In the 1980s Deng Xiaoping declared that “to get rich is glorious”. Nepal, by contrast, has settled for a quieter ambition: to become merely upper-middle-income by the early 2030s and high-income by 2043. A noble aspiration, no doubt. But without serious reform, it risks becoming just another developing nation stuck in the purgatory economists euphemistically call the “middle-income trap”. At present growth rates, its growth resembles less a Himalayan ascent and more a slow uphill trudge, burdened by political malaise, lacklustre productivity and a development model increasingly out of sync with modern growth dynamics.
The numbers do not flatter. Its gross national income (GNI) per capita is some $1,456, barely past the threshold of lower-middle-income status. At the current average nominal growth rate of roughly 10.2%, the country could cross into upper-middle-income territory in just over a decade. But getting to high-income status—requiring a GNI per capita of more than $14,005—would take twice as long, assuming the pace doesn’t slacken. It probably will. Growth tends to slow as economies climb, for the simple reason that the returns to piling on capital diminish. This is the core of the middle-income trap: what got you here won’t get you there.
History is not encouraging. Of the 86 economies currently considered high-income, only 34 have made the leap since 1990. Latin America and the Middle East are littered with the economic skeletons of once-promising countries that plateaued before prosperity. Since 1970 average income in middle-income economies has remained below 10% of American levels. Nepal could join their ranks unless it finds a way to do what so many others have not: sustain growth after the easy gains of capital accumulation run dry.
The problem is not a lack of desire. Nepal, like many developing countries, has no shortage of national plans, development targets and vision documents. But it does lack something more fundamental: productivity. Over the previous 45 years total factor productivity—the efficiency with which capital and labour are used—has swung erratically between positive and negative territory. Growth has come largely from remittances and infrastructure, not from the magic ingredient of economic transformation: doing more with less.
What, then, is to be done? The World Bank offers a neat formula, grounded in five decades of cross-country evidence: investment, infusion and innovation. In plainer English: build, borrow and invent.
The first stage—investment—is something Nepal is reasonably familiar with. Public spending on roads, hydropower and telecoms has picked up, aided by development partners and foreign remittances. But even here, the picture is patchy. The country spends less than 5% of GDP on education, below the average for low-income countries. Worse, much of that spending is poorly targeted or absorbed by bloated bureaucracy.
The second stage—technology infusion—is trickier. It requires opening up to global business models, upgrading domestic firms and, above all, skilling the workforce. Nepal’s education system is still stubbornly rooted in rote learning, churning out graduates ill-suited for a modern economy. Women, who make up half the population, are penalised with persistent barriers to participation in education and labour markets. Unlocking their economic potential could yield the kind of growth dividends no infrastructure project can match. America, after all, owes a third of its per capita growth between 1960 and 2010 to reduced racial and gender discrimination. Without that, its income today would be closer to $50,000 than $82,000.
The final stage—innovation—is the hardest of all, and the one that most countries fail to reach. It involves not only adopting others’ technologies but producing your own. That requires competitive markets, strong research institutions, vibrant capital markets and, crucially, global talent. Nepal’s large diaspora, often seen as a symptom of domestic failure, could become an asset—if the country can find ways to attract investment, ideas and expertise from its far-flung citizens.
The precedent for such a leap exists. In 1960 South Korea’s income per head was only $1,200 in today’s money. By the end of 2023 it had climbed to $33,000. The secret was a state-led strategy that sequenced reforms: first mass investment, then industrial upgrading via foreign technology and finally homegrown innovation. Samsung, a noodle trader turned global tech giant, became a poster child for this metamorphosis. Nepal has no equivalent champion. But it could start by focusing less on creating conglomerates and more on building a competitive environment in which small and medium firms can thrive, scale and specialise.
The route to riches also requires staying upright in geopolitics’ slippery terrain. Wedged between India and China, Nepal is increasingly being courted as a pawn in a regional chess match. America is also eager to offset Chinese influence in the Himalayas. This attention brings both opportunities—investment, trade, diplomatic capital—and hazards, namely dependency and volatility. Maneouvering it will demand more from Kathmandu’s mandarins than tired nationalism and petty politicking.
None of this will be easy. The demographic dividend is fading, environmental constraints are growing and political consensus is fleeting. Kenneth Boulding, a British-born economist, once quipped that “anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist”. In Nepal’s case the danger is not believing in growth at all—at least not the kind that demands difficult reforms and long-term vision.
Getting rich may indeed be glorious. But becoming rich—really rich, not just statistically middle-income—is also laborious, strategic and politically inconvenient. The choice facing Nepal is not whether to dream of prosperity, but whether to do the heavy lifting required to make it real.
Otherwise, its economic ambitions may prove, like so many of its rivers, fast-moving on the surface but ultimately going in circles.
