KATHMANDU, APRIL 10
Nepal's economy is forecast to grow by 2.7 percent in fiscal year 2026, down from 4.6 percent in FY2025, as political uncertainties, last year's civil unrest, and the ongoing Middle East conflict weigh on economic activity, according to the Asian Development Bank's Asian Development Outlook released on Friday.
The slowdown is expected to be temporary. ADB projects growth to rebound to 5.0 percent in FY2027 as the effects of recent shocks fade, driven by stronger domestic demand, hydropower exports, and a recovery in tourism.
"The country's economic growth will significantly slow in FY2026 amid political uncertainties, including last year's civil unrest and the conflict in the Middle East," said ADB Country Director for Nepal Arnaud Cauchois. "While renewed political stability is expected to support reforms and bolster economic confidence, substantial downside risks remain, particularly from the Middle East conflict, which is affecting oil prices, tourism, and remittance flows."
Inflation is projected at 3.7 percent in FY2026, rising to 4.5 percent in FY2027 on the back of stronger domestic activity. Nepal's current account surplus is expected to widen to 7.2 percent of GDP in FY2026 from 6.7 percent in FY2025, supported by moderate growth in remittances and exports, though this will be partly offset by a temporary halt in out-migration, higher oil import costs, and potential tourism losses during the peak spring season. The surplus is then projected to moderate to 5.3 percent of GDP in FY2027.
ADB cautioned that the outlook carries very high uncertainty and substantial downside risks, including a prolonged Middle East conflict, weak capital budget execution, financial sector vulnerabilities, climate-related hazards, and the potential impact of oil price volatility on Gulf Cooperation Council-linked remittance flows.
The ADB forecasts were based on assumptions finalised on March 10 under an early stabilisation scenario for the Middle East conflict. The bank noted that evidence since then points to a higher likelihood of more persistent disruptions.
The ADB projections follow a similar assessment by the World Bank earlier this week, which forecast Nepal's growth at 2.3 percent in FY2026 - slightly more pessimistic than ADB's figure - also citing the Middle East conflict and the September 2025 unrest as key drags on the economy.