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.
- 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 13, 2017