Foreign aid inflow to Nepal has fallen sharply in recent months, marking a decline the country has not seen in years. Figures from the first three months of the fiscal year 2025/26 make this clear. Aid pledges have dropped by 74.35 percent compared to last year. Only about Rs 9.54 billion in foreign aid had reached Nepal by mid-October—far below the Rs 37.18 billion received during the same period last year. This is a striking difference of Rs 27.64 billion in just three months, indicating a shift in how development partners currently view Nepal. This year, all aid has come in the form of grants, with around 71 percent directed towards the energy sector. China has committed support in health and job training, but progress has been slow. The overall slowdown suggests donors are increasingly cautious about Nepal’s internal situation. While previous declines in aid were often linked to global financial pressures or shifting donor priorities, this year’s drop appears to be influenced by developments within Nepal itself.
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The Gen Z movement and the broader law and order situation have affected investor confidence and the country’s global image. The destruction and arson during the 8–9 September unrest further damaged trust, with the private sector reporting losses exceeding Rs 8 billion in the hospitality sector alone. A deteriorating security environment raises concerns about Nepal’s ability to safeguard projects and ensure their smooth implementation. When donors perceive instability, they move cautiously. This contributes to doubts over Nepal’s capacity to deliver aid-funded projects effectively. Political instability adds another layer of uncertainty. Frequent changes in government, shifting priorities, and policy inconsistency make it difficult for development partners to operate with confidence.
Meanwhile, donor countries themselves are facing internal and external pressures—wars, climate-related disasters, and domestic demands—which may have pushed Nepal lower on their priority lists. Foreign aid has not stopped altogether, but donors are now more selective about where their resources go. Countries with stable governance and consistent policies attract more assistance. Foreign investment, on the other hand, has shown some movement, particularly in tourism. However, this alone cannot compensate for the steep decline in aid, especially for critical sectors such as infrastructure, health, and social support. To reverse this trend, Nepal must rebuild trust both domestically and internationally. The government needs to ensure public safety, prevent political disputes from escalating, and maintain clear and stable policies so donors and investors can operate with confidence. Aid will not return in meaningful volumes unless authorities demonstrate that Nepal is stable and committed to sound governance. Finally, the government must proactively engage with traditional and emerging donor nations and agencies to assure them that longstanding obstacles and irregularities are being addressed.
