Nepal’s Economic Recovery: Growth Prospects and Political Challenges Shape Nation’s Future in 2025

Economic Recovery and Growth

Nepal’s economy has shown remarkable resilience, with real GDP growing by 4.9% in the first half of FY25, up from 4.3% in the previous year, despite facing natural disasters and tourism disruptions.

This improved growth forecast is being driven by several factors, including a gradual recovery of domestic demand, private sector reforms, and tourism revitalization. Manufacturing and construction sectors are expected to expand due to stable oil prices, increased liquidity, and declining interest rates.

Political Landscape and Challenges

The nation continues to grapple with governmental instability, corruption, and economic challenges. Political volatility is evident in the fact that in the past 17 years since the abolition of monarchy, there have been 13 different government formations. Recent years have seen a gradual increase in pro-monarchy sentiments.

Development Prospects and Sectors

Key sectors such as hydropower, tourism, and digital services present significant economic and employment opportunities. However, achieving this potential requires addressing regulatory hurdles, improving infrastructure, and creating a more competitive business environment.

International Relations and Trade

Nepal’s international trade shows strong ties with India, with bilateral trade reaching $8.85 billion in 2023. The country has made significant progress in hydroelectric development, signing agreements to export 10,000 MW of electricity to India over the next decade.

Future Outlook

Looking ahead, Nepal’s economy is projected to grow by 4.5% in FY25, with expectations of averaging 5.4% annually in FY26-FY27. The services sector is anticipated to be a primary growth driver, though tourism faces temporary constraints due to ongoing upgrades at Tribhuvan International Airport.