Nepal's economic growth is projected to accelerate to 5.1 percent in Fiscal Year (FY) 2025 from 3.9 percent in FY 2024, according to the World Bank’s latest report.

The Nepal Development Update: International Migration and Well-being in Nepal published by the World Bank on Wednesday mentions that the growth will be driven by anticipated high tourist arrivals, along with increased hydropower and paddy production.

Issuing a statement on Wednesday, the World Bank said that the private sector is expected to contribute to the country’s growth, as it is anticipated to benefit from the central bank’s loosening of monetary policy and easing of regulatory requirements. Nepal’s economy is projected to grow by 5.5 percent in FY 2026, the report added.

However, the report identifies multiple risks to the outlook, including heightened vulnerabilities in the financial system such as a rise in non-performing loans that may limit private sector credit growth, potential policy discontinuity that could deter investment, delays in the execution of the capital spending budget affecting infrastructure development, and regional instability and trade disruptions that could reduce tourism and domestic demand.

"Nepal's economy is on a gradual recovery path," the statement quoted Vice Chairman of the National Planning Commission Professor Dr. Shiva Raj Adhikari as saying.

"Our focus on enhancing capital expenditure, particularly by completing nearly finished projects, along with reforms in the budgetary process, will strengthen macroeconomic stability, boost domestic productivity, and create more jobs."

Shocks in migrant-receiving countries such as the Gulf Cooperation Council countries and Malaysia, could also slow growth, impacting international remittances that are crucial for raising household consumption, reducing poverty, and developing human capital, the report further said.

According to the World Bank report, migration from Nepal is costly, opportunities are unequal, and the process remains challenging for many. The report presents the latest evidence on the benefits and costs of Nepal’s emigration trend and highlights key policy interventions needed to build an inclusive migration management system aimed at ensuring sustainability and maximizing rewards.

“Maintaining growth momentum is key to Nepal’s development. This requires continued reform in critical areas such as infrastructure, governance human capital development, and developing an environment which encourages and supports the private sector,” said David Sislen, World Bank’s Country Director for the Maldives, Nepal, and Sri Lanka.

“Nepal has greatly benefited from remittances from overseas workers and improving the management of these inflows, better supporting Nepalis who choose to seek work abroad, and also building a vibrant domestic economy which allows for skilled Nepalis to be productive in Nepal is critical to the future of the country.”

The report added that an inclusive migration management system would establish a transparent recruitment process, better prepare migrants to go abroad, ensure the safety and mobility of migrants in those labor markets, plan for long-term skills and destination diversification, and create an economic environment conducive to harnessing the capital and skills of returnees.

According to the World Bank, the Nepal Development Update, produced biannually, provides an in-depth analysis of significant economic developments over the past year, contextualizing them within a longer-term and global perspective.