Though Nepal has made a remarkable progress in reducing poverty -- with extreme poverty nearly eradicated, the country must prioritize policy reforms to unlock its economic potential and achieve sustained growth, a World Bank report says.
Titled “Nepal Country Economic Memorandum: Unlocking Nepal's Growth Potential 2025,” the report noted that the country’s economic growth has been slow compared to regional peers.
From 1996 to 2023, Nepal’s economy grew at an average annual rate of just 4.2%, placing it sixth out of eight South Asian nations.
Structural issues such as declining exports, stagnation in the industrial sector, and low productivity, have impeded progress and limited employment opportunities in non-agricultural sectors, resulting in the exodus of youths for overseas jobs.
“Nepal’s success in poverty reduction is remarkable, but the country has yet to fully tap into its economic potential,” said David Sislen, the World Bank’s Country Director for Maldives, Nepal, and Sri Lanka. “There is significant potential for strong economic growth through better utilization of migration benefits, enhanced exports, hydropower development, and digitalization.”
The report also underscores the Government of Nepal’s commitment to fostering economic growth.
“The 16th periodic plan of the Government of Nepal presents a vision of good governance, social justice, and prosperity,” said Professor Dr. Shivaraj Adhikari, Vice Chairman of the National Planning Commission. “It prioritizes productivity, competitive capacity, dignified employment, social security, and the smooth transition from least developed country (LDC) status.”
A key area of concern highlighted in the report is the need to enhance the benefits of labor migration. The World Bank recommends strengthening the migration system to better utilize the country’s labor force abroad and reintegrate returnees through entrepreneurship programs and skill development initiatives.
Improving export competitiveness is another priority. The report calls for measures to enhance market competition, address infrastructure gaps, simplify tax refund processes, and reduce import tariffs.
As Nepal’s preferential trade privileges under its LDC status begin to phase out, the report urges the government to negotiate new trade agreements to maintain its competitive edge.
Nepal’s untapped hydropower potential also represents a critical asset, according to the World Bank. To attract investment in this sector, the country needs to develop a clear financial strategy for hydropower, create a local bond market, and streamline licensing procedures for public-private partnerships. Strengthening regulatory frameworks will be key to attracting more investment and improving the electricity market.
The report also advocates for the promotion of digital transformation in Nepal. This includes revising the Telecommunications Act, adopting a national digital strategy, and expanding digital infrastructure.
Additionally, the report calls for increased focus on digital literacy by integrating digital skills into education curricula and offering specialized training to equip the workforce for the digital economy.
