Private Sources Now Account for Majority of Nepal's Development Finance: Report

Private sources now account for a majority of Nepal's development finance, signaling a structural shift in how the country funds its growth, according to a new government report.

The Development Assistance Report 2024/25, released by the Ministry of Finance, shows that while public finance has expanded over the past decade, resources flowing from private sources —primarily remittances and foreign direct investment—have grown at an even faster pace, reshaping the overall composition of funds available for development.

Public development finance, which comprises government revenue and foreign aid, nearly doubled over the decade, rising from $4.80 billion in 2015 to approximately $9.10 billion in 2024. This growth has helped sustain infrastructure, public services, and social security while contributing to broader economic stability, the report noted.

However, private sector resources grew even more rapidly. Remittances, foreign direct investment, and other private flows increased from $6.80 billion in 2015 to $11.30 billion in 2024. While these flows saw some fluctuation between 2018 and 2021, the overall trend indicates sustained growth, according to the report.

By 2024, total development finance reached $20.40 billion, with private sources accounting for 55.5 percent and public finance comprising the remaining 44.5 percent. This marks a clear shift toward a private sector-led development structure.

Former secretary Krishna Gyawali said it was unclear how remittances had been classified as development finance, adding that if the report was based on a study of how such funds are actually utilized for development, it represented a meaningful effort.

"A large portion of remittances goes toward consumption," he said. "If this report is based on a study of how remittances are actually being used for development, then it is an important effort."

The report shows that private finance remained roughly balanced with public finance between 2018 and 2021. From 2022 onward, however, rising remittances drove private finance ahead, and by 2024 it had established a clear lead over public sources.

Remittances dominate private development finance, growing from $6.70 billion in 2015 to $11.30 billion in 2024. The report notes that this flow has helped support household consumption, strengthen foreign exchange reserves, and provide a buffer during economic shocks—compensating for sluggish growth in foreign aid and volatility in foreign direct investment.

Yet the growing dominance of private financial flows does not signal a shift toward investment-led growth, the report cautions. Foreign direct investment remains weak and volatile, falling from $196.3 million in 2021 to just $56.9 million in 2024.

"This sharp volatility highlights structural barriers such as regulatory bottlenecks and policy ambiguity," the report states, "which continue to hinder the entry of stable, long-term investment into Nepal."

Foreign aid, meanwhile, has seen its relative role decline. Although aid volumes have increased in absolute terms over the decade, its share in the government’s budget and the overall financing mix has shrunk. The nature of aid has also shifted from grants to loans, raising concerns about long-term fiscal pressure.

External dependence persists

Despite the rise of private flows, Nepal's financing structure remains heavily dependent on external sources. External finance—including remittances, aid, and foreign investment—still accounts for approximately 61 percent of the total financing mix, according to the report. This leaves the economy vulnerable to shifts in global labor markets, immigration policies, and external economic conditions.

Government revenue more than doubled over the decade, reflecting improved domestic resource mobilization, but it still falls short of the resources flowing in from abroad. The report notes that this gap has made it impossible to fully drive growth through domestic resources alone.

In response to these imbalances, the government has introduced an integrated national financing strategy. Launched in 2025, the Integrated National Financing Strategy for Employment-Led Economic Growth aims to align public and private resources while improving domestic revenue and the investment climate.

"Nepal's development finance structure has shifted toward private sources, but a large portion of that still relies on income earned abroad," the report states. "Until private investment is strengthened within the country, the economy will remain dependent on external earnings—even as the financing model evolves."