Experts have warned that Nepal must urgently shift toward equity-based financing, foreign direct investment (FDI) and regulatory reform as the era of abundant concessional grants and loans draws to a close with the country’s planned graduation from the Least Developed Countries (LDC) category in 2026.

“The era of free money ends,” said Calvin St Juste, Special Envoy for Investment of the Federation of St Kitts and Nevis, speaking at a high-level roundtable organized by the Asian Institute of Diplomacy and International Affairs (AIDIA) in Kathmandu on Sunday. “Grants fade, and loans cannot sustainably replace them. Equity can,” he said.

Calling political instability “temporary,” St Juste urged Nepal to treat LDC graduation as an opportunity rather than a setback. He argued that Nepal should move away from loan-heavy financing and embrace equity investment, especially in capital-intensive sectors like hydropower. “Challenging or not, this is the moment to bring investors in,” he said.

St Kitts and Nevis, which ranked among Nepal’s top five FDI sources in 2020–21, also shared its own economic restructuring experience. St Juste recounted how the Caribbean nation had suffered bankruptcy in 2005 after the collapse of its sugar industry but rebuilt itself by attracting FDI and shifting toward an investment-driven model.

“Nepal is landlocked, whereas St Kitts is sea-locked,” he said. “In different ways, we are both small states whose destinies can be profoundly shaped by external forces.”

Addressing widespread skepticism over “tax haven” jurisdictions, the envoy stressed the need to distinguish between legal tax competitiveness and illegal practices. “Tax avoidance is legal; tax evasion is not,” he said. “Don’t be fearful of designing a system that allows your economy to survive.”

Citing Nepal’s recent BB- rating in a Fitch report, he said global investors are increasingly cautious due to political unpredictability. “As investors, you cannot control politics, but you can control risk,” he noted, urging Nepal to address systemic vulnerabilities that deter long-term investment.

Local experts echoe the concerns
Ram Kumar Tiwari, CEO of Nepal SBI Bank, said investors have already begun to retreat amid ongoing political uncertainty.

Similarly, Ananda Jha, CEO of CARE Ratings Nepal, pointed to regulatory overlaps between the Nepal Rastra Bank (NRB), Securities Board of Nepal (SEBON) and the Electricity Regulatory Commission (ERC), calling the resulting fragmented policymaking a major structural hurdle. “Despite a growing capital market and rising entrepreneurial activity, Nepal lacks meaningful international access,” he remarked.

Participants also highlighted challenges such as tight liquidity, rigid labor policies, and productivity constraints. While acknowledging the value of the standard eight-hour workday, they noted that advances in technology and AI now enable far higher output without longer hours.

High tax rates—20–25% corporate tax and up to 39% personal income tax—were also cited as key deterrents for large-scale investment. Speakers questioned the rationale for high taxation in the absence of visible improvements in public services and called for more customer-centric governance.

Sudhumna Prasad Upadhyay, CEO of Sanima GIC Insurance, outlined the performance and profitability of insurance and reinsurance companies in the Caribbean, including St. Kitts and Nevis, suggesting Nepal could draw lessons from international models.

This news was published on NepalKhabar