Central bank says faster capital spending, tax reforms and stronger investor confidence could help Nepal achieve the government's ambitious economic growth target despite climate and global risks.
KATHMANDU, JULY 7
Nepal Rastra Bank (NRB) has said Nepal's target of achieving seven percent economic growth in the fiscal year 2026/27 is attainable if planned policy reforms are implemented effectively, public capital expenditure gains momentum and investor confidence continues to improve.
In its latest macroeconomic outlook, the central bank said the economy is expected to strengthen gradually across the agriculture, industry and services sectors, creating favourable conditions for faster expansion. However, it cautioned that timely execution of government spending and policy measures would be crucial to meeting the target.
The NRB estimates Nepal's economy grew by 3.85 percent in the current fiscal year, below its estimated potential growth rate of 4.2 percent, indicating that economic activity remains below its long-term capacity.
The report identifies the services sector as the principal engine of growth in the coming fiscal year, supported by strong remittance inflows, expanding digital services, rising domestic and international tourist arrivals, and growth in transport, accommodation and food services.
Industrial activity is also expected to improve with the completion of new hydropower projects, reconstruction works, stable input prices and government policy reforms. Although agricultural production-particularly paddy-is likely to face pressure from the expected impact of super El Niño, the central bank said improvements in agricultural modernisation, timely fertiliser supply and crop diversification could partly offset the losses.
According to the report, tax reforms that increase disposable income and purchasing power are expected to stimulate household consumption and support overall economic activity. It also noted that a stable majority government could strengthen private sector confidence, encourage investment and facilitate higher public capital expenditure.
The central bank stressed that capital spending will be the decisive factor in determining whether the economy can achieve the government's seven percent growth target.
Despite the favourable outlook, the report highlights several downside risks, including climate-related disruptions from El Niño, delays in capital expenditure, and external uncertainties stemming from geopolitical tensions in West Asia, which could affect commodity prices, trade and investor sentiment.
NRB said sustained policy implementation, stronger investment and efficient execution of development projects would be essential to translate the improving economic environment into higher growth.