The Ministry of Finance’s recent Nepal’s Current Economic Situation Report sets out to present a realistic assessment of the economy and provide a basis for policy direction. That objective is timely and important. Economic policy must begin with diagnosis, and a well-documented report is a necessary foundation for that process.
I write this in a spirit of constructive hope. I have welcomed this government and continue to wish it every success. But success requires clarity. Problems must be stated accurately before policies can be designed effectively. The value of a diagnostic report lies not only in the data it presents, but in how those data are selected and interpreted. On that front, the Report leaves important gaps. In some cases, its presentation risks creating an impression of stronger economic performance than the evidence supports. In others, key relationships are left unexplored. The result is a document that is informative, but not fully illuminating.
This article does not cover every issue raised or missed in the Report. Instead, it focuses on areas central to Nepal’s prosperity: economic growth, investment, trade, remittances, infrastructure, energy use, fiscal policy, and exchange rate dynamics.
1. What the numbers hide
The report highlights large increases in GDP, income, and trade. At first glance, these numbers appear impressive. GDP at current prices rises from about Rs 2.6 trillion in 2016 to Rs 6.1 trillion in 2025. Per capita income, in US dollars, increases from $888 to $1,496.These are correct figures—but they are nominal.In real terms, GDP rises from roughly Rs 4.1 trillion (in 2025 prices) to Rs 6.1 trillion, while per capita income increases from about $1,065 to $1,496.
Nominal expansion reflects prices as much as progress. By relying on nominal values across time, the Report creates a misleading impression of stronger economic performance than the underlying reality supports. For judging economic progress over time, the data should have been presented in real, inflation-adjusted terms.
2. What the Report understates
Once the data are read in real terms, a clearer picture emerges. Real GDP growth has averaged around 4.2 percent over the past decade, with fluctuations but no sustained upward shift, as the Report itself notes. For an economy at Nepal’s stage of development, this is modest. Countries at Nepal’s income level typically experience periods of rapid expansion driven by structural change, rising investment, and integration into global markets.
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The Report mentions growth, but does not place sufficient emphasis on Nepal’s relative underperformance. Nor does it adequately place that performance in a regional context. Neighboring economies such as India and Bangladesh have grown faster and more consistently over the last two decades. In the last five years, for example, India’s growth has been roughly twice Nepal’s. That divergence is already visible in living standards. Nepal’s per capita income, at about $1,496, is now roughly half that of India and Bangladesh. Two decades ago, Nepal’s income was only one-quarter below Bangladesh’s and about one-third below India’s.
Had the Report presented these facts in a comparative context, the need for faster growth would have appeared more clearly and urgently. Instead, while it acknowledges that growth has been slow, it does so without sufficient comparison to convey the scale of the challenge. In doing so, the Report misses an opportunity to make a compelling case for the urgency of Nepal’s growth problem.
3. Investment: The missing link to growth
The Report correctly notes that investment has fallen to about 24 percent of GDP. But beyond stating this decline, it does not examine the deeper investment problem: why national saving is not translating into productive capital, why investment efficiency has weakened, and why regulatory and implementation constraints reduce the return from capital.
Despite very low and falling domestic savings, remittance inflows have raised national saving substantially. Yet roughly one-third of national saving does not appear in investment.The problem is not only quantitative, but also qualitative. Nepal now requires about $10 of investment to generate $1 of additional GDP, compared with roughly $5 in India. This suggests that capital is not only insufficient, but also used less productively. Implementation delays, weak project selection, regulatory complexity, and low productivity of capital all reduce the return from investment.
Relatedly, the Report acknowledges governance challenges and policy uncertainty, and its broader spirit is supportive of private-sector participation. But it does not fully connect these concerns to investment outcomes. Excessive, poorly designed, or discretionary regulation weakens incentives for entry, expansion, formalization, and risk-taking. Delays in approvals, uneven enforcement, and high compliance costs discourage investment and reduce the productivity of investment that does occur. The Report would have been stronger had it addressed this issue.
The implication is not simply that Nepal needs more investment. It needs investment that is better allocated, more productive, and supported by an environment where capital can be converted into output. This matters because remittance income, unlike savings generated through domestic production, does not carry a built-in link to productive investment. Without deliberate policy, incentives, financial channels, and viable investment opportunities, it is less likely to translate into productive activity.
4. Trade: The missing external diagnosis
The most important gap in the Report lies in the absence of integration. Key elements are discussed, but not brought together into a coherent analytical framework.This is particularly evident in the external sector. The Report provides useful information on trade, but does not present the central fact clearly enough: Nepal runs a large and persistent trade deficit. Over the last five years, the trade deficit has averaged around 30 percent of GDP.This is not a marginal imbalance; it is the largest in the world, except for a couple of war-trodden countries.That scale should create a sense of urgency, but the Report does not convey it clearly. As a result, the central message does not come through clearly: Nepal’s trade imbalance is not temporary; it is a structural feature of the economy.
At the same time, the Report focuses only on goods trade and omits services trade. Nepal once ran a surplus in services, supported mainly by tourism. More recently, however, services trade has moved into deficit, as spending by Nepalis abroad, including education and travel, has outpaced earnings from foreign visitors. This shift has further weakened Nepal’s external earning capacity.
A related issue arises in the presentation of goods exports. The Report presents export data, again, in nominal terms, showing an increase from about Rs 70 billion in 2016 to Rs 277 billion in 2025. On the surface, this appears substantial. But this presentation is misleading for structural assessment. The increase is not assessed relative to the size of the economy, nor is it placed in a longer-term context. Expressed as a share of GDP, exports have declined over time. Moreover, the most recent export figure appears unusually high relative to previous years, suggesting it may reflect a one-off increase rather than a durable trend. The analysis would have been more complete had it presented goods and services together, related exports to GDP, and emphasized the longer-term trend rather than a single-year jump.
A similar issue arises in the treatment of remittances. The Report recognizes remittances as a stabilizing force, but does not fully connect them to the broader structure of the economy. Remittances now exceed 30 percent of GDP and play a central role in financing imports and sustaining consumption. They help maintain external balance, but not through domestic production. Trade deficits and remittances are not separate issues; they mirror and reinforce each other.The analysis would have been more complete had it made that connection explicit.
The role of competitiveness is also underdeveloped. The Report mentions exchange-rate issues, but without a clear punchline. While the nominal exchange rate has depreciated, reaching around Rs 150 per US dollar, roughly three times its level in the late 1990s, this does not capture the full picture. When adjusted for inflation in Nepal and its trading partners, the real exchange rate, the measure that matters for trade, has appreciated by about 79 percent vis-à-vis the US. This has made Nepali goods and services more expensive relative to foreign competitors, weakening export performance.
5. Infrastructure, energy and fiscal situation
The Report also highlights progress in physical infrastructure, noting that blacktopped roads have expanded by about 1,000 kilometers per year over the past decade and that electricity generation has increased almost fivefold to exceed 4,000 megawatts. These are important achievements, but their interpretation requires care. Such investments are already reflected in overall GDP growth, which, as shown earlier, has remained modest. An expansion of the road network of that magnitude may be meaningful, but it must be assessed against Nepal’s geography, population, connectivity gaps, and the scale of public resources devoted to road construction. The relevant question is not only whether the road network expanded, but whether that expansion generated value for money and raised productivity.
A similar issue arises in the case of energy. The Report emphasizes electricity generation and Nepal’s large hydropower potential. But the central issue is energy use. Nepal remains one of the lowest energy-consuming economies in the world. Even within that low level, roughly two-thirds of energy use still comes from traditional sources such as firewood, agricultural residue, and animal waste, while electricity accounts for only about 10 percent of total energy consumption. The Report is silent on utilization. Without widespread adoption of modern energy across the economy, increased generation does not translate into productivity gains. The emphasis on production capacity and potential, without corresponding attention to actual use, leaves a critical gap in the analysis.
This has an important implication for policy. In a low-use economy, exporting electricity is less a sign of strength than evidence that domestic production has not absorbed modern energy.
Fiscal policy is discussed more thoroughly in the Report, but here too the analytical connection remains incomplete. The Report identifies rising expenditure and pressures on revenue. Over the last five years, the fiscal deficit has averaged around 18 percent of GDP, a very large figure. This reflects sustained growth in expenditure, while revenue has risen more slowly and has even declined in recent years, a concern noted in the Report. However, Nepal is already a relatively high-tax economy by regional standards, with revenue at around 20 percent of GDP compared to about 17 percent in India and much lower in Bangladesh. Expanding the tax base by bringing the informal sector into the system and addressing loopholes is important, but further tax increases are unlikely to be the primary solution. The deeper issue lies in the structure of expenditure. A large share of public spending is directed toward current expenditure, while capital investment remains limited. This has direct implications for growth, yet the connection is not strongly drawn in the Report.
6. From description to diagnosis
The Ministry of Finance report contains many of the right elements, but remains largely descriptive. It presents indicators without fully integrating them into a clear economic narrative. In that sense, the Report often stops where the real debate should begin: identifying the core constraints and asking how they can be addressed.
Nepal’s economy has expanded, but it has not transformed. Growth has continued, but not accelerated. Income has risen, but slowly relative to peers. Investment exists, but is not effective enough. Infrastructure is expanding, but not being used productively. External balance is maintained, but not through production.
The issue is not that Nepal lacks resources. It is that it does not use them productively. What is needed now is not more description, but sharper diagnosis and serious policy framing. Nepal’s task is not merely to grow, but to grow differently: to convert savings into investment, investment into output, energy into productivity, and remittances into domestic opportunity. That is the difference between expansion and transformation.
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