AT A GLANCE
Nepal’s poverty reduction story over the last 30 years is nothing short of remarkable; its US$2.15 poverty rate fell from over 55 percent in 1995 to 0.37 percent in 2022, a feat as impressive as almost any country in history. Yet, it has done so without transformative domestic growth, investment, or job creation. Nepal’s greatest challenge now is to realize its full potential by building an economy that creates sustained domestic growth and jobs.
Nepal’s reliance on remittances – which has been such an important element in the country’s poverty reduction story – has been central to the country’s growth but has not translated into quality jobs at home, reinforcing a cycle of lost opportunities and the continued departure of many Nepalis abroad in search of employment. A staggering 82 percent of Nepal’s workforce is in informal employment, far higher than global and regional averages.
Nepal is also highly exposed to natural disasters and climate shocks – it is the second most vulnerable country globally to mortality risk from multiple hazards, including earthquakes, natural disasters (including those exacerbated by a changing climate), and disease outbreaks. Growth and development in Nepal cannot happen without sustained efforts to reduce risks, prepare for crises, and build resilience across the economy to these threats.
COUNTRY CONTEXT
Ten years after a Comprehensive Peace Agreement ended the conflict in Nepal, the 2015 Constitution restructured the country from a unitary state under a monarchy into a federal democratic republic. The 2015 Constitution introduced a three-tiered system of public administration comprising a federal government, seven provincial governments, and 753 local governments. Nepal’s political system is characterized by a multi-party democracy and, since the onset of democracy, governments have been coalition-based.
The rollout of the federal public administration structures has begun in earnest, but serious implementation challenges persist. Since the adoption of the 2015 Constitution and the country’s transition to federalism, some progress has been made in establishing institutional structures, adopting key legislation, and building the core blocks of public financial management. At the same time, building a fully functioning federal system has been slow, with key legislative reforms still pending and roles and responsibilities often not fully defined. Challenges persist in establishing a fiscal system that fully aligns with the needs of the new federal structure. Additionally, broader political challenges hinder the administrative and policy decisions required to help the system reach its full potential.
RECENT DEVELOPMENTS
Nepal experienced its worst unrest in decades in September 2025. A social media ban triggered protests against corruption, followed by widespread unrest causing significant human and economic losses. The damage to public and private infrastructure is still being assessed. An interim prime minister was appointed in September with the objective of organizing elections in March 2026. The protests reflected frustration with governance and deeper discontent over the lack of economic opportunities for Nepal’s youth. This lack of opportunity stems from structural weaknesses holding back private enterprise, including a complex and uncertain business environment, corruption, high trade and transport costs, and inadequate infrastructure. As a result, growth has been slower than peers—averaging 4.3 percent over FY12–24—and job creation has been limited. Youth unemployment reached nearly 22.7 percent in FY23, one of the highest levels in South Asia. Labor migration has become a dominant livelihood strategy and remittances—which average nearly one-quarter of GDP—have sustained basic consumption. Prior to these developments, economic growth had increased to 4.6 percent in FY25, up from 3.7 percent in FY24. Activity was supported by robust hydropower production, a rebound in industrial output, and a pickup in agricultural activity.
OUTLOOK
In Nepal, recent unrest and heightened political and economic uncertainty is expected to cause growth to decline to 2.1 percent in FY25/26, with a potential range of 1.5–2.6 percent. International tourist arrivals are expected to decline sharply and asset losses will affect the insurance industry. Weaker investor confidence is expected to impede private investment and nonhydro construction. Delayed rainfall in a major rice-producing province will hamper the agricultural sector. Reconstruction efforts are expected to support the recovery in FY26/27 and gain momentum in FY27/28.
Last Updated: Oct 09, 2025
