The World Bank has projected Nepal’s economic growth to slow from 4.6% in 2025 to 2.1% in 2026, as a result of the impact of Gen Z protests and ongoing political transition.
However, the growth is expected to rebound to 4.7% in 2027, supported by reconstruction efforts, according to the Nepal Development Update unveiled by the World Bank. The report highlights the services sector as the most affected pointing out that investor confidence depends on successful political transition and sound economic management.
The report also underlines the need to increase public investment, currently 7.9% of GDP, to meet infrastructure needs estimated at 10–15% of GDP.
According to the WB report, poverty rates (at USD 4.2/day) are slightly higher than previously projected, reaching 6.6 percent in FY26 and 5.9 percent in FY27 compared with 6.2 percent and 5.4 percent projected before the unrest.
Industrial sector growth is projected to slow marginally in FY26 compared to FY25. Hydropower-related industrial activity is expected to remain robust, but non-hydropower-related private investment and construction is projected to be weighed down by weaker investor confidence following the unrest. Industrial sector growth is expected to pick up sharply in FY27, supported by public projects and reconstruction efforts.
Agriculture growth is projected to soften in FY26 due to delayed paddy planting, particularly in Madhesh Province, but is expected to recover in FY27 assuming favorable monsoon conditions. Inflation is expected to remain within the central bank’s 5 percent ceiling over the medium term.
“Boosting public investment is critical for improving growth, creating jobs, and building prosperity for Nepalis. 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,” remarked David Sislen, WB division director for Maldives, Nepal, and Sri Lanka while launching the report on Thursday.
Meanwhile, Finance Minister Rameshwor Prasad Khanal, said that the government has introduced a business recovery plan, including grants, tax exemptions, and a reconstruction fund to restore private sector activity.
