Kathmandu: The World Bank (WB) has highlighted Nepal’s remarkable success in reducing poverty over the last three decades, with the nation virtually eradicating extreme poverty. The scale and speed of this achievement are unique among its peers.
According to National News Agency Nepal, the World Bank’s Nepal Country Economic Memorandum: Unlocking Nepal’s Growth Potential, released recently, identifies migration and the inflow of remittances as the key factors behind this poverty reduction and resilience in the face of economic shocks. By 2023, over 7 percent of Nepal’s population had migrated abroad in search of employment due to limited domestic job opportunities, primarily in Gulf Cooperation Council (GCC) countries and Malaysia. This migration resulted in a significant rise in remittances, which accounted for around a quarter of Nepal’s GDP and played a crucial role in sustaining the economy and lifting many out of poverty.
The report also discusses structural challenges that constrain domestic economic growth and job creation. Exports have not significantly contributed to economic growth over the past decades due to factors such as an appreciating real exchange rate and domestic trade policies like high tariffs and excise taxes. The manufacturing sector has been in steady decline, and the tourism sector remains underdeveloped.
David Sislen, World Bank Division Country Director for Maldives, Nepal, and Sri Lanka, noted that while Nepal’s success in poverty reduction is impressive, its economic potential remains largely untapped. He emphasized the need for key reforms to increase the returns from migration, boost exports, utilize hydropower efficiently, and enhance digitalization.
The development of hydropower has been slow, limiting its potential to drive economic growth. Infrastructure limitations, regulatory challenges, and gaps in digital literacy have also hindered digitalization efforts in Nepal. As a result, the country has struggled to ignite higher domestic growth and create sufficient jobs.
The World Bank’s report, produced every five years, offers a roadmap for faster growth in key sectors. It recommends policy actions in four critical areas to unlock Nepal’s economic potential. The report emphasizes the importance of facilitating firm creation, boosting export growth, and attracting domestic and foreign investment. It also highlights the need for targeted support for sectors such as hydropower, tourism, and digital services to generate significant economic and employment opportunities.
The World Bank suggests that Nepal should focus on strengthening workforce skills, enhancing institutional capacity, and improving firms’ competitiveness to boost productivity and resilience. Without these efforts, potential growth could fall below 4 percent over the long term, undermining national ambitions.
Additionally, the report calls for improving market competition in key sectors and addressing infrastructure deficits to boost exports. Developing a clear financing strategy for the hydropower sector, including the domestic bond market and frameworks for public-private partnerships, is also recommended.
The World Bank further suggests boosting the digital sector by updating the Telecommunications Act and the digital strategy and adopting key digital infrastructure to accelerate the development of the sector.
Prof Dr. Shiva Raj Adhikari, Vice Chairman of the National Planning Commission, expressed Nepal’s commitment to ensuring an enabling policy environment for sustainable growth. He mentioned that the 16th Plan for Nepal outlines a vision of good governance, social justice, and prosperity, prioritizing productivity, competitiveness, decent jobs, social security, and a smooth transition from LDC status.