Nepal’s economy is projected to slow substantially in the current fiscal year 2025–26, reflecting the impact of this September’s public unrest and ensuing political instability, the World Bank said on Thursday.
Releasing the Nepal Development Update: Reforms to Accelerate Public Investment — a flagship publication issued biannually — the Bank projected Nepal’s economic growth to slow to 2.1 per cent in FY 2025–26, down from 4.6 per cent in FY 2024–25.
The Himalayan republic witnessed widespread Gen-Z led protests in early September that brought down the government led by then–Prime Minister K P Sharma Oli and led to the formation of a new non-political government headed by Sushila Karki, which has been mandated to hold elections on March 5 next year.
During the protests, more than 70 lives were lost, and public and private properties worth billions of Nepali rupees were destroyed as several groups attacked and set fire to government buildings as well as private establishments.
According to the Bank, the projected slowdown is expected to be largely driven by the services sector. Tourism activity is projected to decline sharply, reflecting a significant fall in international tourist arrivals, while the spillover effects of asset losses are expected to weigh on the insurance industry.
Amid the projection of slower growth, the global multilateral agency also noted that the destruction has adversely affected Nepal’s poverty reduction efforts. The poverty rate (at USD 4.2/day) is now estimated at 6.6 per cent in FY 2025–26, slightly higher than the previously projected 6.2 per cent.
The World Bank further projected that the economy could rebound to 4.7 per cent in FY 2026–27 as reconstruction efforts gain momentum during the current fiscal year. During the report’s unveiling on Thursday, Finance Minister Rameshore Prasad Khanal said the government has launched an Integrated Business Recovery Plan offering grants, tax incentives, and operational support to restore business confidence and accelerate recovery.
“Public resources have been reprioritized toward infrastructure rehabilitation and election preparations, and a Reconstruction Fund has been established to help restore damaged public and private assets. These initiatives aim to reinvigorate private sector activity while laying the foundation for a more resilient economy,” said Khanal.
David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka, emphasised that boosting public investment is critical to improving growth, creating jobs, and building prosperity for Nepalis.
“This requires implementing key reforms, including strengthening project planning and budgeting, streamlining land acquisition and tree-cutting processes, improving cash management efficiency, and amending procurement laws and regulations to speed up project delivery,” he said.
The Nepal Development Update, published twice a year, provides an in-depth analysis of key economic developments over the past year, placing them within a broader long-term and global context.
