Economic Transformation Eludes Nepal After Seven Decades

Nepal is recognized among the least developed countries in the world and has been upgrading to the status of a developing country since November 2026. For nearly 55 years, Nepal remained classified as a least developed nation, making this elevation a significant achievement. The country has pursued planned development for seven decades. Several nations that began development at the same time as Nepal have today become prosperous and powerful, but Nepal’s economic progress remains insufficient. Despite numerous policies, practices, and experiments over the years, the level of development has yet to meet satisfactory standards.

Planned development commenced in 1956 (2013 BS), followed by economic liberalization after the 1980s (2040s BS). Various political changes also took place, transitioning from a monarchy to a federal republic, along with opening up to foreign investment, giving greater priority to the private sector, and efforts to establish robust policies.

Despite different political leaderships and commitments, Nepal’s development pace remains notably slow. Currently, Nepal’s export trade is weak, there is heavy dependency on imports, a large trade deficit, low productivity, fragile manufacturing industries, rapid outmigration of the youth workforce, weak institutional capacity, increasing corruption, poor quality of public services, limited foreign investment, declining private sector morale, policy instability, failure to modernize agriculture, policy inconsistency, and a lack of transparency. Political instability coupled with a shortage of honest and visionary leadership leaves Nepal still in a third-world economic situation.

East and Southeast Asian countries have doubled their per capita income within 10 to 15 years, but Nepal has not achieved this even after 30 years. In the last 25 years, Nepal’s average economic growth target was 5.7%, but the actual growth averaged only 3.4%. Nepal entered the lower-middle-income country category in 2019, marking a significant milestone in economic advancement.

Thirty years ago, Nepal had minimal indicators in poverty, health, and education, but has since shown remarkable improvements in these areas. Although Nepal has embraced concepts of inclusive and sustainable development, persistent structural challenges have hindered sustained economic growth.

Countries in East and Southeast Asia doubled their per capita income in 10 to 15 years, while Nepal took 30 years without achieving this milestone.

In Nepal’s economy, the contribution of productive industries remains minimal, while remittances account for about 25% of GDP. Heavy dependence on remittances, workforce outmigration, internal and external political risks, and slow transition from agriculture to non-agriculture sectors constitute major obstacles to economic development.

Singapore’s economic transformation took 30 years, South Korea 40 years, Malaysia 30 years, Japan 20 years, and China 40 years. These nations have achieved remarkable economic progress within relatively short periods, while Nepal’s progress has been unsatisfactory. Compared to these countries, which had similar economic standings 40 to 50 years ago, Nepal today relies heavily on foreign economic assistance rather than self-sufficient growth.

China has become the world’s second-largest economy and is considered the ‘world’s production powerhouse.’ South Korea ranks as the 11th largest global economy and fourth in Asia, achieving a remarkable economic miracle over 40 years by becoming a modern industrial power. Until 1963, South Korea was a developing country and is now a major contributor to the International Development Association since 1977.

Singapore has transformed into a highly developed country and is counted among the ‘Four Asian Tigers.’ Overcoming high unemployment, poor infrastructure, and an uncertain future, Singapore shifted from a third-world to a first-world nation within 30 years. Its development model is regarded as exemplary globally.

Facing internal conflict and economic challenges, Malaysia became a modern industrial economy in about 30 years. Malaysia’s visionary leadership and conflict management model serve as examples for other countries.

After the disruption caused by World War II, Japan’s economy became a global example, evolving as the first modern non-European power nation. Japan’s economic surge is known as the ‘Japanese Economic Miracle.’

Japan, Singapore, Malaysia, South Korea, and China advanced economically by implementing timely policy reforms and resolving structural challenges. Nepal, on the other hand, still struggles with its structural problems. The country has not been able to create pragmatic leadership and skilled workforce systems like Singapore, nor develop export-focused productive industries or adopt models to effectively utilize labor and technology as China and South Korea have.

Nepal has only witnessed China’s digital revolution, ‘dual-track reform strategy,’ and rapid infrastructure development from the sidelines. It has failed to invest adequately in research and development and human capital like South Korea. Nepal’s adoption of technological policy has lagged behind, failing to effectively implement five-year plans or pursue export-led industrialization as practiced by Korea.

Overall, Nepal has not learned from the ‘Miracle on the Han River.’ Ironically, thousands of Nepali workers migrate yearly to South Korea for employment. Nepal has also failed to resolve conflicts efficiently and foster national unity through policy frameworks like Malaysia’s.

While Malaysia ensured continuity of economic policies across different governments, Nepal experiences frequent shifts in political and economic policies with each change in administration. Public service reforms like those in Malaysia have not materialized in Nepal. Similarly, government roles in industrial expansion and technological development, exemplified by Japan, remain inadequately realized. Nepal struggles to control quality and maintain continuous improvement to enhance international competitiveness.

Japan effectively utilized foreign assistance, while Nepal has seen increasing misuse of aid. Japan’s rapid economic growth stemmed from appropriately applying Western scientific, philosophical, technical, and political ideas. Nepal, however, has failed in this area. Japan’s development is considered an ‘East Asian model’ in economics, whereas Nepal remains only an observer.

In 2024, the government-appointed High-Level Economic Reform Recommendation Commission developed a comprehensive roadmap, the ‘Reform 2.0’ plan, for Nepal’s economic and structural reforms. This plan outlines improvements in tax structures, trade and investment environments, private sector role enhancement, transparency and efficiency in public financial management, infrastructure and energy development, financial system strengthening, and public service improvements.

Timely implementation of this reform plan is crucial to transform Nepal’s economic, social, and administrative structures into a robust, modern, competitive, and professional framework to ensure sustainable economic growth. Nepal must formulate and implement its own reform strategy, with a primary focus on policy reforms, effective implementation, gradual improvements, and consistent regulatory frameworks.

A rigid zero-tolerance policy must be enforced against governance systems involved in corruption. Building a responsible and accountable workforce devoted to national development, who are honest, skilled, and impartial, is essential for Nepal’s structural reform. Without addressing these, expecting long-term economic and social progress would be like ‘building castles in the air.’

(The author, Kandel, is the Chief Manager of Nepal Bank Limited.)