The country faces a challenging transition, but it can progress if the people work together
Nepal has a unique opportunity for transformation. The recent youth-led protests underscored aspirations for greater transparency, governance and a more equal distribution of economic opportunities and resources. This yearning resonated in Nepal and beyond.
Now, Nepal must find a balance in setting prudent political, economic and financial policies to steer a difficult transition in an orderly manner. Adding to the complex domestic situation is the lingering uncertainty in the global economy. The transition process in this challenging environment should ensure an inclusive future for Nepal’s people.
Economic challenges
History shows that more equal societies tend to be associated with greater economic stability and more sustained growth. This will be a helpful guiding strategy as Nepal charts its own path to change. Indeed, a solid strategy needs to be founded on two key pillars: economic stability and inclusive growth.
In 2022, stability was among the top priorities when the country’s leaders approached the IMF for support. The collapse of tourism in the wake of the Covid-19 pandemic took a heavy toll on Nepal’s economy, including on its job market. The IMF’s financing package assisted the authorities’ Covid-19 response in mitigating the pandemic’s impact on economic activity, protecting vulnerable groups and laying the groundwork for sustained growth. The program also supported reforms to foster durable growth and reduce poverty over the medium term, including by implementing cross-cutting institutional reforms to improve governance and reduce corruption vulnerability.
In October, Nepal completed the sixth of seven program reviews, showing tangible improvement in the economy. Indeed, Nepal has been seeing the green shoots of recovery with real GDP growth rising from a mere 2 percent in FY 2023, to 3.7 percent in FY 2024, to an estimated 4.3 percent in FY 2025—more than double the pace in just a few years. In FY 2026, we still expect the country’s economic recovery to continue, though at a more moderate pace amid a complex domestic environment and global uncertainty.
Nepal has also been very successful in rebuilding policy buffers. Foreign exchange reserves have risen to nearly $20 billion, enough to cover almost a full year of imports. Fiscal discipline has helped stabilise public debt. Inflation remains well below the Nepal Rastra Bank’s target. This hard-won economic stability should be safeguarded. At the same time, the economy hasn’t fully recovered. Domestic demand remains subdued, investor confidence is waning, and more efforts are needed to protect vulnerable people.
READ MORE: https://www.imf.org/en/news/articles/2026/01/13/cf-steering-nepals-economy-amid-global-challenges
