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    In 2018, the World Bank came up with its Country Partnership Framework (CPF) covering the five-year period of FY2019-2023. Coincidentally, this came at a time of historic transformation in Nepal, as a new government took up office in February 2018. The signing of the Comprehensive Peace Agreement in 2006 ended a 10-year conflict that came at a significant cost of lives and foregone economic development. Since then, Nepal has gone through lengthy and complex transitions towards a new Constitution in 2015 that set in place a federal structure.  By the end of 2017, elections were successfully held at the federal, state, and local tiers. There is a newfound optimism for greater political stability, inclusion, good governance and sustainable growth. The new federal structure presents unprecedented opportunities for Nepal to reset its development storyline, as outlined in the Systematic Country Diagnostic (SCD).  At the same time, the shift to federalism poses new challenges and source of fragility, given the heightened popular aspirations and expectations. Key challenges include the need to clarify the functions and accountabilities of the federal, state, and local governments; deliver basic services and maintain infrastructure development; create a conducive environment for the private sector; and address governance weaknesses that may worsen in the early years of the new federal system.


    A new government, backed by a historic majority in Parliament, completed a year of office on February 15, 2019. The government was  preceded by elections for all three tiers (local, state and federal) of the state architecture defined by the new constitution, marking a protracted but successful conclusion of a political transition that began with the signing of the Comprehensive Peace Agreement in November 2006. State governments largely mirror the coalition at the center. At the sub-national level, funds, functions and functionaries hitherto managed by the central, district and village authorities are moving to the seven new states and 753 local governments for which new legislation, institutions and administrative procedures are being formalized as constitutionally prescribed.  Meanwhile, the central level authority is being streamlined with a focus on oversight.  These exercises at state restructuring are expected to result in improved outreach and service delivery but will likely take time before they become fully operational. 

    Significant adjustments need to be made to the government structure.  They include amending over 400 existing acts, restructuring the civil service at all levels, devolving fiscal management, and determining the division of funds, functions, and functionaries between various levels of government.

    In contrast to the frequent changes in government that characterized Nepal’s decade-long transition to federalism, the new government enjoys a historic super-majority in Parliament.  Along with new constitutional checks and a far fewer number of political parties, there is a much greater degree of optimism for stability in the coming days.  However, state restructuring on this scale is uncharted territory for Nepal and smoothening the transition from the previous unitary system to the new federal one will remain a daunting task. The new system, in principle, provides opportunities to decentralize development benefits and make service delivery more effective and accountable.  However, the risks of jurisdictional overlap between the three tiers of government, lack of clarity and coherence between policies and devolved powers, and duplication of efforts will remain high during the coming few years.  Key aspects of the new system require further definition and may continue to be contested by different population groups.


    A nation-wide lockdown, implemented during March-July 2020, impacted economic activity in the last four months of FY20. As a result, output contracted by an estimated 1.9 percent in FY20. Wholesale and retail trade, tourism, transport, and associated services such as hotels and restaurants – which are all important drivers of growth - were particularly impacted.

    In the first half of FY21 (mid- July 2020 – mid-January 2021), growth has remained sluggish, given that tourism activity was stalled, and private investment constrained by risk aversion and uncertainty. However, there were incipient signs of recovery in wholesale and retail trade, transport, and financial services, as containment measures were gradually eased. Subdued demand and adequate food supply brought consumer price inflation to a three-year low of 3.7 percent y-o-y.

    Against the backdrop of muted economic activity, the current account deficit declined by 39.6 percent year-on-year in the first half of FY21. This was driven by a sharp contraction in imports (11.8 percent y-o-y) which, in absolute terms, far outweighed a parallel decline in exports (of 36.6 percent), as well as an increase in remittance inflows (by 6.7 percent). Given modest levels of foreign direct investment, external concessional loans financed the current account deficit. Official foreign exchange reserves reached US$ 11.3 billion by mid-January 2021—equivalent to 11.3 months of imports.

    Spending was higher and revenue lower, y-o-y, over the first half of FY21. Higher spending was driven by purchases of COVID-related health equipment and investments at the subnational levels (which offset a 19 percent y-o-y reduction in capital spending). Meanwhile, tax revenues fell by 2.1 percent y-o-y, with trade and consumption taxes as well as corporate income taxes performing poorly. Non-tax revenues continued to suffer from the near standstill in tourism. As a result, public debt increased by 7.4 percent over the first half of FY21 to 36.1 percent of projected FY21 GDP.

    A recent World Bank COVID monitoring survey suggests that the pandemic-related economic slowdown had a major impact on jobs and incomes, with more than 2 in 5 economically active workers reporting a job loss or prolonged work absence in 2020.


    Economic growth is projected to recover gradually, to 5.1 percent by FY23. The baseline projections assume a successful domestic and global vaccination rollout, and a gradual resumption of international tourism. Agriculture should continue to contribute positively to growth. However, industrial activity is expected to remain below pre-pandemic levels up until early FY22, and services are expected to recover only gradually as domestic confinement measures are lifted.

    With roughly a third of the population living close to the poverty line before the pandemic, widespread jobs and earning losses are likely to have increased poverty, particularly for women, younger age cohorts, and workers in non-agricultural sectors.

    The current account deficit is expected to widen over the medium term. Import growth is expected to accelerate as consumption resumes, while service exports should remain subdued until FY22 (as tourism is only expected to recover fully in FY23). Consequently, the current account deficit is projected to reach 3.2 percent of GDP by FY22, financed primarily by long-term concessional borrowing.

    The fiscal deficit is projected to remain elevated over the medium term. While revenue performance is expected to remain weak, additional spending on economic relief measures, vaccinations, and the resumption of project implementation will widen the fiscal deficit to just under 8 percent of GDP in FY22. Thereafter it is projected to stabilize at 6.5 percent of GDP in FY23 as revenues recover. Total public debt is expected to reach 41.9 percent of GDP in FY21 and gradually increase to 51.3 percent by FY23.

    The economic outlook is subject to downside risks. Delays in vaccination and/or new outbreaks of COVID-19 both domestically and globally would dampen prospects of economic recovery. The resumption of tourism would be delayed if international travel restrictions are imposed. Domestic risks include political uncertainty, which could undermine investment sentiment. On the upside, effective vaccination campaigns in Nepal and abroad could facilitate the resumption of tourism.

    Last Updated: Mar 31, 2021

    • 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. 

    As of March 21, 2019, 723,120 beneficiaries have been identified in 14 most affected districts. Out of this, around 90 percent of beneficiaries have signed the Grant Participation Agreement, almost all of whom have received the first tranche of payment. 522,934 beneficiaries have received the second tranche payment, while 396,441 have received the third tranche.

    Out of the beneficiaries, 361,153 are currently reconstructing their homes, receiving technical and monitoring support from the Nepal Reconstruction Authority (NRA). World Bank is facilitating this process of reconstruction by sending out bulk SMSes to the beneficiaries, advising them of the various processes and requirements of reconstruction. Similarly, the NRA has set up a toll-free 24-hour hotline to cater to the queries of beneficiaries regarding reconstruction. NRA is also collaborating with a few agencies to disseminate Public Service Announcements to ensure that beneficiaries acquire correct and timely information on the reconstruction and monitoring procedure.  


    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 $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. 

    Economic activity in Nepal, which rebounded strongly in FY2017, reaching 7.5 percent (y/y) following two challenging years, has again been impacted by severe flood affecting more than one-third of the country, as indicated in the latest Nepal Development Update (October 2017).

    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) $200 million from IDA’s Crisis Response Window; (ii) $100 million credit from JICA for parallel financing; (iii) $30.56 million in a World Bank-administered Multi-Donor Trust Fund (USAID – $9.6 million, Switzerland - Swiss Francs 7 million, Canada – CAN$ 10 million and United Kingdom, DfID – GBP 4.8 million). Out of $30.56 million committed under MDTF, $26.59 million has been received; (iv) about $200 million earmarked by I/NGOs for the sector; and (v) $50 million from the World Bank’s budget support. 

    Last Updated: Apr 03, 2019


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

*Amounts include IBRD and IDA commitments

Additional Resources

Country Office Contacts

Yak and Yeti
Hotel Complex
Durbar Marg
Kathmandu, Nepal
+977 1 4236000
+977 1 4226792