Economy of Nepal

Nepal has a developing mixed economy largely driven by agriculture, services, industry, and tourism. Agriculture remains the main source of livelihood for most of the population, while the service sector including trade, transport, and communications has become increasingly important. In recent years, hydropower, manufacturing, and information technology have shown growing potential, supported by government efforts to attract investment and improve infrastructure. The country continues to pursue policies aimed at sustainable growth and regional economic integration.

History With the introduction of a planned development strategy known as the Five-Year Plans of Nepal in 1956, Nepal pursued an inward-looking state-led development strategy with the state actively intervening in and taking over strategic activities that would generate employment and improve living standards. The state established numerous public sector enterprises in almost all sectors ranging from manufacturing to food marketing, controlled trade and industry with license and quota system, protected domestic industries behind high tariffs, adopted stringent foreign exchange control, subsidized agriculture inputs, controlled prices and distribution system, and directed lending of commercial banks. Contrary to expectations, output growth remained very low at about 3 percent per annum against an annual population growth of 2.7 percent during mid-1970s to mid-1980s, exports stagnated at about 5 percent of GDP in 1985/86, imports surged from about 11 percent of GDP in 1975 to 17 percent in 1985 and the country experienced a severe macroeconomic and foreign exchange crisis.

To address the external crisis, and to reverse deteriorating macroeconomic performance, the government launched a broad range of reforms through the adoption of economic stabilization and structural adjustment programs of the International Monetary Fund (IMF) and the World Bank, respectively, in the mid-1980s. Accordingly, the rupee was devalued, import regimes were liberalized, the system of industrial licensing was eased and export procedures were simplified.

Sectors Agriculture, animal husbandry and forestry

Mining

Industry

Infrastructure

Energy

Finance

Education

Healthcare

Retail

Retail in Nepal is dominated by traditional mom-and-pop "Kirana" stores, which account for nearly 90% of the market. Urban areas are witnessing a rise in modern retail, including shopping malls, departmental stores and e-commerce platforms.

Telecommunications

Transport

Tourism

Foreign investments and taxation

Huge numbers of Small Foreign Investments come to Nepal via the Non Resident Nepali, who are investing in many sectors. Nepal has a huge potential for hydroelectricity. Accordingly, a large number of foreign companies are willing to invest in Nepal, but political instability has stopped the process. Nepal has entered into agreements for avoidance of double taxation (all in credit method) with 10 countries (PSRD) since 2000. Similarly, it has Investment protection agreements with 5 countries (PSRD) since 1983. In 2014, Nepal restricted the Foreign aid by setting a minimum limit for foreign grants, soft and commercial loans from its development partners.

Imports and exports

Nepal's merchandise trade balance has improved somewhat since 2000 with the growth of the carpet and garment industries. In the fiscal year 2000–2001, exports posted a greater increase (14%) than imports (4.5%), helping bring the trade deficit down by 4% from the previous year to $749 million. Recently, the European Union has become the largest buyer of ready-made garments; fruits and vegetables (mostly apples, pears, tomatoes, various salads, peach, nectarine, potatoes, rice) from Nepal. Exports to the EU accounted for 46.13 percent of the country's garment exports.

The annual monsoon rain strongly influences economic growth. From 1996 to 1999, real GDP growth averaged less than 4%. The growth rate recovered in 1999, rising to 6% before slipping slightly in 2001 to 5.5%.

Strong export performance, including earnings from tourism, and external aid have helped improve the overall balance of payments and increase international reserves. Nepal receives substantial amounts of external assistance from the United Kingdom, the United States, Japan, Germany, and the Nordic countries.

Several multilateral organisations such as the World Bank, the Asian Development Bank, and the UN Development Programme also provide assistance. In June 1998, Nepal submitted its memorandum on a foreign trade regime to the World Trade Organization and in May 2000 began direct negotiations on its accession.

Labour

Resources

Progress has been made in exploiting Nepal's natural resources, tourism, and hydroelectricity. With eight of the world's 10 highest mountain peaks, including Mount Everest at 8,848.86 m. In the early 1990s, one large public sector project and a number of private projects were planned; some have been completed. The most significant private sector financed hydroelectric projects currently in operation are the Khimti Khola (60 MW) and the Bhote Koshi Project (36 MW). The project is still undergoing and has dependency on China, India and Japan to take the further steps.

Nepal has 83,000 MW of theoretical and 42,133 MW of technically/financially viable hydroelectric potential, however the total installed capacity, at present, is 4105 MW and increasing.

The environmental impact of Nepal's hydroelectric Own calendar (Bikram Sambat) New year in mid- April projects has been limited by the fact that most are "run-of-the-river" with only one storage project undertaken to date. The largest hydroelectric plant under consideration is the West Seti Dam (750 MW) storage project dedicated to exports to be built by the private sector. Negotiations with India for a power purchase agreement have been underway for several years, but agreement on pricing and financing remains a problem. Currently demand for electricity is increasing at 8-10% a year whereas Nepal's option to have agreement with India will make this fulfilment against demand. As of June 2022 surplus electricity up to 364 MWp by Nepal is exported to India.

Population pressure on natural resources is increasing. Over-population is already straining the "carrying capacity" of the middle hill areas, particularly the Kathmandu Valley, resulting in the depletion of forest cover for crops, fuel, and fodder and contributing to erosion and flooding. Although steep mountain terrain makes exploitation difficult, mineral surveys have found small deposits of limestone, magnesite, zinc, copper, iron, mica, lead, and cobalt. Coal mining is also done with 11522 tones produced in 2018 alone.

The development of hydroelectric power projects also cause some tension with local indigenous groups, recently empowered by Nepal's ratification of ILO Convention 169.Jones, Peris: When the lights go out. Hydroelectric power and indigenous rights in Nepal . NIBR International Blog 11.03.10

Macro-economic trend

This is a chart of trend of gross domestic product of Nepal at market prices estimated by the International Monetary Fund and EconStats with figures in millions of Nepali Rupees.

Year Gross domestic product 1960 3,870 1965 5,602 1970 8,768 1975 16,571 1980 23,350 1985 46,586 1990 103,415 1995 219,174 2000 379,488 The following table shows the main economic indicators in 1980–2024. Inflation below 5% is in green.

YearGDP (in billion US$ PPP)GDP per capita (in US$ PPP)GDP (in billion US$ nominal)GDP growth (real)Inflation (in Percent)Government debt (in % of GDP)19807.684912.26−2.3%9.8%n/a198512.597183.216.1%4.1%n/a199018.379364.444.6%8.9%n/a199526.7011975.383.5%7.7%n/a200036.7014946.546.1%3.4%50.8%200549.0118659.333.5%4.5%45.1%200652.23196910.323.4%8.0%42.9%200755.47207611.783.4%6.2%37.9%200859.99223214.316.1%6.7%36.8%200963.10233514.664.5%12.6%39.5%201066.94246518.254.8%9.6%35.4%201170.66259121.693.4%9.6%32.4%201275.34275621.704.7%8.3%34.5%201379.32289722.163.5%9.9%31.9%201485.55311522.726.0%9.0%27.6%201589.78325224.364.0%7.2%25.7%201691.02326724.520.4%9.9%25.0%2017100.97358328.979.0%4.5%25.0%2018111.09389733.117.6%4.1%31.1%2019121.06419934.196.7%4.6%34.0%2020122.69418033.43 −2.4%6.2%43.3%2021134.00446136.934.8%3.6%43.3%2022151.64496441.185.6%6.3%42.7%2023160.16515340.912.0%7.8%47.1%2024169.12534843.673.1%5.6%49.7%

Statistics

GDP: Purchasing power parity - $149.643 billion (2024 est.)

GDP - Real Growth Rate: 3.7% (2024 est.)

GDP - per capita: purchasing power parity (current international $) - $2700 (2017 est.) GDP - composition by sector: agriculture: 17% industry: 13.5% services: 60.5% (2017 est.) tourism: 9%

Population below poverty line: 20.3% (2022 est.)

Household income or consumption by percentage share: lowest 10%: 3.2% highest 10%: 29.8% (1995–96)

Inflation rate (consumer prices): 7.1% (2023 est.)

Labour force: 8.435 million (2024 est.)

Labor force - by occupation: agriculture 19%, services 69%, industry 12% (2014 est.)

Budget: revenues: $5.954 billion expenditures: $5.974 billion, including capital expenditures of $NA (2017 est.)

Industries: tourism, carpet, textile; small rice, jute, sugar, and oilseed mills; cigarette; cement and brick production

Industrial production growth rate: 10.9% (2017 est.):

Electricity - production: 41,083 GWh (2017)

Electricity - production by source: fossil fuel: 7.5% hydro: 91.5% nuclear: 0.3% other: 0.7% (2001)

Available energy:6957.73 GWh (2017) NEA Hydro:2290.78 GWh (2014) NEA Thermal:9.56 GWh (2014) purchase (total):2331.17 GWh (2014) India (purchase):2175.04 GWh (2017) Nepal (IPP):1258.94 GWh (2014)

Electricity - consumption: 4,776.53 GWh (2017)

Electricity - exports: 856 GWh (2001) Electricity - imports: 12 GWh (2001)

Oil - production: (2001 est.)

Oil - consumption: 2001

Agriculture - products: Fruits and vegetables, mostly: apples, pears, tomatoes, peaches, nectarines, potatoes, rice, maize, wheat, sugarcane, root crops, milk, and buffalo meat.

Exports: $1.29 billion f.o.b., but does not include unrecorded border trade with India (2020 est.)

Exports - commodities: carpets, clothing, leather goods, jute goods, grain

Exports - partners: India 56.6%, US 11.5%, Turkey 9.2% (2016 est.)

Imports: $1.6 billion f.o.b. (2021 est.)

Imports - commodities: gold, machinery and equipment, petroleum products, electrical goods, medicine

Imports - partners: India 70.1%, China 10.3%, UAE 2.6%, Singapore 2.1%, Saudi Arabia 1.2%. (2016 est.)

Debt - external: $9.1 billion (2022 est.)

Economic aid - recipient: $2 billion (FY 2019/20)

Currency: 1 Nepali rupee (NPR) = 100 paisa

Fiscal year: 16 July - 15 July

Economy of Nepal

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