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 has successfully transitioned from its post-conflict status.  And while the country’s political transition – notably the drafting of a new constitution – is taking longer than expected, the November 2013 elections resulted in a peaceful transfer in power and marked an important step toward the formation of an inclusive and democratic state. 

Despite Nepal’s short experience of democratic government, there have been significant political achievements in the last decade.  Nepal’s highly-diverse population has peacefully come to terms with difficult issues such as federalism and form of government, and 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, 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.    

  • 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 2014 (126 out of 175 countries) and the World Governance Indicators (declining trend over the last decade).

Last Updated: Jun 19, 2015

Strategy

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 (WBG) in Nepal

The WBG 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 18 projects in Nepal with $1.3 billion in commitments from IDA. The International Finance Corporation (IFC) has a committed portfolio of $40 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.  It builds on the recent policy notes sent to the government and focuses on the three “I” investment, infrastructure and inclusion needed for Nepal to reach higher growth levels. 

Building on this work, 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 the progress drafting the new constitution, will likely conduct research on federalism and the process of decentralization.

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.

  • 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, 80 percent of the rural population has access to clean water and more than half 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.

 

 

Last Updated: Jun 19, 2015

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, 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 prices the damage at US$ 5.15 billion, losses at US$ 1.9 billion and recovery needs at US$ 6.6 billion.

Early estimates suggest that an additional 3 percent of the population has been pushed into poverty as a direct result of the earthquakes.  This translates into as many as a million more poor people.  The economic growth rate in FY 2014-2015 is expected to be the lowest in eight years, at 3.04 percent. 

 

Last Updated: Jun 17, 2015