Nepal has achieved remarkable success in poverty reduction, nearly eradicating extreme poverty, largely driven by remittances. To strengthen future growth, Nepal should prioritize policy actions that unlock domestic opportunities, according to the World Bank’s Nepal Country Economic Memorandum: Unlocking Nepal’s Growth Potential, released today.

Despite progress, Nepal’s economic growth lags regional peers. Nepal's economy grew at an average annual real rate of just 4.2 percent between 1996 and 2023, ranking sixth out of eight South Asian nations. Structural challenges such as low productivity, declining exports, and a stagnant industrial sector have held back the economy and led to slow job creation in non-agriculture sectors. Young workers are migrating abroad in search of better job opportunities as domestic prospects remain limited.

“Nepal's success in poverty reduction is impressive, but its economic potential remains largely untapped,” said David Sislen, World Bank Division Country Director for Maldives, Nepal, and Sri Lanka. “Nepal has significant potential to drive stronger growth and create jobs by implementing key reforms to increase the returns from migration, boost exports, use hydropower efficiently, and boost digitalization.”

“The 16th Plan for Nepal outlines a vision of good governance, social justice, and prosperity and prioritizes productivity and competitiveness, decent and productive jobs, social security, and ensuring a smooth transition from LDC status. The government is committed to ensuring an enabling policy environment for Nepal’s sustainable growth," said Honorable Vice Chairman of the National Planning Commission, Professor Dr. Shiva Raj Adhikari.

The Nepal Country Economic Memorandum produced every five years, offers a roadmap for faster growth in key sectors. It recommends policy actions in four critical areas to unlock Nepal's economic potential.

Getting more out of migration: A systematic and institutionalized migration system can enhance the returns from migration. Integrating migration into national development, job creation, and poverty reduction strategies will provide a platform to work towards such a system. Policies should focus on reducing the cost and increasing the benefits and safety for current low-skilled migrants, while also eyeing longer-term skill and destination diversification. Expanding and better implementing bilateral labor agreements will be critical. Initiatives promoting entrepreneurship and retraining and reskilling programs would allow returning migrants to reintegrate into the domestic labor market.

Improving export performance: Improving market competition in key sectors and addressing infrastructure deficits can boost exports. Better managing inflationary pressures would address the erosion of exporters’ price competitiveness. Encouraging people to use remittances for investments and business growth could help ease inflation. Simplifying the process for businesses to get tax refunds on imported materials and lowering import taxes would make it easier for them to export more products. With Nepal’s transition from Least Developed Countries status and the loss of trade preferences, authorities should seek additional preferential trade agreements.

Harnessing the potential of hydropower: Developing a clear financing strategy to develop the hydropower sector will help mobilize much-needed investments. This strategy could include developing the domestic bond market and an effective framework for large-scale public-private partnerships. Strengthening the regulatory and legal frameworks, by reducing bureaucratic red tape and streamlining the current licensing process, would improve the structure of the electricity market and attract additional investment.

Boosting the digital sector: Updating the Telecommunications Act and the digital strategy and adopting key digital infrastructure faster would boost the development of the digital sector. Low digital skills, one of the key roadblocks in the sector, need to be addressed by integrating these skills in school curricula and through training programs for different age groups and demographics.