Overview

  • Nepal has achieved remarkable progress over the last years. The country managed to halve the percentage of people living on less than $1.25 a day in only seven years, from 53 percent in 2003-04 to 25 percent in 2010-11 and is continuing to make progress. Several social indicators in education, health and gender have also improved.

    From post-conflict to democracy

    Since the end of the civil war in 2006, Nepal is transitioning to a federal democratic republic.  In September 2015, the country promulgated a new constitution which stipulates a series of elections beginning in May 2017.

    Despite Nepal’s short experience of democratic government, there have been significant political achievements in the last decade. Nepal’s highly-diverse population is coming to terms with difficult issues such as federalism and form of government, and has forged a strong consensus about the country’s identity as a secular, inclusive, and democratic republic.

    Focus on economic growth

    Moving forward, Nepal needs to deliver on its economic potential. The country’s economy grew steadily during the height of the conflict and yielded budget surpluses in 2013-14. However, after a devastating earthquake in April 25, 2015 followed by trade disruptions, the country registered the weakest growth in 14 years during FY 2016. The current growth levels are too low to reduce poverty and too dependent on remittances.

    Current Challenges

    • Nepal has a unique chance to end extreme poverty and spur more inclusive and sustained economic growth by removing major bottlenecks to public and private investment
    • Poor infrastructure:  Unreliable electrical power and low-quality transportation networks are the country’s most important economic bottlenecks and hinder job creation and the delivery of services. The Post-Disaster Needs Assessment conducted after the earthquake found that total damage and losses resulting from the earthquake amounted to about $7 billion, and reconstruction needs amounted to about $6.7 billion.   
    • A difficult regulatory environment constrains the private sector as businesses are required to comply with 130 processes from over 41 ministries and government agencies. A high degree of informality, characterized by a reluctance toward taxation, regulation and inspection, also prevails and diminishes the quality of good and services.
    • Stability in the financial sector: Some financial institutions remain at risk of insolvency, due to inadequate risk management practices, poor corporate governance and high credit exposure compounded by under-resourced supervision and weak enforcement of prudential norms. The regulatory framework remains weak; operational capacity to manage the fiscal costs of a financial crisis is limited; and so the capacity to prevent and manage potential crises remains a concern. 
    • At one-third of GDP, Agriculture represents an important source of growth and remains, at least over the medium-term, the largest employment sector for over three-quarters of the population.
    • Human development: Nepal has made good progress on many social indicators, but the rates of childhood malnutrition and chronic energy deficiency among women remain high. Poor infant and child feeding practices are prevalent. Access to health services remains unequal and of low quality. 
    • Despite good progress in enhancing equal access to basic education (grades 1-8), children, especially the poorest, do not continue to post-basic education and the quality of education at all levels remains a problem. 
    • Poverty reduction: Despite recent encouraging trends, Nepali households remain vulnerable to the vagaries of life as the existing social protection system does not provide reliable safety nets. Social assistance schemes – including cash transfers and scholarships – have had a limited impact on poverty, due to limited benefits and weak targeting. 
    • Nepal is also heavily vulnerable to climate change and natural disasters. Recent records show an increasing number of droughts, floods, hailstorms, landslides and crop diseases, mostly affecting the livelihoods of the poor.  Nepal is located on the edge of a tectonic plate and is subject to high earthquake risks, particularly in the Kathmandu valley. 
    • Nepal will benefit from strengthening its governance and the management of its public expenditures. The country still ranks low on international governance indicators such as Transparency International’s Corruption Perception Index 2016 (131 out of 175 countries) and the World Governance Indicators (declining trend over the last decade).

    Last Updated: Apr 12, 2017

  • After a long tenuous political transition, Nepal enjoys some significant advantages:

    • A long and robust tradition in community-led development contributed to development progress even during the height of the conflict.
    • A “demographic window of opportunity” bolstered by a young population—the median age is under 22 years old
    • An agile private sector strategically located between the world’s two fastest growing economies, India and China

    The World Bank Group in Nepal

    The Bank's strategy provide assistance under a longer-term partnership strategy that is flexible enough to accommodate a fragile and evolving country environment. 

    The strategy supports the Government of Nepal’s overarching goal to improve the living standards of all Nepalis and to reach middle-income status by 2022. It is organized around two ‘pillars’ that emerged during consultations with the Government, development partners and key stakeholders including civil society, the private sector, rural community groups and the media.  The strategy aligns with the government’s development priorities, particularly in the energy sector. 

    • Pillar 1:  Boosting economic growth and competitiveness; expanding hydroelectric power generation; enhancing transport connectivity; and improving the business environment.

    • Pillar 2: Increasing inclusive growth and opportunities for shared prosperity; enhancing productivity in the agriculture sector; providing equal access to health care, skills development and social protection. 

    Current Portfolio

    The World Bank currently supports 22 projects in Nepal with $1.7 billion in commitments from IDA. The International Finance Corporation (IFC) has a committed portfolio of about $52 million in Nepal. Over a four-year period (2014-18) Nepal may also benefit from a $ 200-300 million yearly allocation linked to good portfolio performance, economic management and improvements in governance.  These funds could finance three to four new operations per year.  

    Pending the availability of viable investments and improvements to the business climate, IFC has planned a hydropower program ranging from $300-800 million over the strategy period.

    Additionally, IFC can potentially commit U$ 20-40 million per year for investments in financial institutions, manufacturing, agribusiness and services sectors.

    Knowledge

    The Bank’s knowledge program is fully aligned with the priorities set out in the strategy The WBG is carrying out a Country Economic Memorandum to analyze in more detail Nepal’s key drivers of growth with a potential focus on exports, migration/ remittances, hydropower and public investments.

    IDA and IFC will continue advising the government on the Investment Board and Public Private Partnerships (PPPs) for infrastructure development and help craft matching strategies to support the development of feasibility studies and contract documents to take these potential projects to the market. 

    Finally, the WBG will respond to ad-hoc requests from the government and, based on implementation of the new constitution, will likely support devolution..

    Regional and Global Programs

    In addition to national investment projects, the World Bank Group is actively supporting Nepal’s participation in regional and multilateral global initiatives. The Regional Wildlife Program, Strengthening Regional Cooperation for Wildlife Protection in Asia aims to help governments build capacity, institutions and incentives to collaborate in tackling illegal wildlife trade and other conservation threats to habitats in border areas.

    The Nepal-India Electricity Transmission and Trade Project facilitates power trade between the two countries through imports into Nepal, and eventually, export of surplus power to India.  At the global level, Nepal is the only country in the world that was selected to participate in two Climate Investment Fund (CIF) Pilot Programs – the Scaling up Renewable Energy Program (SREP) and the Pilot Program for Climate Resilience (PPCR).

    Last Updated: Jun 19, 2015

    •  In the 1950s, Nepal’s literacy rate was 2 percent. Only one in one thousand children went to school. Today almost all children go to school and live within 30 minutes of their school.
     
    • Nepal has reached gender parity in primary education.
     
    • In the early 1970s, Nepal’s road network spanned 2,700 kilometers.  Today it stretches over 80,000 kilometers.
     
    • A child born today can expect to live 25 years longer than one born in 1970.

     

    • Fewer than 1 in 1,000 Nepalis owned a telephone until 1970. Today, two in three Nepalis own a cell phone.
     
    • Until 1970, only five percent of Nepalis had piped water supply. Today, 85 percent of the rural population has access to clean water 81 percent has access to sanitation.
     
    •  By halving extreme poverty in just seven years, Nepal has achieved the first Millennium Development Goal ahead of time and well before some neighbors.
  • On April 25, 2015, a major earthquake occurred at shallow depth with a magnitude of 7.8 in central Nepal causing widespread destruction. There were several aftershocks as well as a subsequent earthquake event of magnitude 7.3 on May 12. 

    A combined 9,000 lives were lost and close to ten million people in at least 31 of 75 districts were affected, making this the worst disaster in Nepal’s history in terms of human casualties. An assessment of the impact shows that Nepal’s recovery needs amount to the equivalent of a third of its economy. 

    The Post Disaster Needs Assessment (PDNA) priced the damage at US$ 7 billion, with total reconstruction needs at US$ 6.7 billion. The largest single need identified by the PDNA was housing and human settlements, estimated at about $3.27 billion.

    Economic impact of the earthquake

    Early estimates suggested that an additional 3 percent of the population had been pushed into poverty as a direct result of the earthquakes. This translates into as many as a million more poor people. The earthquake, coupled with trade disruptions that occurred from September 2015-January 2016, pushed down the overall growth of FY 2016 to 0.6 percent (at market prices) – the lowest in 14 years.

    Reflecting both the earthquake and trade related disruptions, inflation spiked to over 12 percent (y/y) by mid-January rising 5 percentage points in just four months from mid-September 2015. This was the highest inflation level since FY 2009. As the trade disruptions ended, inflation eased to back to single digits. 

    Following two years of disappointing growth, the Nepal Development Update (October 2016) predicted a rebound. Growth in FY 2017 is forecasted to accelerate to five percent and is expected to moderate in line with the country’s potential during FY 2018.

    Support from international donors

    After the earthquakes, the international community rallied to provide immediate rescue and relief and support for the country’s longer-term recovery. An International Conference on Nepal’s Reconstruction was held in Kathmandu on June 25, 2015. Numerous countries, international financial institutions, foundations, and NGOs stepped forward, pledging about $4.4 billion to support Nepal’s recovery and reconstruction and help the country become more resilient to future events.

    The government swung into action, launching the Post-Disaster Recovery Framework on May 12, 2016. It outlines all sector plans and financial projects through 2020. In December of 2015, it also established the Nepal Reconstruction Authority (NRA) and appointed a Chief Executive Officer to expedite the reconstruction process.

    The government also established the Nepal Earthquake Housing Reconstruction Multi-Donor Trust Fund (MDTF) to support housing reconstruction. The fund is administered by the World Bank. Current committed financing includes: (i) $200m from IDA’s Crisis Response Window; (ii) $100m credit from JICA for parallel financing; (iii) $30.56m in a WB-administered Multi-Donor Trust Fund (USAID – $9.6m, Switzerland - Swiss Francs 7m, Canada – CAN$ 10m and United Kingdom, DfID – GBP 4.8m). Out of $30.56m committed under MDTF, $26.59m has been received; (iv) about $200m earmarked by I/NGOs for the sector; and (v) $50m from the World Bank’s budget support. 

    As of April 11, 2017, 626,695 beneficiaries have been identified in 14 most affected districts. Out of this, 90 percent of beneficiaries (561845 beneficiaries) have signed the Grant Participation Agreement, 542,963 beneficiaries have already received the first tranche payment and 4,206 beneficiaries have received the second tranche payment.

LENDING

Nepal: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments

In Depth

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Additional Resources

Country Office Contacts

Kathmandu
Yak and Yeti
Hotel Complex
Durbar Marg
Kathmandu, Nepal
+977 1 4236000
+977 1 4226792
infonepal@worldbank.org