Kathmandu: The World Bank (WB) has projected that Nepal’s real GDP growth will decelerate to 2.1 percent in FY26 due to recent unrest and heightened political and economic uncertainties. The latest Nepal Development Update (November 2025) released today indicates a potential growth range of 1.5 to 2.6 percent for the fiscal year.
According to National News Agency Nepal, the WB report highlights that poverty rates, measured at USD 4.2 per day, are slightly higher than previously estimated, reaching 6.6 percent in FY26 and 5.9 percent in FY27, up from earlier projections of 6.2 percent and 5.4 percent, respectively. Reconstruction efforts are anticipated to commence in FY26 and accelerate by FY27, aiding in a GDP growth recovery to 4.7 percent in FY27.
The services sector is expected to be a major contributor to the projected growth slowdown, with a significant drop in tourism due to decreased international arrivals and the aftermath of asset losses affecting insurance services. A recovery in the services sector is forecasted for FY27, driven by a rebound in tourism, the dissipation of insurance shocks, and government initiatives to insure public property.
In the industrial sector, growth is anticipated to slow marginally in FY26, with robust hydropower-related activities offset by weakened private investment and construction due to diminished investor confidence. However, growth is expected to sharply rise in FY27, fueled by public projects and reconstruction initiatives. Meanwhile, agriculture growth is projected to soften in FY26, primarily due to delayed paddy planting in Madhesh Province, but is expected to rebound in FY27, assuming favorable monsoon conditions.
Finance Minister Rameshore Prasad Khanal has announced an integrated business revival plan to restore business confidence and accelerate economic recovery, which includes grants, tax exemptions, and operational support. Khanal emphasized the allocation of public resources for infrastructure reconstruction and election preparations, alongside the establishment of a reconstruction fund to restore damaged properties.
David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka, stressed the importance of boosting public investment to enhance growth and create jobs. He underscored the need for reforms in project planning, budgeting, land acquisition, cash management, and procurement processes to expedite project delivery.
Inflation is expected to remain within the central bank’s 5 percent ceiling over the medium term, influenced by easing global commodity prices, moderating inflation in India, and softer cost pressures. Nevertheless, potential declines in domestic paddy output could keep food inflation elevated in FY26.
The current account surplus is projected to widen in FY26, driven by rising remittances, despite an anticipated increase in the trade deficit and underperformance in tourism. The fiscal deficit is expected to widen in FY26 due to increased spending on reconstruction, elections, and private sector relief. However, this deficit is forecasted to narrow in FY27 as revenues recover.
The economic outlook is subject to mixed risks, including natural disasters, political uncertainty, and financial sector strains, balanced by potential upsides from a successful political transition and effective macroeconomic management.