Economic Turmoil in Nepal: A Deepening Crisis
Nepal is facing a significant economic downturn, with the World Bank projecting that the country’s growth for the current fiscal year will be around 2.1 percent, potentially falling into negative territory between 1.5 and 2.6 percent. This decline comes after a period of unrest in early September, which was primarily driven by individuals aged 13 to 28, known as Generation Z. The unrest, described as the worst in years, has had a profound impact on the nation’s economy.
In April, the World Bank had forecasted a 5.4 percent growth for Nepal’s economy in the current fiscal year. However, the situation has deteriorated due to additional losses from torrential rains on October 3-4, which caused severe damage to lives, infrastructure, and agriculture. The World Bank’s South Asia Development Update highlights that the September 8-9 unrest, which resulted in 75 deaths and widespread destruction, has deepened political and economic uncertainty in Nepal.
The report predicts a sharp drop in international tourist arrivals, mounting asset losses in the insurance sector, and weakened investor confidence that could slow private investment and non-hydropower construction. Economist Jagadish Chandra Pokhrel noted that the most significant impact will be on investment, as damage to private and public property sends a negative message about the security of investors’ assets in Nepal.
Pokhrel emphasized that the attacks on businesses are particularly damaging for a country aiming to graduate from Least Developed Country (LDC) status to a developing nation by November 2026. This upgrade requires substantial private sector investment, yet the recent unrest has disrupted this momentum. The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), which represents the private sector, has preliminary estimates of losses at Rs80 billion, with over 15,000 jobs directly affected.
FNCCI President Chandra Prasad Dhakal expressed hope for the new finance minister’s quick response to private sector concerns, but warned that uncertainty still clouds the prospects of economic recovery. He highlighted that the private sector often bears the brunt of protests, leading to factory closures, disrupted supply chains, and loss of investor confidence.
Dhakal stressed the need for a better understanding of the private sector’s role in job creation, tax payments, and national development. He urged the government and civil society to collaborate in building a positive image of businesses as key development partners. Policy stability and confidence-building measures are crucial for any meaningful recovery, he said, emphasizing that investment and job creation cannot thrive in an environment of political unpredictability.
The Role of Elections in Economic Stability
Dhakal also pointed out that the upcoming election is a defining moment for Nepal’s future. He warned that if the election is not conducted on time, more uncertainty may prevail, potentially leading to another crisis. Ensuring timely polls is not only a political necessity but also an economic one, as the private sector’s foremost demand is stability through predictable governance.
The World Bank’s report also highlighted the service sector, particularly tourism, as one of the hardest hit. A sharp decline in tourist arrivals is expected to affect food and accommodation services, retail trade, and transport, especially the airline industry. According to Nepal Tourism Board data, tourist arrivals fell 18 percent in September compared to the same month last year.
Agriculture will also feel the strain, with delayed rainfall during the key monsoon months of June and July in major rice-producing regions expected to dampen farm output. Nepal witnessed its worst unrest in decades when a government-imposed social media ban triggered widespread protests against corruption, which quickly spiraled into large-scale violence.
Damage assessments of public and private infrastructure are ongoing, with an interim prime minister appointed in September to hold elections in March 2026. While reconstruction efforts are expected to support a modest recovery in the next fiscal year, analysts warn that the March election, coinciding with Nepal’s peak tourism season, could further weigh on the economy.
Structural Challenges and Youth Unemployment
The protests underscored deep frustrations with poor governance, rampant corruption, and growing discontent among youth over the lack of economic opportunities. The World Bank noted that youth unemployment reached nearly 22.7 percent in fiscal year 2022-23, among the highest in South Asia. With few prospects at home, labor migration has become a dominant livelihood strategy, and remittances account for nearly one-quarter of GDP.
Before the recent unrest and floods, Nepal’s economy had shown signs of recovery, with growth reaching 4.6 percent in the fiscal year ending mid-July 2025, up from 3.7 percent a year earlier. Supported by robust hydropower generation, a rebound in industrial output, and stronger agricultural activity, the economy was on a positive trajectory.
The World Bank observed that many South Asian countries have experienced waves of social unrest in recent years, leading to government collapses in Nepal, Bangladesh, and Sri Lanka. While popular uprisings can create opportunities for necessary reforms, they often disrupt economic activity in the short term.
Citing data from 24 emerging market and developing economies (EMDEs) between 2000 and 2022, the report found that where social unrest toppled governments, GDP fell by an average of 5 percent in the subsequent quarters. These downturns were often accompanied by rising inflation and financial instability, with more severe impacts after prolonged unrest or violent uprisings.
Global Implications and Future Outlook
In South Asia, the report highlighted that many governments’ ability to cushion such shocks through expansive fiscal policies is limited by high public debt levels. Instead, policymakers should prioritize job creation to absorb the region’s rapidly expanding labor force. Between 2010 and 2024, South Asia’s working-age population grew by about 16 million annually, but the region created fewer than 10 million jobs a year.
The report also warned that ongoing global trade tensions and weak investment could slow global growth, with spillover effects on South Asia. High debt has made several South Asian economies vulnerable to rising interest rates and slower growth. As banks hold large amounts of sovereign debt, fiscal stress can quickly spread to the financial system.
While artificial intelligence (AI) offers opportunities to boost productivity, it could also disrupt labor markets. Rising tariffs in major export markets may undermine efforts to strengthen manufacturing, and mounting geopolitical pressures could push up energy costs and threaten regional energy security.
