed to 3.85% in fiscal year 2025/26, down from 4.43% previously. Multilateral lenders project growth between 3.6% and 4.1% for the current fiscal year, roughly half the government's official 7% target.

This economic slowdown persists despite strong external reserves and financial liquidity. Foreign exchange reserves stood at $25.30 billion at the end of fiscal year 2025/26, sufficient to cover 19.6 months of imports, while annual remittance inflows rose 37.1% to Rs 2,363 billion. Commercial banks hold approximately Rs 1,266 billion in excess liquidity. However, export revenues covered only 15% of total import costs last year, as remittances primarily financed import consumption rather than domestic manufacturing expansion.

On the financial front, credit expansion to the private sector reached only 6.6% in 2082/83, missing Nepal Rastra Bank's 12% target. Despite average lending rates falling to 6.55%, real inflation-adjusted credit growth stood at 3.4%. Borrowing remained heavily skewed towards consumer loans, which grew 11.7%, while industrial credit expanded by 6.5% and agricultural loans contracted by 2.3%.

At the same time, access to capital remains restricted for micro, small, and medium enterprises (MSMEs), as banks distribute 63% of total credit against real estate collateral. MSMEs represent over 923,000 establishments nationwide and employ 3.2 million workers. Non-performing loans across the banking sector rose to 5.7% by mid-July 2026, while capital expenditure execution stalled at 46.8% of allocated funds.

Adding to these structural hurdles, recent disaster losses have compounded industrial pressures. Rapid government assessments following the August 26 flood in Rasuwa's Bhotekoshi River estimate economic damage at Rs 408 billion, or nearly 6% of gross domestic product. The floods damaged 4,800 businesses, disrupted 13 hydropower plants generating 759 megawatts, severed border trade routes with China, and impacted over 200 tourism facilities. Reconstruction costs are estimated at Rs 723 billion.

Compounding these challenges, unemployment remains high, with International Labour Organization (ILO) figures putting national unemployment at 10.5% in 2025 and International Monetary Fund data showing over 30% of youth outside employment, education, or training.

To revive industrial growth, the FNCCI has recommended shifting from collateral-dependent credit towards cash-flow and invoice-based lending, expanding the Credit Guarantee Fund, and enforcing strict payment deadlines for government purchases from small suppliers. The FNCCI has also urged digital single-window registration platforms, concessional relief funding for flood-affected firms, an overarching review of investment laws, and the establishment of a permanent joint Trade Facilitation Council.