The World Bank projects that political instability following the Gen Z movement in September and subsequent developments will slow Nepal’s economic growth. Nepal’s growth rate is projected to fall from 4.6 per cent in the fiscal year 2025/26 to 2.1 per cent in 2026/27.
In the following two fiscal years, reconstruction work is expected to boost growth to around 4.7 per cent, according to Nepal Development Update from the World Bank.
The service sector is expected to be the most affected. However, the World Bank noted that these projections remain uncertain. If political transitions succeed and sustainable economic management is guaranteed, it could encourage investors and accelerate economic recovery. On the negative side, continued uncertainty may discourage investors.
In the report’s launch event on Thursday, Finance Minister Rameshwar Khanal stated that the government has launched an integrated business revival plan to restore business confidence and accelerate recovery, which includes grants, tax exemptions, and operational support.
He added that priority has been given to public resources for infrastructure reconstruction and election preparation, and a reconstruction fund has been established to rebuild damaged public and private property. These measures aim to lay the foundation for a strong economy while reviving private sector activities, Minister Khanal said.
Beyond immediate activities needed for recovery, the report emphasizes the need to strengthen public investment management for sustainable economic growth.
In FY 2024/25, total capital expenditure by federal, provincial, and local governments was 7.9 per cent of GDP, which is significantly below the investment needed to meet Nepal’s infrastructure requirements. To meet Nepal’s infrastructure needs, investment equivalent to 10–15 per cent of GDP is required.
“Increasing public investment is crucial to improve Nepal’s economic growth, create jobs, and ensure prosperity for all Nepalese,” said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. “This requires implementing several key measures.”
These measures include strengthening project preparation and budgeting, streamlining land acquisition and tree-cutting processes, improving financial management, and revising public procurement laws and regulations. These steps will help complete projects more efficiently.
