flag Nepal Nepal: Economic Outline

Economic Indicators

Nepal is among the least developed countries in the world, with a quarter of its population below the poverty line. Reliant on remittances (one-fourth of GDP) and agriculture, political uncertainty and a tough business environment prevent Nepal from growing in other sectors. Nonetheless, over the past decade, Nepal's economy has maintained an average growth rate of 4.5%, despite being disrupted by four major external shocks: the 2015 earthquake, the 2016 India blockade, a landslide in 2017, and the COVID-19 pandemic in 2020. As per the World Bank, following a 1.9% growth in FY23, high-frequency indicators suggest an improvement in growth during the first half of FY24 compared to the same period one year earlier. Industrial growth was boosted by increased hydropower generation, while services experienced gains, notably from a 46.8% year-on-year rise in tourism arrivals. Agriculture also saw growth attributed to increased paddy production. Growth is expected to rebound from 1.9% in FY23 to 3.3% in FY24, and further accelerate to an average of 5% in FY25-FY26, aided by monetary policy easing. The services sector is anticipated to continue being the main contributor to real GDP growth and job generation over the medium term.

In FY23, the fiscal deficit widened to 6.2% of GDP due to reduced revenues resulting from import restrictions. However, in H1FY24, the deficit decreased, driven by improved income tax collections following provisions in the FY24 budget requiring banks and financial institutions to pay income tax on profits from mergers or acquisitions and issuance of Further Public Offerings at a premium rate. Additionally, decreased expenditure, partly due to lower capital budget execution and austerity measures, contributed to the decline in the deficit. Despite tax reforms, tax revenues are expected to decline further in FY24 due to lower merchandise imports and revenue loss from reduced tax rates on electric vehicle imports. Spending is forecast to decrease, led by lower capital spending and reduced fiscal transfers to subnational governments and administrative spending. The overall fiscal deficit is projected to narrow to 3.1% of GDP in FY24. Revenues are expected to grow over the medium term, buoyed by strong GDP and merchandise imports growth. Public investment is anticipated to increase post-FY24, supported by the National Project Bank implementation. The fiscal deficit is expected to further narrow in FY25 and FY26, stabilizing the debt below 41% of GDP by the end of FY26 (data World Bank). Average inflation moderated to 6.5% in H1FY24 from 8% in H1FY23, primarily due to a decrease in transportation and housing and utilities prices. Nevertheless, inflation expectations remain persistent, with consumer price inflation anticipated to stay elevated in FY24 compared to the FY17-23 average. Although Nepal has made progress, including attaining lower-middle-income country status in FY20, its per capita income level remains below that of its peer countries. Persistent challenges such as low productivity and fiscal pressures from transitioning to fiscal federalism hinder progress. Additionally, sluggish private sector growth, geographic and environmental challenges, weak international competitiveness, and governance issues pose further obstacles.

Nepal remains a poor country that is geographically, financially, and commercially landlocked and endures high unemployment (11% in 2023 as per the World Bank estimates). Most of its population lives off subsistence farming, with almost 5 million people being undernourished, and Nepal’s labor regulations remain obsolete. Between FY11 and FY23, there was a notable decrease in the poverty rate by 21.6 percentage points to 3.6%. Remittances played a significant role in poverty reduction, contributing approximately 32%.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 40.8341.0244.1848.9053.92
GDP (Constant Prices, Annual % Change) 5.60.83.15.25.2
GDP per Capita (USD) 1,3371,3201,3971,5201,647
General Government Gross Debt (in % of GDP) 43.140.343.044.244.9
Inflation Rate (%) 6.37.86.35.65.5
Current Account (billions USD) -5.17-0.560.64-0.98-1.18
Current Account (in % of GDP) -12.7-1.41.5-2.0-2.2

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

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 62.3 16.1 21.6
Value Added (in % of GDP) 21.1 12.0 52.3
Value Added (Annual % Change) 2.2 10.8 5.3

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

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Sources of General Economic Information

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

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Latest Update: May 2024

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