Kathmandu: Nepal’s economic growth is projected to slow sharply to 2.1 percent in FY26 from 4.6 percent in FY25, largely due to the impact of the September 2025 public unrest and ensuing political instability, according to the World Bank’s latest Nepal Development Update released today.
The report, titled “Reforms to Accelerate Public Investment,” notes that the services sector is expected to be the most affected, with the overall economic outlook remaining highly uncertain. The World Bank, however, projects a rebound to 4.7 percent in FY27, supported by reconstruction efforts.
On the upside, a successful political transition and sound economic management could improve investor confidence and support recovery. Conversely, prolonged uncertainty could dampen sentiment and delay investment.
“To restore business confidence and accelerate recovery, the government has launched an Integrated Business Recovery Plan offering grants, tax incentives, and operational support,” said Finance Minister Rameshore Prasad Khanal. He added that public resources have been reprioritized for infrastructure rehabilitation and election preparations, while a Reconstruction Fund has been set up to rebuild damaged public and private assets.
Beyond short-term recovery, the report stresses the need for stronger public investment management to drive long-term growth. In FY24, Nepal’s capital spending stood at 7.9 percent of GDP, significantly below the 10–15 percent required annually to meet infrastructure needs.
“Boosting public investment is critical for improving growth, creating jobs, and building prosperity for Nepalis,” said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. “This will require reforms in project planning and budgeting, streamlining land and tree clearance processes, improving cash management, and updating procurement laws.”
The Nepal Development Update, published twice a year, provides an overview of key economic trends and policy challenges, situating Nepal’s performance within a broader global context.