An Anatomy of Nepal’s Credit Boom1990-2025

Birendra Bahadur Budha ()
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Birendra Bahadur Budha: Nepal Rastra Bank

No 64/2026, NRB Working Papers from Nepal Rastra Bank, Economic Research Department

Abstract: This paper investigates several questions about credit booms in Nepal: When do credit booms occur? What are the macroeconomic dynamics around the credit booms? What are the policy responses implemented to deal with credit booms? Using data for the period 1990-2025, I find that credit booms occur three times: 1994-1996,2008- 2010, and 2020-2022. These booms are associated with financial sector reforms and loose monetary conditions for a longer period. Credit booms coincide with stock market booms and end up in external sector crises, with high current account deficits and low reserve adequacy. All three booms are bad ones, with subpar macroeconomic performance. During booms, credit reallocation shifts towards construction, consumable loans, and finance, which suffer most following the booms. Nepal Rastra bank responded with monetary and macroprudential measures to address the booms and external sector crisis during and after the booms.

Keywords: credit booms; Nepal; macroeconomic dynamics (search for similar items in EconPapers)
JEL-codes: E32 E51 E58 G01 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2026-07-03
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