Nepal Struggling to Convert Foreign Investment Commitments Into Real Capital Inflow

Nepal continues to face a major disconnect between foreign investment commitments and the actual amount of capital entering the economy, raising fresh concerns about the country’s investment climate and policy effectiveness. Although the government has repeatedly announced reforms to attract foreign direct investment (FDI), new data published in the 62nd annual report of the Office of the Auditor General shows that only a small portion of approved investment commitments are ultimately materializing into real financial inflows.

The report reveals a worrying pattern in which foreign investors formally commit billions of rupees in projects, but only a fraction of that money is eventually brought into Nepal. According to the data provided by the Department of Industry, foreign investment commitments worth NPR 65 billion were approved during fiscal year 2024/25. However, the actual investment that entered the country stood at only NPR 12.01 billion.

A similar trend was recorded in the previous fiscal year. In 2023/24, Nepal approved foreign investment proposals worth NPR 81.69 billion, yet only NPR 10.29 billion was realized. This means that just 12.6 percent of the committed investment actually entered the economy. The figures indicate that despite attracting interest on paper, Nepal is struggling to convert investor intent into operational projects and real economic activity.

The report also highlights fluctuations in realization rates over recent years. In fiscal year 2022/23, Nepal approved NPR 32.48 billion worth of foreign investment proposals, of which NPR 9.20 billion was realized — around 28.34 percent of total commitments. In 2021/22, the realization rate was comparatively stronger, with NPR 10.84 billion entering the country against approved commitments of NPR 17.03 billion, representing nearly 63.66 percent realization.

The sharp decline in realization rates over the last two years suggests that Nepal’s investment environment may be becoming increasingly uncertain despite official efforts to promote FDI. Analysts say the data reflects deeper structural challenges rather than temporary administrative delays.

One of the most concerning findings in the report is the imbalance between foreign capital entering and leaving the country. Over the past three years, Nepal received NPR 30.34 billion in foreign investment inflows, while a much larger amount — NPR 71.42 billion — flowed out of the country. According to the Auditor General’s report, outward payments exceeded inward investment by approximately 135 percent during the period.

Economists say this trend reflects rising repatriation of profits, loan repayments, dividend outflows, and capital withdrawals by foreign investors already operating in Nepal. The imbalance raises questions about whether Nepal is generating enough new productive investment to offset the capital continuously leaving the economy.

Officials within the Department of Industry acknowledge that policy reforms alone have not been sufficient to improve actual investment inflows. Department Information Officer Suresh Dahal stated that while the government has introduced various policy-level improvements to attract foreign investors, investment realization remains significantly lower than commitments.

The findings also expose a broader issue within Nepal’s investment ecosystem — the gap between policy announcements and implementation capacity. Over the years, Nepal has introduced multiple investment summits, revised foreign investment laws, and announced investor-friendly reforms. Yet investors continue to cite bureaucratic delays, regulatory uncertainty, inconsistent policy interpretation, land acquisition complications, and slow administrative approvals as major obstacles to doing business in the country.

The report specifically recommends maintaining long-term policy stability, simplifying administrative procedures, and creating a more investment-friendly environment capable of converting commitments into actual investment. Analysts argue that foreign investors are increasingly prioritizing predictability and institutional efficiency over incentives alone.

Sector-wise, most foreign investment commitments continue to concentrate in agriculture, services, information technology, and tourism-related industries. However, experts note that Nepal has yet to attract large-scale industrial manufacturing investment capable of significantly transforming exports, employment generation, and industrial productivity.

The report comes at a time when Nepal’s economy is facing slower private sector expansion, weak industrial growth, and reduced investor confidence despite high banking liquidity and declining interest rates. Many analysts believe the weak conversion of FDI commitments into real investment reflects broader concerns about Nepal’s long-term economic direction and institutional reliability.

Economists warn that unless Nepal improves project execution capacity and policy consistency, the country risks remaining trapped in a cycle where investment commitments generate headlines but fail to produce meaningful economic transformation. They argue that attracting investment is no longer the primary challenge — sustaining investor confidence long enough for projects to materialize has become the larger issue.