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KATHMANDU’S STATISTICIANS have a gift for large numbers. The latest national accounts, which provide projections for the 2025-26 fiscal year, show Nepal’s economy reaching Rs6.6trn, a fourfold increase in fifteen years. Yet this nominal Everest hides an oxygen-starved reality. Real growth is forecast to moderate to 3.85%, trailing the five-year average. For the third year in a row, the average citizen is expected to earn about $1,513. In a country defined by verticality the economy has hit a flat patch.
The source of this stagnation is a curious paradox. Nepal possesses an abundance of capital that it seems unable to use. National savings are pencilled in at 44.8% of GDP, a figure that would make a frugal Swiss banker blush. This hoard is built on the backs of millions of workers abroad. Remittances now account for a projected 33% of economic output, or Rs2.18trn. This is a sum larger than the entire government budget. These funds ought to provide the firepower for a domestic investment boom. Instead they sit in bank vaults. The investment rate of 26.3% suggests that much of this wealth is exported back out or trapped in unproductive corners.
This failure to transform cash into capacity is most evident in the state’s own books. Government consumption is expected to collapse by 24% in nominal terms as fiscal consolidation bites. More worrying is the state of infrastructure. Public capital expenditure is estimated to have halved to Rs330bn. While the private sector has stepped in with Rs1.27trn of its own investment—the highest in five years—the state’s withdrawal creates a vacuum. A country cannot build a modern economy if its government stops building roads and bridges.
Energy provides a rare glimpse of what might be. The electricity sector is projected to surge by 20.9% this year, a second consecutive year of blistering growth. In fifteen years its value has increased eightfold. This is the one part of the economy where the transition from water to wealth is actually functioning. It is an efficiency narrative rather than a price one; real gains are outstripping nominal ones. This power surplus could fuel a manufacturing revival yet that sector is expected to stay stuck at a measly 5.7% of GDP. Nepal is becoming a services-dominated economy before it has ever truly industrialised.
The tertiary sector now accounts for a projected 61.8% of output. Much of this is driven by wholesale and retail trade, forecast to grow at 4.5%. This is the economy of the middle class spending their remittance cheques on experiences and imported goods. The import bill is expected to reach Rs2.28trn, leaving a trade deficit that acts as a structural drain. Exports cover a mere 29% of what the country buys from abroad. Although goods exports doubled over three years, they still look like a rounded error compared to the flood of foreign consumer products.
A secondary effect of this reliance on services and imports is a biting cost of living. The GDP deflator shows that prices have more than doubled since 2011. In education costs have tripled. This inflation eats the gains made by the 30m people living in the shadow of the Himalayas. When growth in real per capita income slows to a projected 2.9%, poverty reduction loses its teeth.
The upshot is an economy that resembles a luxury car with no fuel lines. The wealth exists, the savings are parked and the electricity is humming. But the transmission to real, productive growth is broken. Without a state capable of deploying its own capital and a manufacturing base that can do more than just package imports, the dollar income of the average Nepali will stay stuck at its current level. The view from the plateau is impressive but the climb has stopped. ■
