World Bank projects Nepal’s economic growth at 2.1% for FY 2025/26

Kathmandu: The World Bank has projected Nepal’s economic growth rate at 2.1 percent for the fiscal year 2025/26.

Releasing its South Asia Development Update, the Bank estimated that Nepal’s economy will grow by 2.1 percent this year and reach 4.7 percent in the following fiscal year 2026/27.

Despite recent challenges such as the Gen Z movement and floods and landslides, the World Bank has maintained an optimistic outlook. The report notes that the growth forecast was made by taking into account the impact of the Gen Z protests. Previously, the Bank had projected Nepal’s growth at 5.2 percent for the current fiscal year and 5.5 percent for the next one.

However, the forecast was revised downward in view of the recent developments. The Bank interpreted the ongoing protests as a reflection of public dissatisfaction with governance and a lack of domestic opportunities.

The report highlights that rising corruption and an unfavourable business environment have hindered Nepal’s development compared to its neighboring countries. It also points to global economic slowdown, trade policy uncertainty, social unrest, and technological disruptions such as those caused by artificial intelligence (AI) as key risks.

World Bank Vice President for South Asia Johannes Zutt said, “South Asia holds tremendous potential, but countries must address risks in time. By harnessing the benefits of AI and reducing trade barriers, nations can enhance productivity, attract private investment, and create new jobs.”

According to the World Bank, the services sector has contributed to nearly three-fourths of job growth in the past decade due to relatively lower tariffs. The report adds that gradual tariff reduction and expansion of trade agreements could further boost private investment and employment.

For the region overall, the World Bank forecasts South Asia’s economic growth at 6.6 percent this year, but expects it to slow to 5.8 percent in 2026, a 0.6 percentage point decline from its previous projection.

Nepal’s economy grew by 4.61 percent in the last fiscal year. According to the World Bank, if the current projection holds, it would mean that economic activity has slowed to nearly half of last year’s pace.