Nepal's economic growth is projected to accelerate to 5.1 percent in the current fiscal year from 3.9 percent in the last fiscal year, driven by anticipated high tourist arrivals and increased hydropower and paddy production, according to the World Bank’s latest economic update, released on Wednesday.

The Nepal Development Update: International Migration and Well-being in Nepal, which has not updated the losses incurred by late September rain disasters, said the private sector is expected to contribute to the country’s growth, as it is anticipated to benefit from the central bank’s loosening of monetary policy and easing of regulatory requirements.

Nepal’s economy is projected to grow by 5.5 percent in the next fiscal year, 2025-26.

However, the World Bank’s report identifies multiple risks to the outlook, including heightened vulnerabilities in the financial system such as a rise in non-performing loans that may limit private sector credit growth, potential policy discontinuity that could deter investment, delays in the execution of the capital spending budget affecting infrastructure development, and regional instability and trade disruptions that could reduce tourism and domestic demand.

"Nepal's economy is on a gradual recovery path," said Shiva Raj Adhikari, vice chairman of the National Planning Commission. "Our focus on enhancing capital expenditure, particularly by completing nearly finished projects, along with reforms in the budgetary process, will strengthen macroeconomic stability, boost domestic productivity, and create more jobs."

Shocks in migrant-receiving countries such as the Gulf Cooperation Council countries and Malaysia, could also slow growth, impacting international remittances that are crucial for raising household consumption, reducing poverty, and developing human capital.

However, migration from Nepal is costly, opportunities are unequal, and the process remains challenging for many. The report presents the latest evidence on the benefits and costs of Nepal’s emigration trend. It highlights key policy interventions needed to build an inclusive migration management system that ensures sustainability and maximises rewards.

“Maintaining growth momentum is key to Nepal’s development. This requires continued reform in critical areas such as infrastructure, governance human capital development, and developing an environment which encourages and supports the private sector,” said David Sislen, World Bank Country Director for Maldives, Nepal, and Sri Lanka.

“Nepal has greatly benefited from remittances from overseas workers and improving the management of these inflows, better supporting Nepalis who choose to seek work abroad, and also building a vibrant domestic economy which allows for skilled Nepalis to be productive in Nepal is critical to the future of the country.”

The World Bank said that an inclusive migration management system would establish a transparent recruitment process, better prepare migrants to go abroad, ensure their safety and mobility in those labor markets, plan for long-term skills and destination diversification, and create an economic environment conducive to harnessing the capital and skills of returnees.