World Bank Projects Nepal's Economic Growth to Slow to 2.3 Percent

Kathmandu. The World Bank has projected that Nepal's economic growth rate will shrink to 2.3 percent. The World Bank attributes this limited growth to the ongoing conflict in the Middle East and the impact of the Gen-Z movement.

The latest Nepal Development Update shows a significant decline from the 4.6 percent growth rate recorded in the previous fiscal year 2025. Looking ahead, reconstruction activities, continued expansion of hydropower, and increased consumption due to the local elections in 2027 are expected to push Nepal's average economic growth to 4.4 percent in the fiscal year 2027-2028.

The Nepal Development Update report, titled 'Economic Growth Under Pressure: Facing Internal and Global Shocks,' projects that the service sector will be most affected in the fiscal year 2082/83 due to sluggish tourism, high transportation costs, and potential supply chain disruptions.

The economic outlook remains highly uncertain. The prolonged conflict in the Middle East could reduce tourist arrivals, decrease remittance inflows, weaken consumption, and slow down overall economic activity.

On a positive note, the report mentions that post-election political stability, robust macroeconomic management, and structural reforms could boost investor confidence.

David Sislen, World Bank Divisional Director for Maldives, Nepal, and Sri Lanka, stated, 'Private sector-led growth is crucial to strengthening Nepal's economic resilience and creating jobs. For this, Nepal must improve the business environment and support priority sectors such as infrastructure development, private finance mobilization, tourism, information technology, and agribusiness.'

According to the World Bank's South Asia Economic Update, growth in South Asia is projected to decline from 7 percent to 6.3 percent in 2026 due to disruptions in the global energy market. This region is still growing faster than other emerging economies.

The report places special emphasis on industrial policy. Although South Asian countries are implementing industrial policies at twice the rate of other emerging economies, the results have been mixed.

Franziska Ohnsorge, World Bank Chief Economist for South Asia, said, 'The success of industrial policy in South Asia is challenged by weak implementation capacity and limited fiscal space. Measures such as industrial parks, skill development programs, and export quality improvements will help address market failures.'

In the context of Nepal, the report suggests that in addition to introducing specific policies for sectors like urban development, tourism, and digital services, it is necessary to ensure stability in the business environment and improve regulatory infrastructure.