World Bank cuts this year’s growth projection to 2.3%

By A Staff Reporter

Kathmandu, Apr. 9: The World Bank has projected that Nepal's economic growth in the current Fiscal Year 2025/26 will drop down to 2.3 per cent from 4.6 per cent of the FY 2024/25. 

The impact of the ongoing conflict in West Asia and the lingering effects of the September 2025 unrest are the reasons behind this slowdown, according to the World Bank’s latest economic update. 

Looking ahead, reconstruction activities, continued hydropower expansion, and consumption linked to the 2027 subnational elections are expected to support a pickup in growth to an average of 4.4 per cent over the next two fiscal years, it said in its report published on Wednesday. 

The Nepal Development Update, titled 'Growth Under Pressure: Navigating Domestic and Global Shocks', said that the services sector is expected to be most affected in 2025/26, due to slower tourism activity, higher transport costs, and potential supply chain disruptions. 

"The outlook remains highly uncertain. A prolonged conflict in the Middle East could dampen tourist arrivals, reduce remittance inflows, weaken consumption, and slow overall economic activity," read the report. 

On the upside, improved political stability following the elections in March, sound macroeconomic management, the availability of ample buffers, and continued structural reforms could strengthen investor confidence, boosting private investment and growth.

“Boosting private sector-led growth will be critical to strengthening economic resilience and creating more jobs in Nepal,” said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. “To achieve this, Nepal must improve the business environment, develop foundational infrastructure, mobilize private finance, and support priority sectors such as tourism, the IT sector, and agribusiness.”

Sislen suggested that in order to attract more Foreign Direct Investment (FDI) to Nepal, the country should improve its transport infrastructure and implement reforms in information technology sector. 

Talking about the recent concessional loan the multilateral donor recently approved, he said that the WB only provides financial supports and the country designs projects as per its development priority. 

The Nepal Development Update is a companion piece to the World Bank Group’s South Asia Economic Update, a twice-a-year report that examines economic developments and prospects in the South Asia region. 

Likewise, the latest South Asia Economic Update, Working with Industrial Policy, projects growth in South Asia to slow to 6.3 per cent in 2026—from 7 per cent in 2025—due to disruptions in global energy markets. 

Despite the near-term slowdown, South Asia continues to grow faster than other emerging-market and developing economies. Growth is expected to recover to 6.9 per cent in 2027.

“South Asia's mixed success on industrial policy in part reflects the region’s limited implementation capacity, fiscal space, and market size in some countries,” said Franziska Ohnsorge, World Bank Group Chief Economist for South Asia.