flag Nepal Nepal: Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Nepal is among the least developed countries in the world, with a quarter of its population below the poverty line. Reliant on remittances at 22,5% of GDP in 2021 (The Statesman, 2022) and agriculture, political uncertainty and a tough business environment prevent Nepal from growing in other sectors. Nonetheless, growth between 2017 and 2019 rose significantly above long-term averages amid greater political stability, improved electricity supply and reconstruction activity. The economy expanded by 6.7% in 2019, but the growth rate dropped to -2.1% in 2020 as a result of slower economic activity in India and the outbreak of the COVID-19. GDP growth reached +1.8% in 2021 and is expected to pick up to 4.4% in 2022 and 6.3% in 2023, subject to the post-pandemic global economic recovery (IMF, 2022).

In 2021, tourism (10% of GDP) was at a standstill. In 2022, growth should be driven particularly by services (60% of GDP), thanks to a recovery in the hotel and tourism industries, by agriculture, which will be boosted by government investment programmes in irrigation, and by industrial activity, in areas including textiles, carpets, cigarettes and cement (Coface, 2022).

Nepal's public debt has risen in the past years, hitting 42.2% of GDP in 2020, against 33.1% a year earlier and then 46.7% in 2021. This trend is expected to continue, with debt-to-GDP forecast to reach 52.7% by 2022 and 55.2% by 2023. Inflation was projected to have risen to 6.2% in 2020, mainly because of higher food prices and increased import duties on certain agricultural and industrial imports. It reached 3.6% in 2021 and is expected to be around 5.7% in 2022 and in 2023 according to the latest World Economic Outlook of the IMF. Current account deficit amounted to -1% of GDP in 2020, from  -6.9% a year earlier and then -8.3% of GDP in 2021. Nepali migrant workers sent home USD 7.97 billion in 2021, making the country one of the biggest beneficiaries of remittance in the world. In 2020, Nepal has lost aver Rs145 billion (EUR 1,04 billion) in remittance, a drop of 14% attributed to the global economic slowdown triggered by the coronavirus outbreak as well as fall in oil prices (World Bank, 2021). This trend is anticipated to persist in the short-term, with the deficit forecast to widen to USD 2.37 billion by the end of 2021 according to the latest data.

Nepal relies heavily on the agricultural sector, which accounts for one quarter of GDP (23.1% in 2021) but gives employment to 64.4% of the workforce in 2021; while the industrial activity is involved mainly in the processing of agricultural products. Nepal has considerable potential in hydropower, which remains largely untapped due to the uncertain political situation that hampers foreign investment. Risk factors include a political gridlock, a landlocked geographical location, unreliable electricity supply, and underdeveloped transport infrastructure as well as a difficult regulatory environment that constrains the private sector. Some financial institutions remain at risk of insolvency due to inadequate risk management practice, poor corporate governance, and high credit exposure. Despite support from the IMF, the country suffers from significant gaps between governance and over-rapid credit expansion.

Nepal remains a poor country that is geographically, financially and commercially landlocked and endures a high unemployment (almost 40%, but only 3.6% in 2021 if informal work is taken into account, though many are underemployed). Most of its population lives off subsistence farming, with almost 5 million people being undernourished, and Nepal’s labour regulations remain obsolete. The estimated poverty ratio (ratio of people living under USD 1.90 per day) declined to 8% last year from 25.2% in 2010 (Asian Development Bank).

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 34.1933.98e34.2736.3039.38
GDP (Constant Prices, Annual % Change) 6.7-2.11.84.46.3
GDP per Capita (USD) 1,2011,1781,1731,2261,313
General Government Gross Debt (in % of GDP) 33.142.246.752.755.2
Inflation Rate (%) 4.66.23.65.85.8
Current Account (billions USD) -2.37-0.34-2.84-2.43-2.20
Current Account (in % of GDP) -6.9-1.0-8.3-6.7-5.6

Source: IMF – World Economic Outlook Database - October 2021.

Note: (e) Estimated Data


 
Monetary Indicators 20162017201820192020
Nepalese Rupee (NPR) - Average Annual Exchange Rate For 1 GBP 145.09134.51145.33141.13149.12

Source: World Bank - Latest available data.

 

Main Sectors of Industry

Agriculture accounted for 27% of GDP in 2017 and employed 69% of the population in 2017. Main products included pulses, rice, corn, wheat, sugarcane, jute, root crops, milk, and water buffalo meat.

Industry accounted for 13.5% of GDP in 2017 and employed 12% of the population in 2015. Production included carpets; textiles; milling of small rice, jute, sugar, and oilseed; cigarettes; and production of bricks and cement.

Services accounted for the remaining 51.5% of GDP in 2017 and employed 19% of the population in 2015. Tourism is a major factor in this sector.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 64.4 15.1 20.5
Value Added (in % of GDP) 23.1 11.8 53.3
Value Added (Annual % Change) 2.2 -3.7 -4.0

Source: World Bank - Latest available data.

 

The Active Population in Figures

201820192020
Labour Force 16,094,06116,612,85916,017,418

Source: International Labour Organization, ILOSTAT database

 
201720182019
Total activity rate 85.30%85.48%85.66%
Men activity rate 86.02%86.03%86.11%
Women activity rate 84.75%85.07%85.30%

Source: International Labour Organization, ILOSTAT database

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
50,7/100
World Rank:
157
Regional Rank:
35

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

See the country risk analysis provided by Coface.

 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Partly Free
Political Freedom:
3/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
106/180

Source: World Press Freedom Index, Reporters Without Borders

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Sources of General Economic Information

Main Online Newspapers and Portals
The Kathmandu Post
Nepal Newspapers and News Sites
Nepal News
Nepali Times
Useful Resources
Ministry of Finance
Ministry of Industries, Commerce, and Supplies
Nepal Rastra Bank
 
 

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Latest Update: June 2022

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