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%.

Monetary Indicators	2020	2021	2022	2023	2024
Nepalese Rupee (NPR) - Average Annual Exchange Rate For 1 GBP	151.72	162.48	154.32	164.21	170.92

Source: World Bank - Latest available data.

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Latest Update: October 2025