Why Nepal’s private sector is choosing safety over growth.
Profit is usually the primary goal of any private business, but for many entrepreneurs in Nepal right now, protecting themselves, their investments, and their businesses is more important than growing. According to business leaders, the private sector has become defensive due to a combination of sluggish economic activity, weak market demand, regulatory uncertainty, ongoing disputes involving industrial estates and dedicated power lines, and increased scrutiny under anti-money laundering and asset disclosure rules. Credit demand remains subdued despite the fact that commercial banks are flooded with liquidity and lending rates have fallen to all-time lows.
This is interpreted by economists and business leaders as a sign of deeper structural issues affecting investor confidence. Bhawani Rana, a former president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), stated that "businesses continue to operate in an atmosphere of fear and uncertainty" and that "private sector morale remains weak." Swarnim Wagle, the finance minister, has argued on multiple occasions that the budget for the upcoming fiscal year includes numerous programs and policies designed to support private enterprise.
Rana acknowledged that the government had implemented many positive measures in the budget, but he stated that they have not yet resulted in renewed investor confidence. Rana stated, "The finance minister says the budget has provided the private sector with many wings to take flight." However, "those wings have not yet grown stronger." She emphasized that the private sector backs the government's efforts to promote good governance in full. She argued, however, that since businesses operate within the framework established by the state, systemic changes are required. Rana continued, "The private sector bears greater risks and has greater responsibilities." “While there may have been flaws in the past, improvements to government systems will also assist in improving practices in the private sector.
Such a transformation cannot occur overnight. She also questioned whether policies designed to boost investor confidence in domestic investors before attracting foreign investment were effective. She said, "Before entering a country, foreign investors always seek feedback from domestic investors." Foreign investment will not increase unless local investors are confident. Rana says that one of the biggest obstacles is the perception that businesspeople are always focused on making money at the expense of society. She argued that "the state and society continue to tend to view the private sector as profiteers." "That mentality must change." Kamlesh Agrawal, president of the Nepal Chamber of Commerce, expressed similar worries, stating that fear has spread throughout the business community in recent months.
He argued that entrepreneurs and investors have
been uneasy as a result of the implementation of anti-money laundering
provisions and an increase in regulatory oversight. He stated, "The nation
needs a climate that boosts the confidence of industrialists, businesspeople,
and investors." Agrawal argued that a policy of "one sector, one
regulator" should be implemented because overlapping jurisdiction among
multiple agencies has led to fear and confusion. He stated, "Entrepreneurs
are constantly worried by the intervention of numerous authorities in the same
sector." He also criticized a culture that, according to him, arrests
businesspeople on suspicion before wrongdoing is proven. Agrawal stated that
detentions during investigations have a negative impact on the investment
climate before economic crimes are established. “The government should first
listen, complete investigations, and impose financial penalties where offences
are proven.”
Nicholas Pandey, president of the Federation of Contractors' Associations of Nepal, also expressed concern regarding what he described as a growing tendency to arrest industrialists, contractors, and business owners prior to the conclusion of investigations. He stated, "The government must investigate every allegation." “If wrongdoing is discovered, legal action should be taken. However, it is problematic to make arrests before investigations are complete. Pandey asserts that the arrest of a single businessperson frequently causes projects involving hundreds of workers and contractors to be disrupted, which has wider repercussions for economic activity.
He stated, "The impact
ultimately reaches the economy itself." Leaders in the business say that
even companies that are still doing well financially haven't planned to expand
because of a combination of low demand, regulatory uncertainty, and the fear of
legal consequences. They insist that they are in favor of accountability and
transparency. The president of the Confederation of Nepalese Industries (CNI),
Birendra Raj Pandey, stated that the budget addressed numerous private sector
concerns, but cautioned that outcomes would depend on implementation. He
stated, "The budget includes many good policies for the private
sector." "How they are put into practice is the real test."
According to Pandey, there were both internal and external factors contributing
to the uncertainty. He also mentioned the impact of West Asian instability on
global markets as another concern that was affecting business sentiment. Stock
market crash. The anxiety gripping industrialists and investors has become
increasingly visible in the stock market.
The Nepal Stock Exchange (Nepse) has largely moved lower since the budget for the fiscal year 2026-27 was announced by the government. The benchmark index fell on ten of the 15 trading days following the budget announcement, rose on four, and remained nearly unchanged on one of those days. Before the budget presentation, the index was around 2,755 points, but by Thursday, it was around 2,700 points. During the same time frame, trading turnover has also been steadily decreasing. Market watchers note that not only have trading values decreased, but also the number of transactions and traded shares.
This suggests that investors are not participating as much. Some analysts have been surprised by this trend because the government declared the current capital gains tax regime to be final in the budget, resolving a long-running dispute over the tax. Investor enthusiasm has not been restored despite the clarification. The market's sluggishness is attributed, according to experts, to low confidence and broader worries about regulatory developments. Cash abounds in banks, but credit demand is low. For nearly three years, Nepal Rastra Bank has been continuously removing excess liquidity from the banking system in order to stop further falls in interest rates.
Despite the fact that the central bank conducts operations twice a week
to absorb liquidity, commercial banks continue to hold more than Rs1 trillion
in excess loanable funds on an average monthly basis. Demand for loans remains
low despite historically low lending rates. According to analysts, this shows
that investors and businesses are reluctant to take on new projects.
Non-performing loans have continued to rise at the same time, putting strain on
banks' capital adequacy ratios. Because primary capital growth has lagged
behind, several commercial banks are reportedly approaching limits on their
ability to expand lending despite abundant liquidity.
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