Kathmandu – Nepal Rastra Bank (NRB) has amended the Foreign Investment and Foreign Loan Management Regulation, 2078, introducing its fifth amendment with the aim of making Nepal’s foreign exchange regime more flexible and investment-friendly.

Under the amendment, commercial banks have been entrusted with greater responsibility for facilitating foreign investment inflows and the repatriation of dividends. Notably, information technology (IT) companies are now allowed to invest up to USD 20,000 abroad with ease, marking a significant policy shift toward outward investment facilitation.

Gradual Liberalization of the Foreign Exchange Regime

One of the most significant reforms undertaken after 2046 BS under financial sector liberalization was the introduction of full current account convertibility. This reform not only ended the licensing regime but also simplified foreign exchange access for the import of goods and services, income receipts, and current transfers.

Continuing this trajectory, the central bank has gradually relaxed rigid foreign exchange policies. On Monday, NRB formally enforced the fifth amendment to the regulation, signaling further openness in foreign investment and foreign loan management.

Despite these reforms, improvements in Nepal’s foreign exchange system have progressed more slowly compared to other sectors of the economy. Policymakers attribute this caution partly to the absence of strong and sustainable foreign currency sources.

Although Nepal adopted full current account convertibility decades ago, it has not formally declared capital account convertibility. However, recent legal and regulatory changes indicate that Nepal is moving gradually toward capital account liberalization.

Policy Shift Gains Momentum

The latest amendment has drawn attention among economists, especially as debates on capital account convertibility gain traction. While the Foreign Investment Prohibition Act of 2021 BS remains in force and the Foreign Exchange Regulation Act of 2019 BS still serves as the principal law, recent amendments—particularly the one dated Jestha 18, 2082—have provided the foundation for NRB to introduce more liberal provisions.

Several related laws, including the Foreign Investment and Technology Transfer Act, 2075, and the Public–Private Partnership and Investment Act, 2075, are also in implementation. However, challenges remain in strengthening institutions and structures to ensure effective execution.

Evolution of the Regulation

NRB first issued the Foreign Investment and Foreign Loan Management Regulation, 2078, nearly five years ago by consolidating dozens of circulars related to foreign investment and borrowing. The regulation was amended three times by 2080, with each revision introducing incremental flexibility.

After assuming office, the newly appointed governor formed a Banking Sector Reform Recommendation Task Force, which emphasized the need to further liberalize foreign exchange policies to attract foreign investment. This recommendation was incorporated into the current fiscal year’s monetary policy, which committed to amending the regulation to improve the investment climate.

The fifth amendment, now in effect, is considered the most liberal so far.

Key Provisions of the Fifth Amendment

• Delegation to Commercial Banks:
  Commercial banks are now responsible for facilitating foreign investment inflows and the repatriation of dividends and capital. Once approval is obtained from the relevant investment approval authority, investors no longer need separate approval from NRB.
• Equal Flexibility for Brownfield Investment:
  The amendment extends the same flexibility previously available to greenfield investments (new enterprises) to brownfield investments (investment in existing companies for modernization or expansion).
• Easier Overseas Investment for IT Companies:
  In addition to the existing provision allowing IT firms to invest up to USD 1 million abroad under specific conditions, newly established IT companies can now take up to USD 20,000 overseas as seed capital. This is expected to help Nepal leverage its young workforce and global Nepali diaspora.
• Relaxation for Blacklisted Firms:
  Firms or companies listed in Nepal’s blacklist can now bring foreign investment into Nepal. However, while blacklisted, they are not permitted to repatriate dividends or capital.
• Simplified Documentation:
  The amendment streamlines documentation requirements. Once documents are submitted to one authority, they need not be repeatedly submitted to others, reducing procedural burdens for investors.
• Greater Flexibility in Foreign Loans:
  A foreign parent company can now extend foreign loans to its Nepali subsidiary up to five times the paid-up capital. Infrastructure projects, suppliers, and contractors are also explicitly allowed to bring in foreign loans from their parent companies.

Broader Implications

Beyond the explicit provisions, the amendment places implicit responsibility on NRB to strengthen institutional capacity, build robust structures for foreign investment and loan management, adopt real-time data analysis, and ensure commercial banks act more professionally.

Importantly, the amendment signals Nepal’s intention to move cautiously but steadily toward capital account convertibility, balancing openness with financial stability.

Analysts say the reform not only facilitates inbound foreign investment but also acknowledges the importance of allowing Nepali firms to invest abroad an essential step in integrating Nepal into the global economy and fostering long-term economic growth.

(Originally published on https://www.onlinekhabar.com/ on १६ पुष २०८२ at १३:३९ in the Nepali version.)