Nepal’s Repeated Crisis Cycle: World Bank Cautious on Growth as Government Sets 7% Target

Nepal’s economy has repeatedly struggled to recover from major disasters and political upheavals, with a familiar pattern emerging after each crisis. While the government has consistently set ambitious economic growth targets through its annual budgets, institutions such as the World Bank, Asian Development Bank (ADB), and International Monetary Fund (IMF) have generally adopted more cautious projections after major shocks. The 2015 earthquake provides an early example of this gap. Before the disaster, the government had targeted 6% economic growth for fiscal year 2071/072, while the Central Bureau of Statistics and World Bank had projected growth of around 4.58% and 4.6%, respectively. The earthquake caused an estimated Rs. 700.6 billion in economic losses, equivalent to roughly one-third of the country’s GDP. Growth subsequently slowed to 2.97% that year and fell further to 0.43% in FY 2072/073. However, reconstruction, donor support and infrastructure investment helped trigger a strong rebound, with growth reaching 7.74% in FY 2073/074. A similar pattern emerged during the COVID-19 pandemic. The World Bank initially projected Nepal’s growth to fall within a range of 0.2% to 1.5%, while subsequent estimates remained subdued. The nationwide lockdown, disruption to tourism and trade, and broader economic restrictions eventually pushed Nepal’s growth to -2.12% in FY 2076/077, marking the country’s first negative economic growth in four decades. Although the government had expected a relatively rapid recovery, the economic rebound took longer than initially anticipated. The Gen Z movement of 2082 created another major economic shock. The government had set a 6% growth target for the fiscal year, while the World Bank initially projected 5.2% growth. Following the political unrest and resulting uncertainty, the World Bank sharply lowered its forecast to 2.1%, citing weaker private-sector confidence, reduced tourist arrivals, property damage, pressure on the insurance sector and agricultural risks. Actual economic growth eventually stood at 3.85% in FY 2082/083, falling short of the government’s target but exceeding the World Bank’s revised projection. The latest BhoteKoshi–Trishuli floods have once again highlighted the divergence. A preliminary assessment by the National Disaster Risk Reduction and Management Authority and the National Planning Commission estimated direct damage from the floods at Rs. 408 billion, with approximately Rs. 723 billion required for long-term recovery. Damage to hydropower projects, transmission infrastructure and transportation networks has also raised concerns about broader economic activity. Following the disaster, the World Bank lowered its growth forecast for the current fiscal year to 3.7% from 3.9%, while the Asian Development Bank has projected growth of 4.1%. The World Bank expects disruptions in hydropower and transportation to weigh particularly on the industrial and services sectors. In contrast, the government has maintained an ambitious 7% economic growth target for the current fiscal year and has outlined a broader goal of sustaining average growth of 7% over the next decade. The continuing gap between government targets and external forecasts highlights the challenges facing Nepal’s economy. Despite more than Rs. 11 trillion in potentially investable funds in the banking system, private-sector investment remains weak, while government capital expenditure has averaged only around 64.1% over the past decade. Against this backdrop, achieving the government’s 7% growth target could prove challenging. At the same time, the World Bank’s risk-focused assessments underscore the need for stronger reconstruction, investment, disaster resilience and structural reforms to support sustainable economic recovery.