Nepal’s Last Chance to Harness Its Demographic Dividend

A child born in Nepal today is projected to achieve only half of his/her potential productivity as an adult, according to the Nepal Human Capital Review (NHCR), a new World Bank report titled “Nurturing Nepali Talent to Foster Economic Growth”. Factoring in employment realities, that figure plummets to just 18 percent.

The country’s Human Capital Index (HCI) score stands at 0.51, meaning that by the age of 18, a Nepali child will reach only half of their productivity potential under current conditions. When labor utilization is considered, the Utilization-Adjusted Human Capital Index (UHCI) drops sharply to 0.18, one of the lowest in the world.

“These findings show that Nepal is significantly underinvesting in its people,” the report notes. “If current trends persist, the country will fail to harness its demographic dividend and face a substantial loss of potential.”

Economist Keshav Acharya agrees with the report’s findings. “Nepal was ahead of some South Asian countries in human capital even during the insurgency years. But things weakened due to excessive politicization of education and health services. Appointments in universities and medical institutions are still treated as political prizes. The first step must be de-politicization,” he said.

Roadblocks: Education, Health, and Jobs

Nepal has made progress in higher school enrollment, life expectancy and survival rates. However, the quality gap is alarming. Students average 12.3 years of schooling, yet this translates into only 7.2 years of effective learning. Dropout rates are high, especially in poorer provinces, and many students leave school without basic literacy or marketable skills.

Healthcare faces parallel shortcomings. Nearly one in four children under five is stunted. Non-communicable diseases now account for 70% of deaths. No tier of Nepal’s health system currently meets minimum standards.

Even when young Nepalis do acquire skills, the labor market offers limited opportunities to apply them. Over 80% of jobs are informal, insecure and poorly paid. Women, despite matching men in education levels, utilize only 12% of their potential compared to 26% for men.

“Skills and the labor market in Nepal are not aligned,” said Jeevan Baniya, Deputy Director of Social Science Baha. “Most courses don’t match market needs. Without on-the-job training, upskilling and soft skills, students remain unemployable. Globally, the private sector drives 80 percent of human capital investment. Without its involvement, Nepal will struggle.”

Structural Challenges Behind Low UHCI

The NHCR has pointed out that Nepal’s human capital crisis is not simply the result of low spending, but of how resources are managed. Public investments in education and healthcare are poorly allocated, often leaving local governments without the means to deliver essential services effectively. At the same time, entrepreneurs and small businesses, the very engines of job creation, struggle to access capital which stifles economic growth and opportunities for young workers. Adding to these hurdles is a patchwork of social protection programs that remain fragmented and poorly coordinated, limiting their ability to help families accumulate and utilize human capital in a sustainable way. Together, these constraints form a bottleneck that holds back Nepal’s potential.

The labor force participation rate in Nepal stands at just 39%, lower still for youth (28%) and women (26%). More than 12 million working-age Nepalis are inactive in the labor market; 57 percent of them engage in unpaid subsistence work. In 2021, over a third of youth aged 15–24 were Not in Education, Employment, or Training (NEET), particularly in Madesh and Karnali provinces.

This underutilization is unequal across provinces. Children born in Bagmati are projected to utilize 27% of their potential, compared to only 12% in Karnali and Sudurpaschim.

Migration: A Double-Edged Lifeline

With limited opportunities at home, migration has become the default option for youths. Remittances have reduced poverty, but they have also drained talent from domestic industries and deepened reliance on external labor markets. Families are separated, and young people’s aspirations remain tied to foreign labor rather than local growth.

A Narrowing Window of Opportunity

Nepal’s working-age population is expected to expand significantly by 2050, creating a potential demographic dividend. But this dividend is not automatic. To harness it, Nepal must generate 6.5 million jobs in the next 30 years. If job creation continues at the current pace, the dividend could quickly turn into a demographic burden.

Prof Dr Shiva Raj Adhikari, Vice Chairperson of the National Planning Commission (NPC), said that the government was shifting from policy-making to implementation. “We are aligning our plans with the 15th Development Plan, the LDC graduation strategy and the SDGs. Since financing has remained a challenge for us, we are exploring alternatives such as blended financing, viability-gap funding and bonds,” he added.

Adhikari also warned against politicization. “Political debate provides guidance, but when teachers or professionals are forced to act as party cadres, it becomes destructive,” he added.

The Way Forward: Investing in People

The World Bank and experts agree that Nepal’s future depends on urgent reforms.

The NHCR urges Nepal to act decisively, beginning with smarter and more substantial investments in education and health. It calls for narrowing the wide gaps in service delivery between provinces so that children in Karnali or Sudurpaschim have the same opportunities as those in Bagmati. To spur job creation, the report emphasizes expanding access to credit and training for micro and small enterprises, which form the backbone of the economy. It also stresses the need to open more doors for women and youth, whose talents remain underutilized in the labor force. Finally, the report warns that progress will be fragile unless Nepal strengthens its resilience against climate change, pandemics, and natural disasters, threats that could undermine decades of hard-won gains.

If Nepal invested effectively in its people and created quality jobs, GDP per capita could rise five and a half times higher than current projections. “Teachers became more like party cadres than professionals. Incentives rewarded shirking and corruption, not quality outcomes,” said Acharya.

Baniya said the government alone cannot meet the demand. “The private sector must invest in training and orientation according to its needs,” he said.

The Message Is Clear

Nepal’s demographic dividend is both an opportunity and a warning. Without de-politicization, smart investment and meaningful reforms, millions of young Nepalis, who dream of becoming a doctor, will see their aspirations wasted. But if the country invests wisely in its people, those dreams could multiply into national prosperity.

This article was originally published in September 2025 issue of New Business Age magazine.