The deadliest fall in Nepal is not off a cliff. It is in the population data. The country, better known for exporting labour than economic models, is primed to join an exclusive but unwelcome club: that of countries facing population decline before achieving middle-income prosperity. In a twist that would not have surprised John Maynard Keynes—who warned of the “disquieting” effects of a falling population back in 1937—Nepal’s demographic curve is bending before its economic one has straightened.
According to the 2021 Census Report, its population growth has decelerated to 0.93% a year since 2011, down from 1.35% the previous decade. Fertility, once high enough to alarm environmentalists, has fallen below the replacement level of 2.1. The current fertility rate of 1.98 may seem a rounding error away from stability. In reality it spells trouble.
Life expectancy, by contrast, is on the rise: now at 71 and projected to hit 83 by the century’s end. That’s a medical success story but an economic quandary. Fewer babies, more pensioners: the arithmetic is not kind. Already by 2028, 7% of Nepal’s population will be over 65. By 2054 that will double. This ageing trend, paired with declining fertility and accelerating emigration, is tightening the demographic noose.
The timing is awkward. The country is still enjoying its demographic dividend, a sweet spot in which the working-age population outnumbers the dependent young and old. But like most windfalls, this one comes with an expiry date. Some demographers say the dividend could last until 2047; others, more optimistic, suggest it might stretch another half-century. Regardless, the bill will eventually come due.
What then? A soaring dependency ratio will mean fewer workers supporting more retirees. That burdens state coffers already stretched thin. The IMF estimates social-security and healthcare costs in ageing developing economies could soar by as much as 11% of GDP by 2100. In Nepal’s case that may necessitate either higher taxes, deeper deficits or politically treacherous spending cuts—perhaps in education, which would only compound the problem.
The labour market provides little relief. The labour force participation rate inched up from 40.2% to 40.5% between 2022 and 2023, but that is more a reflection of necessity than confidence. And the pipeline is leaking: more than 800,000 Nepalis left the country for work in 2023, joined by more than 100,000 students seeking opportunities abroad. What returns are remittances—amounting to nearly a quarter of GDP—but not the workers themselves. The country is left rich in currency but poor in capacity.
That exodus drains the tax base and hollows out the domestic market. Keynes worried falling populations would sap investment and depress demand. But Charles Jones, a Stanford economist, adds another concern: innovation. Economic growth, he argues, is driven not merely by capital or labour but by ideas. Fewer people mean fewer ideas—and slower progress. The risk is a sliding population triggers a deceleration in technological advancement, thereby eroding gains in productivity and eventually living standards.
Worse, the country may get caught in a demographic trap. As fewer children are born the costs of raising them rise, particularly as aspirations climb. Education, healthcare and migration are seen as investments not indulgences. The rational choice is to have fewer children, and to invest more in each. But this very rationality feeds a self-reinforcing loop: each generation smaller, costlier and more reluctant to reproduce than the last. The low-fertility trap, as demographers call it, is not a spiral but a slow, inexorable slide.
Can Nepal arrest the slide? Perhaps, but not easily. Incentives to boost fertility have a poor track record in most countries, and Nepal’s fiscal space to pursue them is narrow. More promising would be a focus on productivity: improving education, empowering women, upgrading infrastructure and easing the barriers to formal work. Immigration, too, could provide a valve, though it would require a cultural and political rethink.
In the meantime policymakers must make peace with the paradox. Nepal is still young, but ageing fast. Its people are poor, but living longer. Its workforce is large, but leaking talent. And its growth, such as it is, may be undermined not by any war or disaster, but by the arithmetic of demographics.
In the end it is not the peaks but the plateaus that are hardest to climb. ■
