World Bank projects Nepal’s economic growth rate to remain barely 4 pc in coming years
KATHMANDU, March 25: The World Bank (WB) has cautioned that Nepal might achieve a growth rate of barely four percent for the long term in coming years if the country fails to take necessary corrective measures.
The WB made the revelation in its report entitled ‘Unlocking Nepal’s Growth Potential: Nepal Country Economic Memorandum 2025’ released on Monday. At a time, when Nepal is reeling under prolonged economic slowdown, one of the major development partners of the country through its baseline projections has estimated that potential long-term real growth will hover around four percent.
Revised interest rate corridor system introduced
During 1996 and 2023, Nepal’s average economic growth rate stood at 4.2 percent annually. The government by endorsing the 16th periodic plan has maintained the ambitious growth target of 7.1 percent per year as of 2029. “However the country’s growth rate could remain at around four percent or even less if the corrective measures are not adopted at desired level.”
The WB has pointed out Nepal’s success in poverty reduction over the years mainly to the remittance inflows. “In 1995, an estimated 55 percent of Nepalis lived in extreme poverty, defined by the US$ 2.15 per day threshold. By 2023, this figure had plummeted to just 0.37 percent. The speed and scale of Nepal’s success in eliminating extreme poverty are unparalleled among its peers. Moreover, this progress was not confined to extreme poverty,” reads the report.
According to the WB, the large-scale outmigration led to a substantial increase in remittances and the number of households receiving them. By 2023, remittances accounted for around a quarter of Nepal’s GDP, playing a crucial role in sustaining the economy and lifting many out of poverty. The direct impact of remittances on poverty has been significant and transformative.
The international lending institution has stressed on the need to reform in four major areas to achieve notable economic growth rate by the country. These include reforms in structural challenges that appear as constraint to economic growth and job creation, overcoming short fall in current policies, unlocking opportunities for the potential of high-promise sectors and supporting private sector development and building capabilities needed to translate potential into growth.
According to the WB report, Nepal’s overall labor productivity remains low. Weak competitions in logistics and transport as well as subpar infrastructure have limited exports, which have not contributed to real economic growth over the past decades.
The manufacturing sector has been in steady decline from an already low base, while the tourism sector, a key growth and job opportunity, remains underdeveloped. The development of hydropower has progressed slowly, restricting its potential to shape the economy and facilitate stronger growth. Limited infrastructure, regulatory challenges, and digital literacy gaps are holding back the country’s digitization efforts, the report added.
The WB has also expressed its concern that Nepal could fall behind in development activities compared to other countries at the existing pace of economic growth. If growth continues at historical rates, Nepal’s income level would reach only 65 percent of structural peers’ levels, and less than one-third of its aspirational peers’ by 2050. Bridging this gap requires a decisive policy shift to achieve and sustain higher growth, according to the WB report.
