In 2016-17, Nepal registered sharp growth of 7.91%, bouncing back from the slump of 0.59% registered in 2015-16. Although growth declined to 5.9% in 2017-18 the economy is expected to pick up as the improved political scenario in the country has created a phase of economic and policy stability.
The government of Nepal has targeted a growth rate of 8% for the fiscal year (FY) 2018-19. Higher spending on infrastructure and strong growth momentum in the service sector are expected to support economic growth. The implementation of the first provincial budget will potentially drive development across the country with provincial level reforms pushing growth in the economy. Moreover, the implementation of the new constitution is expected to instill political and bureaucratic stability through the newly formed government at three levels—local, provincial and central. Improved prospects of a stable government and increased efforts by the government to attract foreign direct investment (FDI) have resulted in a sharp increase in FDI inflows.
Nepal’s demographic window of opportunity, when the working-age population reaches its peak, is estimated to have started in 1992 and is expected to continue until 2047. In 2017, Nepal’s population was estimated to be 29.3 million, 21.2% of which was aged between 25-34 years. In recent years, Nepal has witnessed a decline in the number of outgoing migrants. In the first six months of FY 2017-18, an estimated 168,190 Nepalis obtained work permits from the Department of Foreign Employment, down from 174,951 work permits issued during the same period in FY 2016-17. Nepal’s demographic dividend should aid in rapid economic progress if the government initiates and implements policies encouraging job creation and the private sector taps into this opportunity given a feasible business environment.
In FY 2016-17, the Nepal government passed a number of laws, including the Industrial Enterprise Act, Special Economic Zone Act, Intellectual Property Rights, and an updated Foreign Investment Bill, which should significantly improve the business environment. The government has prioritized specific sectors for foreign investment, which include hydropower, transportation infrastructure, agro-based and herbal processing industries, tourism, mining and manufacturing. Nepal’s ranking for the ease of doing business improved from 107 in 2016 to 105 in 2017. The country also reduced the number of days required to start a business from 17 days to 16.5 days. The operationalization of an existing law on secured transactions has paved the way for a centralized, notice-based, modern collateral registry.
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