The Asian Development Bank has projected a sharp slowdown in economic growth for Nepal in the upcoming fiscal year, warning that political instability and the ongoing conflict in the Middle East could continue to affect tourism, remittances, and energy prices.
In its latest Asian Development Outlook, the ADB estimated the economy will grow by 2.7 per cent in fiscal year 2026, down from 4.6 per cent in FY2025. The bank expects growth to recover to 5 per cent in FY2027 if political conditions stabilise and external shocks ease.
According to the report, rising global oil prices linked to tensions in the Middle East have already increased costs for transportation, construction, and tourism-related businesses. Development projects have also been affected by higher fuel prices and supply disruptions.
ADB officials said the forecast was prepared under the assumption that the conflict would stabilise quickly, but recent developments suggest disruptions may continue longer than expected. Inflation is projected to rise to 3.7 per cent in FY2026 and further increase in FY2027 as domestic demand strengthens.
The report also warned that remittance inflows from Gulf countries could weaken if the conflict continues. Nepal’s current account surplus is expected to narrow as imports rise and tourism earnings face pressure during peak travel seasons.
The World Bank has issued a similarly cautious outlook, projecting economic growth of 2.3 per cent for FY2026. It identified the lingering effects of domestic unrest in late 2025 and external geopolitical tensions as major risks.
Despite the slowdown, both institutions said sectors such as hydropower, tourism, digital services, and infrastructure investment could help support recovery in the coming years if reforms and political stability continue.