Nepal in 2030
As usual, with the formation of the Rastriya Swatantra Party government, the debate has re-emerged that Nepal must now move forward by restarting its economic transformation. Having navigated various political eras, Nepal has managed only marginal economic growth. It has utilised its resources, human capital, and potential at a slow pace without significantly raising living standards, quality of life, or purchasing power, leaving the economy in a sub-optimal equilibrium. This stagnation has slowed market dynamics, making economic recovery from disasters, such as the post-Covid-19 rebound, highly challenging for the country.
The demand for good governance raised by Gen-Z is widely considered the backbone of economic progress. Its absence inherently breeds multifaceted instability. Despite Nepal’s political milestones, numerous studies highlight deep-rooted public grievances against political forces and the administration, tensions that could erupt at any time if not addressed through structural reforms. Needless to say, such upheavals have already occurred. While some attribute these disruptions to external forces or geopolitical influences, a domestically resilient nation can withstand adverse external impacts.
The reality that the economic activities of ordinary Nepalis have been severely disrupted is reflected in repeated anti-state movements, highlighting slow domestic growth and external dependence. These grievances culminated in the Gen-Z movement, serving as a vehicle for change. Consequently, the evaluation of the current government and subsequent developments must be judged by the country’s economic progress, specifically the level of economic development Nepal achieves by 2030.
Because the current government holds a majority, it is stable, and this stability appears secure unless internal conflicts arise within the governing party. Therefore, the government must move forward by introducing policies aligned with its reform promises and implementing them effectively.
As various studies indicate, political parties recognise Nepal’s potential in its geographical diversity, agriculture, forest products, water resources, mineral resources, tourism, and the emerging information technology sector, emphasising the proper mobilisation of these resources and manpower. Furthermore, citizens forced to work abroad due to a lack of local opportunities should not be viewed merely as sources of remittances, but as vital conduits for skills and technologies acquired overseas.
To increase production and employment in agriculture, major initiatives must target irrigation facilities, fertiliser supply, technical assistance, and market access. Alongside the natural conservation of forests, the economic utility of forest products should also be enhanced. In industry, efforts should focus on investment promotion, technology development, streamlining the extraction of natural and mineral resources, and skill development. Domestic and foreign investment must be mobilised based on the domestic utilisation and export potential of water resources.
While necessary human capital should be developed to capture emerging information technology opportunities with an emphasis on export promotion, tourism should be expanded in coordination with neighbouring countries. Outbound trade should be accelerated by expanding international market access for potential goods and services through the production of high-quality, export-oriented products. Education must focus on skill development, while health services and infrastructure construction should be made effective.
Although economic development through the proper utilisation of resources and potential has been discussed for a long time, little progress and only marginal economic growth have been achieved due to poor implementation. The economy has failed to rebound as expected, primarily due to political instability and a lack of good governance. Policy initiatives taken in the economic sector lack the required political and administrative discipline and maturity. Consequently, the institutional framework needed for economic transformation has not been established, leaving Nepal’s position in ease of doing business rankings very low.
Nepal’s economic growth rate has averaged around 4% over the past decade, while inflation has hovered around 6%. The ratio of total consumption to Gross Domestic Product (GDP) sits at approximately 90%, indicating a severe gap between investment and savings. Remittances sent from abroad constitute about 25% of GDP, helping bring the capital formation ratio to around 30% of GDP.
Government revenue collection stands at 18% of GDP, while public expenditure reaches 27%, increasing the burden of public debt. Similarly, capital expenditure is just 4% of GDP, illustrating low investment by the government. The export-to-GDP ratio is a mere 8% against an import-to-GDP ratio of 35%, driving a massive international trade deficit. Despite growth in the money supply, financial access has not significantly improved, as those with loans from formal financial institutions number only around 1.9 million. While the use of alternative shadow financial institutions has increased, irregularities within them have also risen due to a lack of proper monitoring and supervision.
Along with political stability, if the current government remains secure without any internal turmoil within the governing party, a business- and investment-friendly environment will emerge in the country. This will allow for the proper utilisation of resources, human capital, and potential, perhaps achieving the envisioned economic growth rate of 7%. At this pace, the size of Nepal’s economy will reach $50 billion in the next three years, and exactly 10 years after that, it will reach $100 billion. This means Nepal will achieve economic growth equal to the South Asian average.
Similarly, since there are plans to implement digital systems in revenue collection, public procurement, and other government functions and transactions, the ratio of capital expenditure to GDP will upscale, perhaps reaching equivalent to the South Asian average. While this will certainly create employment opportunities and gradually reduce the exodus of Nepali workers abroad, external dependence on both foreign jobs and money will likely continue until there is a radical change in the international trade structure.
The 7% to 8% economic growth achieved after the 2015 earthquake due to reconstruction did not change Nepal’s international trade structure much. To achieve that, alongside the 7% economic growth, the contribution of the industrial sector must increase. In the service sector, the contribution of basic services as well as market-oriented services must also rise, shifting the international trade structure in Nepal’s favour. Consequently, the current reliance on remittances will decrease slightly, and the government can take concrete steps to reduce foreign employment migration.
It is natural for political forces with different ideologies to compete, but these contests should be approached positively as drivers of change rather than as instigators of conflict. The demands raised across Nepal’s polity, democrats versus conservatives, workers versus capitalists, the privileged versus the unprivileged, the marginalised versus the included, and the new versus the old, need to be reconciled to foster political stability and economic development. This requires maturity, decency, and discipline among the political forces in leadership roles.
At the same time, it is necessary to remain vigilant against internal and external factors that can exploit the country’s weaknesses and spark political instability. Moreover, private sector morale remains low due to physical damage caused by the Gen-Z movement, which threatens to cause further problems in the economy. This morale is unlikely to recover without guaranteed political stability, good governance, and investment security.
While ensuring good governance, it is vital to institutionalise transparency, accountability, and corruption control, which will safeguard Nepal’s reputation in the international arena and improve its credit rating. Contemporary debates often focus on the multifaceted aspects of good governance, including administrative politicisation, public expenditure austerity, employee unions, security, and punishing culprits, but these must not undermine the key aspects of structural economic transformation.
On top of that, effective public service delivery remains an absolute prerequisite. Democracy is fundamentally a governance system designed to serve the people, which is impossible to achieve without efficient public service delivery. Ensuring this efficiency is critical to driving market dynamism and building business confidence.
Nepal’s future course of action, anchored in good governance and political stability, will bring positive changes and deliver a strong economic development status by 2030, putting the nation on track for a $100 billion economy by the following decade. Conversely, in the absence of political stability and good governance, the country will continue crawling with only moderate growth.
Incidentally, the United Nations Sustainable Development Goals are also set to be achieved internationally by 2030. While Nepal has achieved moderate success in terms of the SDGs so far, targeted efforts over the next five years can allow the nation to stand proud on the global stage.
