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An Anatomy of Nepal’s Credit Boom1990-2025

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  • Birendra Bahadur Budha

    (Nepal Rastra Bank)

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.

Suggested Citation

  • Birendra Bahadur Budha, 2026. "An Anatomy of Nepal’s Credit Boom1990-2025," NRB Working Papers 64/2026, Nepal Rastra Bank, Economic Research Department.
    • Handle: RePEc:nrb:wpaper:nrbwp202664
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

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