World Bank projects Nepal’s growth to slow to 2.3% in FY26, cites Middle East conflict and domestic unrest – The Himalayan Times – Nepal’s No.1 English Daily Newspaper

KATHMANDU, APRIL 9

Nepal’s economic growth is projected to slow sharply to 2.3 percent in the current fiscal year from 4.6 percent in FY25, according to the World Bank’s latest Nepal Development Update released on Wednesday, with the ongoing Middle East conflict and the lingering effects of the September 2025 domestic unrest cited as the primary factors.

The report, titled Growth Under Pressure: Navigating Domestic and Global Shocks, projects a recovery to an average of 4.4 percent growth over FY27–FY28, supported by reconstruction activities, continued hydropower expansion, and consumption linked to the 2027 subnational elections.

The services sector is expected to bear the brunt of the slowdown in FY26, with tourism activity weakening, transport costs rising, and potential supply chain disruptions adding pressure. The World Bank warned that a prolonged Middle East conflict could further dampen tourist arrivals, reduce remittance inflows, and weaken overall consumption. On the upside, the report noted that improved political stability following the March elections, sound macroeconomic management, available fiscal buffers, and continued structural reforms could bolster investor confidence and support a faster recovery.

“Boosting private sector-led growth will be critical to strengthening economic resilience and creating more jobs in Nepal,” said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. “To achieve this, Nepal must improve the business environment, develop foundational infrastructure, mobilize private finance, and support priority sectors such as tourism, the IT sector, and agribusiness.”

The Nepal update accompanies the World Bank’s South Asia Economic Update, which projects regional growth to slow to 6.3 percent in 2026 from 7 percent in 2025, also due to global energy market disruptions, before recovering to 6.9 percent in 2027. Despite the near-term moderation, South Asia continues to outpace other emerging-market and developing economies.

The regional report includes an analysis of industrial policy across South Asia, finding that while governments in the region implement industrial policy at roughly twice the rate of other emerging economies, results have been mixed. The World Bank attributed this in part to limited implementation capacity, fiscal space, and market size.

“While broad-based reforms remain the priority, well-calibrated industrial policies could address specific market failures,” said Franziska Ohnsorge, World Bank Group Chief Economist for South Asia, pointing to industrial parks, skill development programmes, market access assistance, and export quality standards as examples of targeted measures that could yield results.