Kathmandu, March 24: The World Bank has stated that although poverty in Nepal has decreased significantly in the last three decades due to remittances and migration, domestic economic growth has been very weak.
Releasing the ‘Nepal Country Economic Memorandum, 2025’ report, the World Bank has suggested that Nepal should explore and take advantage of domestic opportunities to achieve strong economic growth. The report concludes that although there is immense potential to benefit from sectors such as exports, hydropower generation, tourism, information technology, etc., Nepal is missing out on these opportunities. Although remittances and migration play a significant role in poverty alleviation, Nepal has not been able to benefit further from these sectors in terms of investment in productive sectors and domestic employment creation, the World Bank has also stated.
“Nepal has made remarkable progress in poverty alleviation over the past three decades. In 1995, about 55 percent of Nepalis were facing extreme poverty, but by 2023, this number had decreased by 54.8 percent. However, this poverty reduction was not due to rapid economic growth but mainly due to the impact of migration and remittances,” the report said. “From 1996 to 2023, Nepal’s economy grew by an average of only 4.2 percent annually. Nepal’s growth rate ranks sixth in South Asia.” The report noted that there are several structural challenges within Nepal to achieving high economic growth.
Nepal’s exports of goods and services are contributing very little to economic growth. Although there is good potential to benefit from increased exports, there are legal, policy and structural obstacles to doing so, the World Bank said. “High production costs, weak competition and slow infrastructure development have hampered economic growth. Although the potential for hydropower is high, its development is relatively slow. Weak infrastructure, regulatory challenges and lack of digital literacy are among the obstacles to increasing the use of technology,” the report said.
The report also states that the existing policies are not sufficient to achieve the ambitious economic growth targets set by Nepal every year. The 16th Periodic Plan currently in implementation has projected an annual GDP growth of 7.1 percent by 2029. However, according to the baseline projection, the World Bank has stated that the potential growth rate in the coming years will be only around four percent. The report has identified opportunities for economic growth to fulfill Nepal’s development aspirations. “It is necessary to increase exports along with promoting the private sector. If sectors such as hydropower, tourism, and digital services can be promoted, Nepal can create sufficient employment opportunities,” the report says. It is suggested that policymakers should keep these issues in mind to move Nepal towards long-term economic growth and prosperity. The World Bank has also warned that if domestic production and productivity cannot be increased through skills development, strengthening institutional capacity, and improving the competitiveness of enterprises, the long-term potential economic growth rate may fall below four percent.
The report also provides suggestions for Nepal’s economic development, including identifying areas where further benefits can be derived from the migration sector, analyzing the impact of foreign exchange rates and trade policies on Nepal’s exports, and the potential for hydropower and digitalization. Political instability, natural disasters, and external dependence have been cited as reasons for Nepal’s economic growth not growing as expected. The report states that Nepal’s per capita gross national income grew by an average of only 7.3 percent annually between 1996 and 2023. Similarly, the number of new migrant workers receiving work permits during this period exceeded 6.6 million, which is more than seven percent of the total population.
The report also states that exports and the industrial sector have made a low contribution to economic growth during this period. “Exports in Nepal have not been able to make a significant contribution to economic growth. The manufacturing sector, which is the main source of economic growth in other developing countries, is continuously declining in Nepal,” the report says. “Nepal has yet to create economic growth and employment through exports of goods and services. Overall productivity is still low and has not been able to contribute to economic growth.” It is stated that the high cost of goods produced in Nepal has prevented it from competing in the international market, which has reduced exports. The geographical structure and weak physical infrastructure have been shown to be factors in the high cost of production. Similarly, the report states that more than 80 percent of the total labor force is involved in the informal sector, making it formal and increasing productivity in the non-agricultural sector will be important steps for Nepal’s economic growth.
The World Bank has suggested that policies related to migration should be improved as it is likely to remain a key sector for Nepal’s economic development in the coming years. The high cost of going abroad for employment has created financial problems for workers and their families, and migrant workers have to rely on loans taken at high interest rates. Similarly, the report states that the absence of family members who have gone abroad will affect the social and family life of the remaining family members and will lead to a decline in the labor market participation of women in particular. Similarly, the report also suggests that initiatives should be taken to address the problems of most migrant workers being forced to work in difficult jobs and not having access to health services or social security.
The World Bank has also identified the issue of retaining and integrating returnees into employment as a serious problem. “Returnees find it difficult to integrate into the local labor market because the skills they acquire abroad do not match the demands of the domestic labor market. According to Nepal’s 2017-18 Labor Force Survey, 14.3 percent of returnees are unemployed and 41.5 percent are outside the labor market,” the report said.
The report has revealed that Nepal is utilizing only about four percent of its potential in the hydropower sector. The World Bank has suggested that the necessary investment can be attracted by formulating a clear financial strategy for hydropower development. Under this strategy, it is stated that it is necessary to develop a local savings bond market and create an effective framework for large public-private partnership (PPP) projects. In addition, the World Bank has suggested that Nepal’s electricity market structure should be improved by reducing administrative burdens and simplifying the licensing process, as well as strengthening the regulatory and legal framework, to attract more investment. The World Bank report also recommends revising the Telecommunications Act, adopting a digital strategy, and developing digital infrastructure to bring about rapid improvements in Nepal’s digital sector. Since digital literacy is a major challenge in Nepal, it has been suggested that digital skills should be included in the school curriculum and training should be conducted for different age groups based on demographic characteristics.
Speaking at the report launch, Vice Chairman of the National Planning Commission, Prof. Dr. Shivaraj Adhikari, said that Nepal is ready to make all kinds of policy and structural reforms to achieve the economic growth target set by the existing periodic plan. “The Sixteenth Periodic Plan has presented a vision of good governance, social justice and prosperity and has prioritized aspects such as productivity and competitiveness development, decent and productive employment, social security, and ensuring smooth upgrading from a least developed country. The Government of Nepal is committed to ensuring a conducive policy environment for sustainable economic growth,” he said.
Commenting on the report, Preeti Arora, World Bank’s operations manager for Maldives, Nepal and Sri Lanka, said that while Nepal has made good progress in poverty reduction over the past three decades, it has not been able to tap into its domestic economic potential. “Nepal has ample potential to achieve robust economic growth through reforms such as increasing the returns from migration, increasing exports, maximizing the use of hydropower and promoting technology,” she said.
