Unlocking Nepal’s Economic Future: World Bank Calls for Reforms to Sustain Growth Beyond Remittance-Led Success

The comprehensive report, released on March 25, 2025, outlines a roadmap for Nepal to move beyond poverty reduction and achieve long-term prosperity.

Nepal has made significant strides in reducing poverty over the past decades, with extreme poverty nearly eradicated — a feat largely attributed to the country’s high level of remittance inflows. However, the World Bank’s newly released Nepal Country Economic Memorandum (CEM): Unlocking Nepal’s Growth Potential warns that continued reliance on remittances is unsustainable, and strategic reforms are now essential to spur domestic economic growth, increase job creation, and improve productivity across key sectors.

The comprehensive report, released on March 25, 2025, outlines a roadmap for Nepal to move beyond poverty reduction and achieve long-term prosperity. It highlights the country's unrealized economic potential and the critical need to strengthen domestic foundations to ensure future growth is inclusive, job-rich, and resilient.

Growth Lagging Behind the Region

Despite its achievements in social development and poverty reduction, Nepal’s overall economic growth remains modest in comparison to its South Asian peers. From 1996 to 2023, Nepal’s economy grew at an average annual real rate of just 4.2 percent — placing it sixth out of eight South Asian nations. In contrast, countries like India and Bangladesh have witnessed more dynamic growth trajectories in the same period.

Structural issues — including low labor productivity, weak industrial performance, a narrow export base, and heavy dependence on remittance income — have limited Nepal’s economic dynamism. Moreover, job creation in the non-agricultural sectors remains sluggish, prompting millions of young Nepalese to migrate overseas in search of better opportunities.

“Nepal’s success in poverty reduction is impressive, but its economic potential remains largely untapped,” said David Sislen, World Bank Country Director for Maldives, Nepal, and Sri Lanka. “Nepal has significant potential to drive stronger growth and create jobs by implementing key reforms to increase the returns from migration, boost exports, use hydropower efficiently, and embrace digital transformation.”

The 16th National Plan and Government Commitment

Nepal’s 16th Periodic Plan outlines an ambitious vision centered around good governance, social justice, and inclusive prosperity. It emphasizes improved productivity, decent and productive employment, expanded social protection, and a smooth graduation from Least Developed Country (LDC) status.

“The government is fully committed to ensuring an enabling policy environment for Nepal’s sustainable growth,” said Professor Dr. Shiva Raj Adhikari, Vice Chairman of the National Planning Commission. “This includes supporting productivity, competitiveness, and inclusive development through coordinated reforms.”

The World Bank’s Country Economic Memorandum, which is produced every five years, aligns with the goals of the 16th Plan and provides in-depth analysis and recommendations across four key policy areas.

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Four Key Reform Areas to Unlock Nepal’s Economic Growth Potential

1. Maximizing the Benefits of Migration

Migration continues to be a cornerstone of Nepal’s economy, contributing nearly a quarter of the GDP through remittances. However, to make migration work better for national development, the report calls for a more systematic and institutionalized migration framework. Key policy recommendations include:

• Integrating migration into broader development, employment, and poverty reduction strategies.

• Enhancing the safety, benefits, and rights of migrant workers, especially low-skilled laborers.

• Expanding bilateral labor agreements and diversifying labor markets to reduce reliance on a few destination countries.

• Supporting the reintegration of returning migrants through entrepreneurship programs, retraining, and financial literacy.

• Encouraging remittance usage in productive sectors such as small businesses and agriculture, rather than consumption alone.

2. Reviving and Expanding Export Capacity

Nepal’s exports have stagnated over the past decades, with limited product diversification and an over-reliance on a few markets. To improve export performance, the CEM suggests:

• Addressing infrastructure bottlenecks, especially in transport and logistics.

• Enhancing market competition and streamlining bureaucratic processes to improve the business environment.

• Managing inflation to protect price competitiveness.

• Simplifying customs procedures, especially for VAT refunds on imported inputs used for exports.

• Reducing tariffs on critical raw materials.

• Exploring new trade agreements to compensate for the loss of preferential market access as Nepal graduates from LDC status.

• Promoting innovation and value addition in export-oriented sectors such as garments, tea, herbs, and handicrafts.

3. Harnessing the Full Potential of Hydropower

With over 40,000 MW of economically feasible hydropower potential, Nepal could become a regional hub for clean energy. However, the sector still faces investment and regulatory hurdles. To unlock this potential, the World Bank urges:

• Developing a robust financing strategy, including the use of domestic bonds and public-private partnerships.

• Strengthening the legal and regulatory frameworks to attract investors and reduce bureaucratic red tape.

• Streamlining the licensing process and making it more transparent and efficient.

• Enhancing cross-border electricity trade, particularly with India and Bangladesh.

• Promoting domestic energy usage to support industrialization and reduce reliance on imported fossil fuels.

4. Accelerating Digital Transformation

Digitalization presents a major opportunity to transform Nepal’s economy, yet the country lags behind regional peers in digital access and skills. Key interventions needed include:

• Modernizing the outdated Telecommunications Act and fast-tracking the adoption of a new national digital strategy.

• Expanding broadband internet infrastructure and reducing the digital divide between urban and rural areas.

• Integrating digital skills into school and university curricula.

• Offering targeted training programs for youth, women, and marginalized groups.

• Encouraging digital entrepreneurship, innovation hubs, and technology startups.

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A Call for Coordinated and Sustained Action

The World Bank emphasizes that Nepal's path to middle-income status will require coordinated efforts across all sectors, backed by strong governance, better data systems, and continued investment in human capital.

Nepal stands at a critical juncture — having lifted millions out of poverty, the country now needs to pivot towards inclusive and sustainable growth that provides domestic job opportunities, fosters innovation, and ensures resilience to shocks such as climate change and external economic fluctuations.

“The next phase of Nepal’s development must be driven by unlocking opportunities at home,” the report concludes. “By implementing bold reforms and harnessing its untapped potential, Nepal can achieve stronger, more equitable, and sustainable growth.”