KATHMANDU, Jan 20: Nepal’s economy has been facing persistent challenges of structural weaknesses, jobs creation and increasing reliance on foreign assistance although the country has posted some positive indications in the global forum, according to the latest report of the World Bank.
Unveiling its flagship report ‘Global Economic Prospects 2026,’ the World Bank has termed the economic future of Nepal ‘uncertain’ at a time when the economic activities in a number of lower middle income nations have been performing better. “However, in Nepal, political instability and economic policy uncertainty have been heightened following recent unrest and the subsequent formation of an interim government in September,” reads the report.
Inflation in Nepal is forecast to remain below the central bank’s ceiling, given projections of weak global commodity prices and moderate inflation in India. The country’s inflation rate declined to 1.66 percent against the ceiling fixed by the Nepal Rastra Bank at five percent.
Memory of Rose
The country’s GDP grew by 4.6 percent in 2024/25, driven by improved performance in the production sector, construction, and hydropower generation. With an improvement in revenue mobilisation, Nepal’s fiscal financing dropped to around three percent of the country’s GDP, the lowest in the last nine years, the report added. Fiscal financing needs are the sum of the fiscal deficit and short-term debt of the central government.
In contrast, Nepal is forecast to have current account surpluses, primarily reflecting lower global oil prices and resilient remittance inflows, particularly from member countries of the Gulf Cooperation Council, where activity is anticipated to remain robust.
Despite having cushion in a number of areas, Nepal’s economic growth is projected to weaken in FY 2025/26 to 2.1 percent (at current market price), amid heightened political instability and policy uncertainty. The report attributes the weak economic growth projection also to a sharp decline in tourist arrivals and subdued activity related to the service sector.
“In addition, subdued investor sentiment and heightened uncertainty are expected to lead to a slowdown in industrial output. Growth is then forecast to recover in FY 2026/27, mainly reflecting progress in reconstruction and a rebound in the service sector, but the forecast is subject to heightened uncertainty.”
The report further said that Nepal has failed to cash in export and computer and information related services for the job creation. Income from exports and the IT sector remained less than 0.5 percent of the country’s GDP, the report added.
The World Bank said political transitions following the scheduled elections in early 2026 could improve economic stability, with better predictability in growth-enhancing reform efforts. The report says the country can boost investor confidence and economic activity if these transitions are accompanied by stronger macroeconomic management and a greater commitment to structural reforms.
