Nepal’s economy is showing signs of steady recovery and resilience, according to latest reports from the World Bank, Asian Development Bank (ADB) and Nepal Rastra Bank (NRB). While the outlook is positive, these institutions say the country still faces some serious hurdles that need to be addressed to maintain this momentum.
The World Bank’s Nepal Development Update (April 2025) has forecast economic growth of 4.5 percent for the current fiscal year, up from 3.9 percent last year. It expects average growth of 5.4 percent over the next two years. The World Bank has attributed this rise to improvements in the services sector, boosted by stronger domestic trade, rising imports and solid performance in hydropower and construction. The ADB’s Asian Development Outlook (April 2025) offers a similar but slightly lower estimate of 4.4 percent growth. It highlights increased hydropower production and better agricultural output—especially in paddy farming—as key drivers of the growth. Both institutions have said that Nepal has managed to bounce back well, despite challenges like natural disasters and travel disruptions caused by the upgrade of Tribhuvan International Airport.
The NRB’s latest report supports this optimistic view. Inflation has eased to 3.85 percent in mid-March of 2025, down from 4.82 percent a year before—well below the central bank’s target. Foreign exchange reserves are healthy, enough to cover more than 17 months of merchandise imports and 14 months of merchandise and services imports, while exports are up by 57.2 percent. These indicators suggest that the country’s economic fundamentals are becoming more stable.
The growth prospects, however, are not without risks. The World Bank has warned that global issues, such as political conflicts, rising prices, and heavy dependence on remittances and tourism, could affect Nepal’s growth. It also said the FATF greylisting has hampered Nepal’s efforts to access international capital markets after having a BB- country rating. The ADB added that ongoing tariff rises may cause a global economic downturn, affecting Nepal’s tourism receipts and remittances, and lower foreign aid could negatively impact growth as Nepal relies on foreign aid to finance development needs.
The government must prioritize reforms and enhance its spending efficiency to maintain this momentum. Promoting private sector growth through clearer laws and regulations, bolstering the financial system, harnessing hydropower potential, and upgrading tourism infrastructure could generate employment opportunities and lessen dependence on remittances. Similarly, the government should act swiftly to implement the Financial Action Task Force’s recommendations to secure Nepal’s removal from the ‘gray list.’ Failure to address this could lead to severe repercussions.
