Anti-corruption unrest threatens Nepal’s nascent economic recovery

Nepal's economic's recovery hurt by another crisis

Nepal’s fragile economic recovery is under new strain as violent anti-corruption protests threaten to undo recent gains.

Growth was projected to exceed 4 percent in the current fiscal year, after inflation eased to 4.2 percent, the slowest in four years, in FY25, but political upheaval now threatens an economy that is still dependent on tourism and remittances, while rising public debt is expected to add to the stress. Nepal's growth slowed to 4 percent in FY25 and 3.4 percent the year before.

Student protests have plunged the country into turmoil, forcing Prime Minister KP Sharma Oli to resign. The students' unrest was triggered by anger over rampant corruption and nepotism, alongside the government’s recent ban on social media websites such as Facebook and Instagram to quell protests.

The Himalayan nation has seen sharp swings in growth over the last decade, from near-zero expansion in FY16 to a robust 8.6 percent rebound in FY17. Momentum faltered again post-pandemic, with FY23 growth slipping to 2.3 percent. Despite the FY25 recovery, output remains well below the 6–7 percent levels that characterised the pre-Covid years.

Nepal’s dependence on overseas workers has never been higher. Remittances contributed 25.9 percent of GDP in FY25, up from 23.1 percent in FY23, underscoring how household incomes and consumption remain tied to migrant labour markets.

Tourism, a vital foreign exchange earner, has yet to recover from the COVID-19 pandemic fully. Nepal hosted 1.15 million visitors in 2024, still shy of the 1.19 million peak in 2019. While arrivals have rebounded sharply from 2021’s trough of just 150,000, the sector remains vulnerable to global travel disruptions.

Inflation, once as high as 9.9 percent in FY16, has moderated to 4.2 percent, supported by stable food prices and improved supply chains. After averaging more than 7 percent in FY22–23, the decline in price pressures has provided policymakers some breathing space.

But public finances remain stretched. Nepal’s public debt has risen from 25 percent of GDP in 2015 to nearly 50 percent in FY25, raising sustainability concerns and limiting fiscal flexibility.

India remains Nepal’s dominant trade partner, accounting for over Nepalese Rs 1.17 trillion of trade in FY25. Yet imports from China have surged nearly fivefold over the past decade to NPR 317 billion, reflecting Kathmandu’s growing reliance on Beijing.