Open any daily newspaper and the pattern is unmistakable: cash accumulates, bank deposits swell, and assets change hands. Yet firms do not scale, exports remain thin, and productive jobs are scarce. This is not a mystery of economics; it is a failure of conversion. Savings exist,but they are neither reliably turned into investment nor directed toward sectors that expand production. Money moves, but it does not build.
Saving–Investment Gap
The imbalance is stark. Nepal saves very little from what it produces domestically—only about 6 percent of gross domestic product (GDP). Once external income, largely remittances, is included, national saving rises sharply to 36 percent of GDP. But savings that originate outside the domestic economy are structurally different from savings generated through production: the latter naturally feed back into investment and productivity, while the former do not. More troubling still, investment remains well below available savings, at roughly 24 percent of GDP. In effect, about one-third of national savings never turns into productive investment.
The contrast with Nepal’s neighbors is revealing. In China, domestic savings, national savings, and investment are aligned and exceed 40 percent of GDP. In India, they are similarly aligned at around 30 percent. In both countries, because savings are domestic, savings and investment reinforce each other. In Nepal, that link is largely absent. Savings depend heavily on remittances, and a significant share is never invested. As a result, Nepal’s investment intensity remains persistently lower, about 16 percentage points below China and about 6 points below India. This partly explains Nepal’s weaker economic growth relative to its neighbors.
Where does that missing one-third of savings go? Much of it flows into land and real-estate speculation, where returns appear higher than in productive enterprise. Some are held in gold or informal assets, and some may leave the country altogether as capital flight. A large share also sits idle in banks, reflected recently in the widening gap between deposits and credit—about 119 percent versus 97 percent of GDP. None of these channels create new wealth; they merely redistribute it. This is not a recent anomaly but the continuation and deepening of a long-standing structural failure to convert savings into productive lending. It is a breakdown in capital formation—the stock of productive assets created through investment—with a huge cost to national prosperity.
Equally damaging is how the investment that does occur is allocated.Policies that favor speculation over productivity and arbitrariness over rule-based systems, combined with remittance-driven price pressures that raise non-tradables relative to tradables, have distorted returns across the economy. Capital is therefore drawn toward rentier, low-risk activities—consumption, trade, land, and real estate. It also flows into for-profit private schools and hospitals that increasingly duplicate and replace public services at rising prices. Meanwhile, productive sectors—manufacturing, agro-processing, export-oriented firms, and technology-intensive services—remain unattractive to investors because returns are uncertain.
Investment Board collaborates with KPMG to promote investment p...
The result is an asset-heavy but production-light economy, where wealth is transferred rather than created, opportunity shrinks, and productivity stagnates.
The consequences are visible. Before the republic, roughly two rupees of investment produced one rupee of output; today it takes about three, a 50 percent decline in efficiency. Some increase is normal as easy opportunities are exhausted, but the sharp rise signals misallocation. By contrast, India produces similar output with about 15 percent less investment, even though it is a more developed economy.
Private–Public Mismatch
Investment is the joint outcome of public and private action, and the interaction between them is decisive. Private firms invest when public investment provides basic systems: functioning roads, dependable electricity, reliable urban services, enforceable contracts, and stable regulation. Yet public capital spending has steadily eroded, falling from more than half of the government budget three decades ago to roughly one-quarter today. This erosion is not merely a fiscal issue; it is a developmental failure.
Compounding the problem, the public investment that does occur is heavily skewed toward road construction, unnecessary view-towers, and redundant airports, often at the expense of more critical infrastructure. Even then, the road network remains unreliable, while complementary infrastructure continues to lag behind. The result is fragmented systems that neither crowd in private investment nor raise economy-wide productivity.
Seen in this light, Nepal’s stalled prosperity becomes intelligible. Weak growth, limited exports, small firms, and persistent migration are not separate failures; they are connected outcomes of an investment system that does not reward long-term commitment. Until Nepal creates a business environment that offers credible, corruption-resistant returns to productive investment, capital will continue to circle in speculation rather than settle to build.That is what investment is: the seed of prosperity. When the rule of law, skills, and energy(as outlined in my earlier columns) are in place, it turns potential into progress.
Building the Investment Pathway
Nepal’s savings are unusually dependent on remittances. Without them, the economy generates little surplus of its own. This is fragility disguised as stability. Remittances cannot substitute for a productive economy that generates its own capital. The strain is already visible in rising consumption, shrinking internationally traded sectors, inflated non-tradable assets, and an economy that produces less from every rupee invested.
Leaving that uneasiness aside for a moment, the deeper question is why policies fail to channel money toward productive and export-oriented sectors. Land speculation, capital flight, and investors’ reluctance to take risks are not accidents. They are signals sent by a system that makes production unusually risky and rent-seeking safe. When rules shift, contracts weaken, and returns depend on connections rather than performance, capital behaves rationally: it seeks shelter, not purpose.This has become the logic of Nepal’s economy.
This is not merely a financial failure. It is a failure of systems—financial, institutional, and infrastructural—to channel income into productive investment. It is also a crisis of confidence: confidence that rules will hold, that returns will endure, and that success will not be punished.
This system will not be fixed by slogans or rhetoric. It requires the resolve to restore a simple pipeline: savings must become investment, and investment must become productive capital. That means redirecting finance toward long-term enterprise, correcting policies that reward speculation, and rebuilding public investment in energy, logistics, irrigation, and cities—the foundations that allow private firms to grow.
Why has this not happened? Because Nepal suffers from an absence of ambition to build, and from a culture that has not yet learned to treat prosperity as a source of pride. No wonder it fails twice: first by pushing its workers to leave in search of opportunity, and then by offering no productive place for their hard-earned savings. In doing so, it locks itself into the very cycle of departure.
Only economic prosperity can break this cycle, and it is worth repeating that investment is its seed. But seeds grow only where the ground is prepared. Nepal already knows how to prepare that ground. What it now needs is the resolve to do it.
(The author holds a PhD in Economics and writes on economic issues in Nepal and Canada. He can be reached at acharya.ramc@gmail.com)
