Nepal’s Economy to Slow to 2.1% Next Fiscal Year Amid Unrest

KATHMANDU, November 13, 2025 — Nepal’s economic growth is expected to decline sharply to 2.1 percent in FY26, down from 4.6 percent in FY25, as the country continues to grapple with the fallout from the September 2025 public unrest and rising political instability. The projection comes from the World Bank’s latest Nepal Development Update: Reforms to Accelerate Public Investment released today.

The report highlights that the services sector will bear the biggest impact of the slowdown. While the overall outlook remains uncertain, the World Bank notes that a smooth political transition and stable economic governance could help lift investor confidence and accelerate recovery. Conversely, prolonged instability could further dampen investor sentiment.

To rebuild confidence, the government has launched an Integrated Business Recovery Plan that includes grants, tax incentives, and operational support for affected businesses. Finance Minister Rameshore Prasad Khanal stated that public resources have been shifted toward infrastructure rehabilitation and election-related preparations. A Reconstruction Fund has also been established to support the restoration of damaged public and private assets, with the broader goal of reviving private sector activity and strengthening economic resilience.

The report further stresses that Nepal must enhance its public investment management to unlock long-term growth potential. In FY24, total capital expenditure across federal, provincial, and local levels amounted to 7.9% of GDP—far below the 10–15% of GDP required annually to meet the country’s infrastructure demands.

“Scaling up public investment is essential for job creation, growth, and overall prosperity,” said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. He emphasized the need for reforms in project planning, budgeting, land acquisition, environmental clearance processes, cash-flow management, and procurement laws to accelerate implementation.

Published twice a year, the Nepal Development Update offers detailed insights into the country’s recent economic trends within both national and global contexts.