In December 2025, iDream Technologies Pvt. Ltd., a Nepali IT company, obtained permission to invest in setting up a branch in the US. It’s the first time a Nepali company has been permitted to invest abroad.

About 61 years ago, the Act Restricting Investment Abroad, 1964, was enacted to restrict Nepalis from investing abroad. This Panchayat-era act made it punishable to invest in foreign securities, partner with foreign firms, open foreign bank accounts, invest in real estate abroad, and make any cash or in-kind investment abroad, except for those specifically designated by the government of Nepal. The law was introduced to strictly retain the foreign exchange reserve, which stood at $47.8 million in 1964, and encourage Nepalis to invest domestically.

Today, with Nepal’s foreign exchange reserves at historic highs at $21.5 billion (almost half of Nepal’s GDP) and the IT sector emerging as the major export engine, the continued restriction on outward investment has become economically counterproductive.

Lost decades

Over the past six decades, Nepal’s economy has remained largely disconnected from the global marketplace due to restrictive policies on foreign capital mobility. The prolonged isolation has constrained the private sector, limiting its access to international skills, networks and exposure, while also undermining foreign investors’ confidence in the country.

The most affected have been IT innovators. Despite pioneering technologies in the region, including homegrown ride-sharing platforms, Nepali firms remain confined to the domestic market. In contrast, foreign competitors like Pathao and in-Drive, backed by international funding and cross-border technology transfer, have been able to scale and operate across multiple markets.

There has been a growing call from the private sector, especially IT, for the liberalisation of the capital flow, such as increasing the limit for foreign exchange for IT companies to buy hardware and software, obtaining sweat equity in foreign companies and an easier way to pay foreign consultants.

Crawling reforms

In recent years, various governments made a series of legal and policy changes in that direction. For the first time, the 2023/24 budget scrapped the threshold for foreign investment in the IT industry and allowed the companies exporting IT services to provide 10 percent of the total export revenue as foreign exchange to establish contact offices in third countries and to purchase software and install equipment. In April 2024, the government amended eight laws related to investment facilitation and business environment improvement through an ordinance.

In April, the High-level Commission for Economic Reform recommended replacing the Act Restricting Investment Abroad, 1964, with a new Act to Regulate Investment Abroad, clearly defining the sectors open for investment, investment limits, approval procedures and regulatory methods. On December 29, the Nepal Rastra Bank amended its Foreign Investment and Loan Management Bylaw 2021, easing Nepali IT companies to invest abroad and repatriate the dividends of foreign investment in Nepal.

In an earlier amendment, Nepali IT companies were allowed to invest up to 50 percent of the average foreign currency earned from exporting IT-related services over the last three fiscal years, or $1 million, whichever is lower. Under the latest amendment, companies not exporting any IT services are also permitted to invest up to $20,000 or equivalent abroad.

Way forward

As of mid-November, Nepal has a historical high forex reserve, which puts the government and central bank in a comfortable position to liberalise capital flows. The government has enough cushioning to allow the private sector, with high expansion potential, to expand internationally without destabilising the macroeconomy.

A 2023 study by the Institute for Integrated Development Studies (IIDS) highlighted IT as one of the rapidly expanding and vital parts of Nepal's economy, often described as the ‘next economic frontier’. The report indicates that the IT service export industry in Nepal is valued at approximately $515 million, and recommends that the government allow Nepali tech companies to establish subsidiaries and form joint ventures with international partners.

However, liberalising the capital flow alone is not enough to fully unlock the potential of the digital economy. Nepal’s digital sector would still face a quieter but equally binding constraint: The weak digital public infrastructure (DPI). DPI is the invisible backbone that allows digital firms to scale, trade, and integrate across borders. It rests on three pillars: digital payments, digital identity and digital exchange.

Nepal is in a reasonably strong position on the first two. Digital payments through wallets, QR systems, and platforms such as connectIPS have made everyday transactions easy and widespread. It has also started to allow international QR payments, such as with UPI of India. Digital identity has also progressed through the National ID system and applications such as Nagarik App, which now link millions of citizens to the state through a single digital credential.

The gap lies in the third pillar: digital exchange. This is the ability for trusted data to flow securely between government agencies, banks and private firms with the user’s consent. In Nepal, most data remains locked inside institutional silos. Firms must rely on paperwork, manual verification, or one-off integrations to access information that should be machine-readable and interoperable. The recent use of National ID data for voter identification is a positive signal. It shows that databases can be linked for public purposes. But it remains narrow and ad hoc, not a general system that innovators can build upon.

For Nepal’s IT firms, this matters as much as capital mobility. Without seamless digital exchange, companies cannot easily onboard users, verify clients, access financial data, or integrate with global platforms. They remain stuck serving a small domestic market, even when money and talent are available.

What is now required is political and administrative decisiveness. Nepal has long moved from a phase of restricting outward investment to one of regulating it, but now it must enter a phase of reforming. The government and the private sector have been slow to operationalise what’s written in black and white.

The upcoming government must move beyond ad hoc approvals and adopt a predictable, rules-based framework that allows liberal investment as a normal business activity rather than an exception—particularly in service sectors such as IT, Business Process Outsourcing (BPO) and consulting. Through this, Nepal can overcome the barrier of landlockedness and the high cost of transportation, capital, land and wages in exporting goods, where it is not as competitive as compared to its three neighbours with robust industrial bases: India, China and Bangladesh.