World Bank lowers Nepal’s economic growth projection due to political unrest

Kathmandu -  The World Bank (WB) has said Nepal’s economic growth could  come down to 2.1 percent for the current fiscal year (FY) following last month’s Gen Z protests.

The 24-hour unrest in early September— called by the Generation Z demanding an end to corruption in the country—is expected to limit the country’s economic growth to 2.1 percent in the current fiscal year, with a possible negative growth between 1.5 and 2.6 percent, the World Bank said on Tuesday.

In April, the World Bank had projected Nepal’s economy to grow by an average of 5.4 percent in the current fiscal year.

The report, however, does not factor in the additional losses caused by the torrential rainfall of October 3–4, which inflicted severe damage on lives, infrastructure, and agriculture.

In its South Asia Development Update: Jobs, AI, and Trade, the World Bank said that the September 8–9 unrest—which left 75 people dead and widespread destruction—has deepened political and economic uncertainty in Nepal.

It expects international tourist arrivals to drop sharply, the insurance sector to face mounting asset losses, and weakened investor confidence to slow private investment and non-hydropower construction.

Preliminary estimates compiled by the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the umbrella organisation of the private sector,  show losses of about Rs80 billion, with more than 15,000 jobs directly affected by the recent unrest.

According to Nepal Tourism Board data, tourist arrivals fell 18 percent in September compared to the same month last year.

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, labour migration has become a dominant livelihood strategy, and remittances—accounting for nearly one-quarter of GDP—continue to sustain household consumption.

The World Bank observed that many South Asian countries have experienced waves of social unrest in recent years. Public uprisings led to government collapses in Nepal in September, Bangladesh in August 2024, and Sri Lanka in July 2022.

“Popular uprisings can create opportunities for necessary economic and social reforms,” the report said. “In the short term, however, they often disrupt economic activity.”

In South Asia, the report said, many governments’ ability to cushion such shocks through expansive fiscal policies is limited by high public debt levels. Instead, policymakers should prioritise job creation to absorb the region’s rapidly expanding labour 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.