World Bank: Nepal growth cut to 2.1% for FY2025/26 — how to revive the economy?

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Overview

In Nepal, recent unrest and heightened political and economic uncertainty is expected to cause growth to decline to 2.1 percent in FY25/26, with a potential range of 1.5–2.6 percent. World Bank

Nepal’s economic growth accelerated in the first half of FY25 (H1FY25). Real GDP grew by 4.9 percent in H1FY25, up from 4.3 percent in H1FY24. World Bank - Nepal Development Update (April 2025)

Hydropower and resilience image
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Key drivers cited by the World Bank

  • “International tourist arrivals are expected to decline sharply and asset losses will affect the insurance industry.” World Bank

  • “Weaker investor confidence is expected to impede private investment and nonhydro construction.” World Bank

  • “Delayed rainfall in a major rice-producing province will hamper the agricultural sector.” World Bank

  • Earlier in FY25, activity was supported by robust hydropower production, a rebound in industrial output, and a pickup in agricultural activity; however, the outlook is now weaker. World Bank - Nepal Development Update (April 2025)

Outlook and risks

  • The World Bank projects growth pressures are “primarily tilted to the downside,” with external risks (geopolitical uncertainties, commodity price shocks) and domestic vulnerabilities (financial sector asset quality, policy inconsistency, FATF Grey List) highlighted. World Bank - Nepal Development Update (April 2025)

  • The World Bank’s Country Partnership Framework (CPF) for Nepal (FY2025–2031) focuses on “More and Better Jobs; Connected Communities; Green Planet and Resilient Populations.” World Bank

Policy levers and opportunities (as discussed in World Bank analysis)

  • Hydropower and electricity: “Government efforts to boost electricity capacity and increase energy exports are set to further accelerate industrial growth.” The report highlights hydropower expansion and the need for transmission and regional trade infrastructure. World Bank - Nepal Development Update (April 2025)

  • Tourism: Tribhuvan International Airport upgrades caused disruptions to arrivals and activity; shorter-term declines in tourism are expected, while medium-term gains are anticipated from improved infrastructure. World Bank - Nepal Development Update (April 2025)

  • Structural reforms: The World Bank notes potential gains from private sector–led reforms, streamlined approvals (a recommended one-stop shop for hydropower approvals), and measures to improve competitiveness in logistics and transport. World Bank - Nepal Development Update (April 2025)

Selected data points from the World Bank update

References

World Bank — Nepal Overview: Nepal Overview: Development news, research, data | World Bank

World Bank — Nepal Development Update (April 2025 PDF): https://documents1.worldbank.org/curated/en/099951004022532326/pdf/IDU-c2bf0781-1145-4639-8b64-321016ade046.pdf

:speech_balloon: Share Your Thoughts

  • What impact could this slowdown have locally or regionally for jobs and communities?
  • Should Nepal prioritise exporting surplus hydropower, rebuilding and diversifying tourism, or pushing faster structural reforms to restore investor confidence?
  • Which short‑term measures (e.g., targeted reconstruction, tourism incentives, export facilitation) would you support to stabilise growth?
  • How can policy makers balance immediate recovery needs with longer-term reforms (logistics, one-stop approvals, competitiveness)?
  • What lessons from other countries should Nepal consider when accelerating reforms and regional energy trade?