Political transition can slow growth

By A Staff Reporter,Kathmandu, Nov. 13: Nepal’s economic growth is projected to slow to 2.1 per cent in the fiscal year 2025/26 from 4.6 per cent in fiscal year 2024/25, reflecting the impact of the September 2025 public unrest and ensuing political instability, according to the World Bank’s latest economic update.

Progress in reconstruction efforts is expected to support a rebound to 4.7 per cent in the next fiscal year 2026/27.

Released on Thursday, the Nepal Development Update: Reforms to Accelerate Public Investment notes that the services sector is expected to be the most affected, and the overall outlook remains highly uncertain.

On the upside, a successful political transition and sustained sound economic management could strengthen investor sentiment, supporting a stronger economic recovery. On the downside, continued uncertainty could further weaken investor confidence.

“To restore business confidence and accelerate recovery, the government has launched an Integrated Business Recovery Plan, offering grants, tax incentives, and operational support,” said Finance Minister Rameshore Prasad Khanal while launching the report amidst a function here on Lalitpur. 

“Public resources have been reprioritised 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," he said.

Minister Khanal said that Nepal witnessed a significant increase in international tourist arrivals in October, a month after the Gen Z movement in early September. 

He added that the government has already begun reconstruction of public buildings and resumption of services, expressing confidence that Nepal’s economic growth will not decline as projected by the World Bank.

However, he acknowledged that the World Bank’s report and recommendations would be important for accelerating economic activities in the coming days.

“A collective effort between the government, the private sector, and development partners is required for economic recovery. Therefore, the current government is committed and has begun addressing the genuine demands of the private sector in this regard,” he said.

Minister Khanal also said that the current government has suspended more than 1,200 projects that the previous administration had allocated funds for in the current fiscal year without adequate preparation.

He reaffirmed the government’s commitment to good governance and to creating a conducive business environment. Beyond immediate recovery measures, the report underscores the need to strengthen public investment management to spur higher long-term growth. 

In FY24, the government’s capital spending across the federal, provincial, and local levels stood at 7.9 per cent of GDP, well below the 10-15 per cent of GDP annual investment required to meet Nepal’s infrastructure needs. 

“Boosting public investment is critical for improving growth, creating jobs, and building prosperity for Nepalis,” said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. 

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.”

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.