KATHMANDU, November 13, 2025- Growth in Nepal is projected to slow to 2.1 percent in FY26 from 4.6 percent in FY25, reflecting the impact of the September 2025 public unrest and ensuing political instability, according to the World Bank's latest economic update. Progress in reconstruction efforts is projected to support a rebound to 4.7 percent in FY27.
Released today, the Nepal Development Update: Reforms to Accelerate Public Investment notes that the services sector is expected to be the most affected. The outlook remains highly uncertain. On the upside, a successful political transition and sustained sound economic management could strengthen investor sentiment supporting a stronger economic recovery. On the downside, continued uncertainty could weaken investor sentiment.
"To restore business confidence and accelerate recovery, the government has launched an Integrated Business Recovery Plan, offering grants, tax incentives, and operational support", said Honorable Finance Minister Rameshore Prasad Khanal. "Public resources have been reprioritized toward infrastructure rehabilitation and election preparations, and a Reconstruction Fund has been established to help restore damaged public and private assets. These initiatives aim to reinvigorate private sector activity while laying the foundation for a more resilient economy."
Beyond immediate recovery measures, the report underscores the need to strengthen public investment management to spur higher long-term growth. In FY24, the government's capital spending across the federal, provincial, and local levels stood at 7.9 percent of GDP, well below the 10-15 percent of GDP annual investment required to meet Nepal's infrastructure needs.
"Boosting public investment is critical for improving growth, creating jobs, and building prosperity for Nepalis," said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. "This requires implementing key reforms including strengthening project planning and budgeting, streamlining land acquisition and tree-cutting processes, improving cash management efficiency, and amending procurement laws and regulations to speed up project delivery."
The Nepal Development Update, published twice a year, provides an in-depth analysis of key economic developments over the past year, placing them within a broader long-term and global context.
Last Updated: Nov 13, 2025
