Easing the Reins: Central Bank Announces Sweeping Relaxation of Foreign Exchange Limits

KATHMANDU: In a major policy shift aimed at cutting bureaucratic red tape and facilitating international commerce, the Nepal Rastra Bank (NRB) has rolled out a comprehensive relaxation of the country's foreign exchange regulations. By significantly raising international payment limits across multiple sectors—from aviation and telecommunications to IT service exports and hydropower—the central bank is signaling a confident departure from its previously stringent forex regime.

The regulatory overhaul, issued through an amendment to the Unified Circular-2022 by the NRB’s Foreign Exchange Management Department on Friday, leverages the Foreign Exchange (Regulation) Act of 1962 and the NRB Act of 2002. Financial experts interpret this sweeping liberalization as a byproduct of Nepal's currently comfortable foreign exchange reserves. With a healthy balance of payments, the central bank is now empowering businesses to make larger international transactions without the constant need for prior regulatory approval.

The most striking revisions are visible in the capital-intensive aviation and telecommunications sectors. Recognizing the high operational costs of these industries, the central bank has quintupled the advance payment limit for domestic airlines importing aircraft engines and parts, or sending them abroad for maintenance. The ceiling has been raised from $100,000 to $500,000. Similarly, telecom operators can now remit up to $500,000 annually for satellite service rentals, a massive jump from the previous $100,000 limit, ensuring smoother technological integration for service providers.

In a strong nod to Nepal’s rapidly growing digital economy, the central bank has also widened the net for IT professionals, freelancers, and service exporters. The limit for retaining foreign currency in bank cards—earned through online service exports—has been doubled from $5,000 to $10,000. Consequently, the annual forex facility allowing these exporters to purchase goods and digital services from abroad has also been raised to $10,000. This provides tech firms with much-needed liquidity to invest in international software and digital tools.

On the trade and import front, the NRB has recalibrated payment dynamics to streamline business while maintaining strict reporting standards. While the mandate requiring importers to pay at least 10 percent in advance before shipment remains intact, a new stringent provision dictates that the entire import amount must be settled before the goods clear customs. To closely monitor these outflows, banks are now required to submit highly detailed monthly reports of advance payments made via Draft or Telegraphic Transfer (TT) within 15 days of the month's end.

Regional and third-country commerce has also received a substantial boost. The payment threshold for service contracts with Indian institutions has been increased from IRs 4 million to IRs 6 million. Furthermore, the import payment limit from third countries has jumped from $12,000 to $30,000, mirroring a similar increase for imports from India, which now stands at IRs 6 million (up from IRs 3 million).

In a strategic move to attract foreign direct investment, the energy sector has been newly incorporated into the list of industries eligible to utilize bank guarantees or Standby Letters of Credit (SBLC) for acquiring foreign loans. Previously restricted only to agriculture, manufacturing, infrastructure, and tourism, opening this financial avenue for energy industries is expected to ease the severe funding bottlenecks faced by large-scale hydropower developers.

Everyday citizens and general businesses will also feel the positive impact of the relaxed rules. The annual foreign exchange allowance for medical treatment and medical equipment purchases abroad has been doubled from $15,000 to $30,000. Additionally, the central bank has decentralized its authority, allowing commercial banks to provide exchange facilities up to $30,000 (up from $15,000) solely based on a regulator's recommendation. Under the new rules, businesses only need explicit NRB approval for payments exceeding $30,000, a move that will drastically reduce the central bank's micromanagement of mid-tier transactions.

Finally, the central bank has granted commercial banks greater flexibility in managing their foreign currency agency balances, allowing them to invest up to 50 percent (a 10 percent increase) in highly liquid foreign government bonds or hedging instruments for tenures of up to five years.

Overall, the NRB’s pragmatic policy update marks a clear transition from cautious restriction to active economic facilitation. By reducing institutional friction and upgrading financial limits to match current global market realities, the central bank has provided Nepali enterprises the breathing room they need to operate competitively on the international stage.