Growth in Nepal is expected to slow significantly in the fiscal year 2026, dropping to 2.1 percent from 4.6 percent in the previous year, according to a new economic update released by the World Bank. The report attributes this slowdown mainly to public unrest in September 2025 and ongoing political instability. However, reconstruction efforts are projected to help the economy rebound, with growth forecasted at 4.7 percent for FY27.
The latest edition of the Nepal Development Update: Reforms to Accelerate Public Investment highlights that the services sector will likely be most affected by these developments. The report notes considerable uncertainty regarding Nepal’s economic outlook. It suggests that successful political transition and continued sound economic management could improve investor confidence and support a stronger recovery, while ongoing uncertainty may have the opposite effect.
Honorable Finance Minister Rameshore Prasad Khanal commented on government measures aimed at restoring stability: “To restore business confidence and accelerate recovery, the government has launched an Integrated Business Recovery Plan, offering grants, tax incentives, and operational support,” he said. “Public resources have been reprioritized toward infrastructure rehabilitation and election preparations, and a Reconstruction Fund has been established to help restore damaged public and private assets. These initiatives aim to reinvigorate private sector activity while laying the foundation for a more resilient economy.”
The World Bank report also points out that long-term growth will depend on improving how public investments are managed. In FY24, capital spending by all levels of government reached only 7.9 percent of GDP—well below what is needed to meet infrastructure demands, which is estimated at between 10-15 percent of GDP annually.
David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka stated: “Boosting public investment is critical for improving growth, creating jobs, and building prosperity for Nepalis. This requires implementing key reforms including strengthening project planning and budgeting, streamlining land acquisition and tree-cutting processes, improving cash management efficiency, and amending procurement laws and regulations to speed up project delivery.”
The Nepal Development Update is published twice yearly by the World Bank and provides detailed analysis of recent economic trends within both national and global contexts.