The World Bank (WB) has cautioned that Nepal might struggle to achieve a long-term growth rate beyond four percent in the coming years if necessary corrective measures are not implemented.
This warning was outlined in the WB’s report, Unlocking Nepal’s Growth Potential: Nepal Country Economic Memorandum 2025, released on Monday. Amid Nepal’s prolonged economic slowdown, the report’s baseline projections estimate that potential long-term real growth will hover around four percent.
Between 1996 and 2023, Nepal’s average economic growth rate stood at 4.2 percent annually. However, the government, through its 16th periodic plan, has set an ambitious target of 7.1 percent annual growth by 2029. The WB warns that without corrective actions, the growth rate could remain at four percent or even lower.
The report highlights Nepal’s remarkable progress in poverty reduction, primarily driven by remittance inflows. In 1995, 55 percent of Nepalis lived in extreme poverty (below $2.15 per day). By 2023, this figure had dropped to just 0.37 percent—an achievement unparalleled among Nepal’s peers.
Large-scale labor migration significantly increased remittance inflows, with remittances accounting for around a quarter of Nepal’s GDP by 2023. These inflows have played a crucial role in sustaining the economy and lifting many out of poverty.
To achieve higher economic growth, the WB stresses the need for reforms in four key areas:
- Addressing structural challenges that hinder economic growth and job creation.
- Overcoming shortcomings in current policies.
- Unlocking opportunities in high-potential sectors.
- Supporting private sector development and building the capabilities needed for growth.
According to the report, Nepal’s overall labor productivity remains low. Weak competition in logistics and transport, along with inadequate infrastructure, has limited exports and hindered economic expansion.
The manufacturing sector has been in steady decline, while the tourism industry—despite its potential for growth and job creation—remains underdeveloped. Hydropower development has been slow, restricting its economic impact. Additionally, limited infrastructure, regulatory hurdles, and digital literacy gaps are slowing Nepal’s digital transformation.
The WB also warns that Nepal risks lagging behind other countries if its current growth trajectory persists. At the existing pace, Nepal’s income level would reach only 65 percent of its structural peers’ levels and less than one-third of its aspirational peers’ by 2050. Bridging this gap requires a decisive policy shift to achieve and sustain higher growth, the report concludes.
