With 189 member countries, staff from more 170 countries, and offices in over 130 locations, the World Bank Group is a unique global partnership: five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries. The World Bank Group works in every major area of development. We provide a wide array nepal investment bank exchange rate financial products and technical assistance, and we help countries share and apply innovative knowledge and solutions to the challenges they face. We face big challenges to help the world’s poorest people and ensure that everyone sees benefits from economic growth.
Data and research help us understand these challenges and set priorities, share knowledge of what works, and measure progress. Nepal’s past economic performance, current challenges and prospects ahead. Nepal’s recent history of development is marred by a paradox. Many countries in the world have experienced rapid growth but modest poverty reduction, as income has increasingly concentrated in the hands of the wealthy. Nepal, however, has the opposite problem—modest growth but brisk poverty reduction.
The country has halved the poverty rate in just seven years and witnessed an equally significant decline in income inequality. Unfavorable starting conditions have meant that Nepal’s development path was never going to be easy. First, historical and natural endowments make development challenging. The country’s geography—landlocked externally and challenging topography internally—represents a natural barrier to its development. Its history of extractive political regimes left Nepal with extremely low levels of physical and human capital and illiteracy rates of 90 percent in 1951. Challenging development constraints have been further compounded by unsupportive policy choices. The economic history of Nepal over the past 45 years provides important lessons.
The resulting current state of Nepal’s economy not only reflects the challenging constraints to development, but also policy choices that have resulted in weak performance of the large agricultural sector, low public investment and capital accumulation, and low productivity growth. Given this backdrop, it is not surprising that outward migration has grown in importance, especially in the post conflict period. In FY1996, approximately one in four Nepali households received some form of remittances. This became one in three by FY2004 and more than one in two by FY2011. Not only did more households start receiving remittances, but the amount of remittances received also increased over the years. Despite the successful and rapid reduction in poverty, there is an urgent need to change Nepal’s development model. Large-scale migration is not a sign of strength, but a symptom of deep, chronic problems.
Remittances are providing a safety net so people do not fall into poverty, but are not being used to leverage rapid growth and greater opportunity. Large-scale migration is rapidly, and in many cases, permanently, depleting the country’s stock of human capital. Further, the current development path is not aiding Nepal’s escape from the low-growth trap it is in. Historically, low economic growth led to a shortage of employment opportunities at home, which is fueling labor outmigration. Perhaps the most detrimental aspect of large-scale migration is that it relieves the pressure on policy makers to be more accountable and to deliver results. Large-scale migration solves several problems for Nepal.
Without comprehensive reforms to address its long-standing challenges, Nepal will probably not become a lower-middle-income country before 2030. Consequently, a systematic assault is needed to break the vicious cycle and create the right balance between job creation at home and exports of labor. Marginal interventions are unlikely to help break the self-reinforcing dynamics that have kept Nepal in a low-growth, high-migration trap. Building new sources of growth: Unleashing large investments in hydropower would be a game changer for Nepal. Investing in people: Nepal is in the midst of a demographic transition. As a result of lower fertility rates, the share of the population that is working age is now greater than the share of the population that is not.
To fully capture the benefits of the demographic dividend, investing in the skills of Nepali youths is imperative. History also teaches us that Nepal has undertaken bold and sweeping reforms before, and it can do so again. Between 1986 and 1996, Nepal instituted broad-based reforms that had a positive effect on the economy. Growth during this period averaged 5 percent, and was the highest in Nepal’s modern history, while growth of per capita income increased to 2. Read the full report in English here. Read the full report in Nepali here.