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The air quality in the Kathmandu Valley, which had deteriorated sharply last week, has improved. 

The pollution, which increased due to dry weather and forest fires, has gradually started to decrease with the rain.

According to the Air Quality Index (AQI), last week the air quality index rose to 247. 

As this level falls into the 'very unhealthy' category, experts had expressed concern that it could seriously affect the health of the general public.

According to AQI's data, last week Kathmandu was listed as the world's most polluted city, but today it is ranked 26th.

Today, pollution has decreased to an AQI of 79, which still falls into the 'unhealthy' category.

According to the AQI standards, a range of 0–50 is considered 'Good', 51–100 'Moderate', 101–150 'Unhealthy', 151–200 'Unhealthy for everyone', 201–300 'Very Unhealthy', and above 300 'Hazardous'.

Director General of the Department of Environment, Gyanendra Subedi, stated that air pollution has reduced recently due to sufficient rainfall and strong winds.

“When there is no rain for a long time, dust and smoke accumulates in the atmosphere, forest fires increase, and the smoke from them settles in the valley, resulting in high pollution. 

Moreover, polluted air coming from neighbouring India also affects the air quality in Kathmandu,” he added.

He stressed that the concerned authorities must effectively implement sustainable and environmentally friendly development measures to control pollution.

A woman and her 13-year-old daughter were injured in a wild elephant attack near Bahundangi Chowk in Mechinagar Municipality-4, Jhapa. 

According to the Deputy Superintendent of Police (DSP) of Jhapa, Khagendra Bahadur Khadka, Sunita Bajracharya (38) and her daughter Yabadra were injured in the incident. 

Both of them have sustained serious leg injuries, police said. 

Over the past decade, the Nepali economy has faced multiple major shocks, including the devastating 2015 earthquakes, the COVID-19 pandemic, and political unrests such as last September’s Gen Z movement, all of which disrupted growth momentum and exposed structural vulnerabilities.

Despite notable strides in poverty alleviation and the achievement of relative macroeconomic stability, the structural foundations of Nepal’s economy remain precarious. The current landscape is characterized by a high degree of vulnerability, driven by an over-reliance on remittance inflows, a low-productivity subsistence agricultural sector, and a stagnant export base. These systemic imbalances have acted as a persistent bottleneck to achieving broad-based, inclusive, and sustainable development.

At the same time, Nepal is preparing for graduation from Least Developed Country (LDC) status in November. While this transition represents a landmark achievement in the country’s development trajectory, it introduces a complex set of challenges. The impending loss of preferential trade treatments and international support measures necessitates a radical shift toward enhancing domestic competitiveness and building post-graduation resilience.

Below is a detailed analysis of the White Paper issued by the Ministry of Finance earlier this week, highlighting the strategic imperatives for this transition. 

External Sector Pressures and Global Risks

Nepal’s external stability is becoming increasingly entangled with global geopolitical shifts, most notably the escalating tensions within the Middle East. This region serves as the primary pillar of Nepal’s foreign exchange reserves, hosting approximately 1.75 million Nepali workers who contribute nearly 37.4% of total remittance inflows. Recent disruptions, including a two-month suspension of labor migration and the return of thousands of workers, have exposed the fragility of this dependency. Such instability poses a triple threat to the national economy by endangering steady remittance flows, straining foreign exchange reserves, and depressing household consumption. These pressures are already manifesting through inflated import costs, shortages of essential agricultural inputs like fertilizer, and heightened transportation costs that stifle both trade and the tourism sector.

Beyond regional conflicts, Nepal’s inclusion on the Financial Action Task Force (FATF) grey list has emerged as a significant hurdle for international financial governance and national credibility. The perception of weak enforcement in anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks directly threatens foreign investment, cross-border banking relationships, and trade financing. While the government has initiated reforms across 16 strategic areas identified by the FATF, the progress remains uneven due to institutional fragmentation and limited enforcement capacity. Under the new government led by Prime Minister Balendra Shah, there has been a visible intensification of money laundering investigations and high-profile arrests. While these actions signal a firm commitment to international compliance, they have also sparked concerns that an overly aggressive or unpredictable regulatory environment might inadvertently dampen the domestic investment climate.

Structural Transformation of the Economy

Nepal is undergoing a structural shift characterized by premature de-industrialization and a growing dominance of the service sector. Agriculture employs about 62% of the population, its contribution to GDP stands at a disproportionately low 25.2%, growing at around 3% annually. Low mechanization, fragmented landholdings, and weak commercialization continue to limit productivity.

Manufacturing remains underdeveloped, contributing only 5.4% of GDP with sluggish growth of 2.9%. Dependence on imported raw materials, low technological adoption, and weak investment have prevented industrial expansion. The service sector has expanded rapidly, but largely driven by remittance-fueled consumption rather than productivity-led transformation. This has led to an unbalanced and consumption-oriented economic structure.

Over the past decade, the manufacturing sector’s contribution to total GDP has averaged only 5.4%. During this period, while the overall economy expanded at an average rate of 4.2%, the manufacturing sector grew by just 2.9% on average.

A combination of factors, including insufficient investment, heavy dependence on imported raw materials, limited adoption of innovation and advanced technology, and high production costs, has weakened the country’s competitiveness, resulting in a stagnant industrial base.

Although the service sector has expanded, it has not generated sufficient decent employment opportunities. Its growth has been concentrated mainly in trade, real estate, public administration, and traditional financial services. The development of high value-added IT-based services, knowledge-based industries, and other innovative sectors remains limited. To build a competitive economy with skilled employment, Nepal needs to expand modern service industries such as artificial intelligence, robotics, data centers, and digital technologies.

Total investment has declined significantly in recent years. It stood at 39.5% of GDP in fiscal year 2017/18 but fell to 28.1% by fiscal year 2024/25. Weak government capital expenditure and declining private sector investment have further dampened the overall investment climate.

Over the past decade, private sector investment averaged 19.6% of GDP. However, since the COVID-19 pandemic, this share has gradually declined, reaching 14.7% in fiscal year 2024/25. This slowdown in investment is constraining sustainable, inclusive, and high economic growth, as well as job creation. Addressing this will require improvements in the business environment, stronger government capacity to execute capital spending, and measures to boost aggregate demand.

Revenue Mobilization

In recent years, revenue mobilization has shown signs of slowing. In the five fiscal years preceding the most COVID-19-affected year (2019/20), revenue grew at an average annual rate of 14.9%. In the subsequent five years, this growth rate has declined to 8.7%.

Similarly, the ratio of federal revenue to GDP fell from 21.5% in fiscal year 2020/21 to 19.3% in 2024/25. Over the past decade, revenue mobilization has grown at an average annual rate of 12.3%. Revenue collection reached Rs 780 billion so far in the current fiscal year, marking a 4.4% increase compared to the same period last year. 

Revenue collection has consistently fallen short of targets. Over the past decade, actual collections have averaged only 87.6% of budgeted estimates. By mid-February, revenue collection stood at 82.6% of the target for that period and just 50.5% of the annual target.

Improving revenue performance will require stronger efforts to curb tax evasion, broaden the tax base, simplify tax administration, and accelerate digitalization. A significant share of revenue remains tied to imports and consumption. About 45% of tax revenue is derived from goods imports, while the domestic production and service sectors contribute relatively little. This leaves revenue vulnerable to external shocks.

In 2024/25, income tax accounted for 25.2% of total revenue, value-added tax (VAT) 29%, customs duties 19.6%%, and excise duties 14.8%. Non-tax revenue has contributed only around 11%, partly due to outdated rates and inefficiencies in collection.

Key Indicators

Nepal’s growth averaged 4.2% over the past decade, ranging from -2.4% to 9%. For fiscal year 2025/26, growth is projected at around 3.5%, although the Asian Development Bank has estimated a lower 2.7%, citing political uncertainty and external shocks. Inflation is expected to remain moderate at 3.7% in 2025/26 but may rise to 4.5% in 2026/27 due to demand pressures and global price volatility. Growth is expected to recover to around 5% in 2026/2027, supported by hydropower expansion, tourism revival, and improved domestic demand.

Labor migration has grown at an average annual rate of 28.6%, with over 839,000 labor approvals issued in 2024/25 alone. While remittances have stabilized the economy and reduced poverty, they have also created structural risks such as labor shortages, low domestic productivity, and dependency on external labor markets. Youth unemployment stands at 22.7%, while overall unemployment is 12.6%. Many workers remain in low-paid, informal, and insecure employment, highlighting the urgent need for domestic job creation.

Public debt has risen sharply from 22.5% of GDP in 2015 to 43.8% in 2024/2025, reaching Rs 2,674 billion. While still within manageable limits, there are concerns regarding debt productivity and allocation efficiency. Foreign aid dependency has declined to 14.6% of the budget, but the shift from grants to loans has increased repayment pressures. This has raised long-term fiscal risks for the country.

Nepal’s trade deficit averages 29.7% of GDP. Export accounts for less than 15% of total imports, while the country’s foreign trade is heavily dependent on India (59.5%) and China (18%).

While exports have increased significantly in nominal terms, nearly 40% of the country’s exports consists of re-exported edible oils, indicating weak domestic value addition and limited export competitiveness.

Although poverty has declined from 25.16% in 2010/11 to 20.27% in 2022/23, regional disparities are significant. Rural poverty (24.66%) remains higher than urban poverty (18.34%), and in some areas, multidimensional poverty exceeds 70%. Nepal’s Gini coefficient of 0.30 indicates moderate inequality, but regional and structural disparities persist. Human Development Index (HDI) stands at 0.622, ranking 145th globally, reflecting slow progress in health, education, and income.

Private sector credit increased from 55.2% of GDP in 2015/16 to 91.6% in 2024/25, higher than most South Asian economies. However, credit growth has slowed in recent years due to weak demand, political uncertainty, and low investment confidence. While deposits have grown steadily to Rs 7.746 trillion, supported by remittance inflows, credit growth remains weaker. This has resulted in excess liquidity in the banking system. Interest rates have also declined sharply, reducing returns for savers and reflecting weak economic demand.

Nepal received only $1.13 billion in foreign direct investment (FDI) over the past decade—just 0.2% of South Asia’s total. By 2025, total FDI stock stood at Rs 340 billion, with only Rs 10.84 billion inflow in the first eight months of the current fiscal year. This reflects weak investor confidence and highlights the need for improved governance, policy stability, and investment facilitation.

Nepal welcomed 1.158 million tourists with an average stay of 16.34 days in 2025. Hotel infrastructure has expanded significantly, with over 1,600 hotels and 222 star-rated hotels, offering more than 64,000 beds. However, weak air connectivity, inefficient airport operations, and limited transport infrastructure restrict full sector potential. Improving connectivity, digital tourism marketing, and diaspora engagement (NRNs) is essential to position Nepal as a global tourism hub.

Banking sector liquidity remains high due to weak credit demand. Excess liquidity reached Rs 904 billion by March 2025, reflecting imbalance between deposits and lending. Interest rates have declined sharply, with lending rates falling to 7.06% and deposit rates to 3.45%.

Budget size 

Resources have not been mobilized as planned, even as budget allocations have remained overly ambitious. Over the past decade, the average annual federal budget has amounted to 33.7% of GDP, while actual expenditure has averaged 26.8%\. 

The budget-to-GDP peaked at 39.4% in 2019/20, while it declined to 30.5% in fiscal year 2024/25. During this period, the budget’s average annual growth rate was 12.3%, but after the COVID-19 pandemic, this growth slowed to 4.1%.

Execution has also remained weak. Actual government spending amounted to 86% of the allocated budget in 2015/16, but fell to a low of 71.2% in 2020/21. This figure stood at 81.3% in 2024/25. 

Over the past decade, capital expenditure has accounted for only 19% of total federal spending, while utilization has averaged 64.1% of total allocation. Capital spending is low, to begin with, and even then, a large share of allocated funds goes unused. This has undermined Nepal’s long-term development goals. Therefore, it is necessary to efficiently allocate financial resources to high-return projects and address implementation bottlenecks to increase capital expenditure.

Meanwhile, recurrent expenditure continues to dominated government spending. Over the past decade, recurrent expenditure has made up an average 66.8% of total federal spending. Capital expenditure accounted for 19%, while financial management expenditure stood at 14.2%. In 2024/25, recurrent expenditure accounted for 63.2 percent, capital expenditure fell to 14.8%, and financial management spending rose to 22%. 

It is necessary to restructure government institutions, clearly define responsibilities among the three levels of government, and reduce unnecessary institutions and staff positions in the federal structure in order to contain recurrent expenditure. 

Opportunities for Transformation

Despite persistent structural challenges, Nepal has significant long-term growth opportunities driven by hydropower exports and industrialization; tourism expansion through promotion of cultural and ecotourism; digital economy, IT services and AI; and young labor force. 

The government has set an ambitious goal of achieving middle-income status within the next five to seven years, targeting GDP of $100 billion and per capita income above $3,000.

While external risks such as geopolitical instability and financial compliance challenges are immediate concerns, the country’s deeper challenges remain weak industrialization, a widening trade deficit, and heavy dependence on remittances.

That said, Nepal also possesses strong foundations for transformation—hydropower potential, tourism assets, and a young workforce. The key challenge lies in shifting from a remittance-dependent, consumption-driven economy to a productive, investment-led, and innovation-based growth model. The coming years will determine whether Nepal can successfully transition toward a more productive, investment-led, and innovation-driven economy.

International Jazz Day is being marked worldwide today. To observe this day, concerts and performance-based initiatives complemented by wide-ranging social outreach and educational activities would be organized.

UNESCO proclaimed April 30 as International Jazz Day in November 2011 to celebrate the power of jazz as a force for peace, dialogue and mutual understanding. "This Day is an opportunity to foster greater appreciation – not only for music, but also for the contribution it can make to building more inclusive societies," the UN agency mentioned. 

According to the United Nations, International Jazz Day raises awareness in the international community of the virtues of jazz as a force for peace, unity, dialogue and enhanced cooperation among people, as well as an educational tool. 

The story of jazz is written into the quest for human dignity, democracy and civil rights. It has given strength to the struggle against discrimination and racism, UNESCO stated on its official webpage.