Economic Situation of Nepal

Nepal is a landlocked country in South Asia, with a population of about 30 million people. Nepal's economy is developing and largely dependent on agriculture and remittances. Agriculture employs about two-thirds of the labor force and contributes about one-fourth of the gross domestic product (GDP). Remittances from Nepali workers abroad account for about one-third of the GDP and help reduce poverty and improve living standards.

However, Nepal faces many challenges and constraints to achieve sustainable and inclusive growth. Nepal remains one of the poorest countries in the world, with a per capita income of around $240 in 2020. About 18% of the population live below the national poverty line, and many more are vulnerable to shocks such as natural disasters, pandemics, and political instability. Nepal also suffers from low productivity, weak infrastructure, limited access to finance, and a complex business environment.

Nepal has undergone a historic transition toward a federal and secular republic since the end of a decade-long conflict in 2006. The new constitution adopted in 2015 established a three-tier government structure, with seven states and 753 local governments. The federalization process aims to devolve power and resources to the subnational levels and enhance accountability and service delivery. However, it also poses new challenges and risks, such as fiscal imbalances, institutional capacity gaps, and coordination issues.

Nepal's economic growth has been volatile and uneven over the years, reflecting its exposure to external and internal shocks. The devastating earthquakes of 2015 caused significant human and physical losses and disrupted economic activity. The COVID-19 pandemic has also severely affected Nepal's economy since 2020, with negative impacts on tourism, trade, remittances, and domestic demand. The GDP growth rate declined from 7% in fiscal year (FY) 2019 to 0.2% in FY2020 and -1.9% in FY2021.

The economic outlook for Nepal is cautiously optimistic, as the country recovers from the pandemic and implements its federalization agenda. The Asian Development Bank (ADB) projects that Nepal's GDP will grow by 5.8% in FY2022 and 4.7% in FY2023, supported by improved agricultural output, increased public spending, resumed remittance inflows, and gradual reopening of tourism. However, the recovery is subject to uncertainties and downside risks, such as new waves of COVID-19 infections, slow vaccination progress, political instability, and environmental shocks.

Nepal needs to pursue structural reforms and investments to enhance its economic resilience and competitiveness. Some of the key priorities include diversifying the economy beyond agriculture and remittances, improving infrastructure quality and connectivity, expanding access to basic services such as health and education, promoting private sector development and innovation, strengthening governance and institutions at all levels of government, and protecting the environment and natural resources.

Nepal has been a member of ADB since 1966 and has received over $6 billion in loans, grants, and technical assistance from ADB. ADB supports Nepal's sustainable recovery from COVID-19 and inclusive growth by investing in infrastructure, improving access to basic services, and protecting the poor and vulnerable.

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