Nepal's economy is projected to grow 4.5 percent in FY25, up from 3.9 percent in FY24, despite significant natural disasters in late 2024. Growth is expected to be driven by increased domestic trade, hydropower generation and paddy production, according to the World Bank’s latest Nepal Development Update: Leveraging Resilience and Implementing Reforms for Boosting Economic Growth, released today.

The report also forecasts that Nepal's economy will grow at an average annual rate of 5.4 percent in FY26 and FY27, driven largely by the services sector.

“Boosting private sector-led economic growth is critical to creating the jobs that Nepal needs. To achieve this, Nepal can build on its impressive track record of resilient growth backed by implementing key structural reforms," said David Sislen, World Bank Country Division Director for Maldives, Nepal, and Sri Lanka.

The report highlights downside risks to the economic outlook, including geopolitical and trade-related uncertainty. It also points to the potential further deterioration of asset quality in Nepal’s financial sector, the risk of policy inconsistency arising from frequent bureaucratic changes in the government, and delays in the execution of the capital expenditure budget.

“The Nepal Development Update provides valuable insights on recent economic developments and highlights Nepal’s resilient growth. Boosting growth further to meet the country’s 16th Plan targets requires effective execution of the capital budget and timely completion of ongoing projects,” said the Honorable Vice Chairman of the National Planning Commission, Professor Dr. Shiva Raj Adhikari.

The Nepal Development Update, produced biannually, offers a comprehensive analysis of key economic developments over the past year, placing them within a long-term global context.