While neighboring countries like India and China have been growing at unprecedented rates, Nepal's economic growth has remained sluggish for years. Even though the global economy has rebounded following the COVID-19 pandemic, Nepal continues to stagnate. India and China have consistently posted growth rates of 5% or higher, while Nepal struggles with a prolonged economic slowdown hampered by internal and external challenges. Leadership appears directionless, offering empty promises of prosperity that have only deepened public frustration and eroded business confidence.

Small Nations Outpacing Nepal

Comparisons with economic giants like India and China may seem unfair, given differences in geography, demography and economies of scale. However, many smaller countries, also dependent on agriculture and vulnerable to natural disasters, are now outperforming Nepal. Countries like Laos, Cambodia, Bhutan, Bangladesh, Vietnam, Rwanda and Ethiopia have achieved impressive growth by targeting niche sectors. Bhutan, for example, has focused on hydropower and tourism, while Cambodia has built its economy around manufacturing and tourism and Rwanda has prioritized agriculture and tourism.

It is fair to say that the people of these countries are now richer because these nations have made significant economic progress. Despite setbacks, Nepal holds considerable promise. More than 50% of the country’s population is youthful, and over 70% is literate. The country is blessed with natural resources, including over 42,000 MW of commercially viable hydropower projects. As the birthplace of Lord Buddha and home to eight of the world’s ten tallest mountains, Nepal also has vast untapped potential in tourism. These demographic and natural resources advantages should ideally position Nepal for rapid growth.

Learning from Cambodia

Cambodia provides an important example of how a nation can overcome a tumultuous history to achieve rapid economic growth. Despite its devastating civil war and the brutal Khmer Rouge regime, Cambodia revived its economy through liberal economic policies that attracted private investment in infrastructure, manufacturing and tourism. From 2000 to 2019, Cambodia maintained growth rates of 7–9%.

In contrast, Nepal initiated economic liberalization in the early 1990s with the return of multiparty democracy. However, political instability and corruption following the Maoist insurgency derailed opportunities for sustained growth. Instead of focusing on development, the political landscape became consumed with factionalism which further hindered growth.

A Ray of Hope

Amid this bleak economic situation, the report of the Khanal Commission has given some hope. The report offers a detailed and pragmatic roadmap for economic recovery. It has identified agriculture, tourism, energy and manufacturing as priority sectors, and provided concrete recommendations for their growth. For the agriculture sector, the commission has suggested promoting integrated and contract farming to boost productivity. Likewise, it has recommended that the government focus on high-value tourism and develop underutilized destinations to exploit the country’s tourism potential. Similarly, the commission has advised the government to encourage private investment in the infrastructure sector, with a focus on airports, highways and energy projects. Additionally, the report has suggested utilizing global funding mechanisms like the climate fund and domestic resources such as pension and insurance funds to finance infrastructure development.

Implementation Challenges

While the Khanal commission’s report presents an optimistic roadmap, Nepal's history of ignoring key recommendations has raised concerns. Previous study reports, such as the Public Expenditure Review Commission (PERC) report of 2023, which called for the elimination of redundant government bodies, have been largely disregarded. Given the frequent government changes and bureaucratic transfers, there is a risk that the Khanal report will meet the same fate.

To avoid this, the cabinet must establish a dedicated implementation body with strong private sector representation to drive progress and ensure accountability

Hope Hinges on Action

The Khanal commission’s report lays out a clear and viable plan for Nepal’s economic revival. However, its success will depend on political will and effective execution. The coming months will reveal whether Nepali leadership will rise to the challenges and finally break the cycle of stagnation. There is hope but it must be matched by action.

(This opinion article was originally published in  May 2025  issue of New Business Age Magazine.)