Pledging economic reforms focused on corruption control, good governance and digitalisation, the federal government on Monday unveiled an ambitious roadmap to achieve an average annual economic growth of 7 percent over the next decade and graduate the country to a dignified middle-income nation.

The government claims these ambitious goals will be achieved through broad legal and institutional reforms under the “new phase of economic reform series.” Presenting the policies and programmes at the joint session of Parliament on Monday, President Ramchandra Paudel said the government would advance campaigns focused on zero tolerance for corruption, improving public service delivery, economic recovery, and social advancement.

The government’s policy also includes identifying common issues for constitutional amendment through dialogue and cooperation with political parties to ensure equal ownership among all classes, sectors, and communities, and preparing a “constitutional amendment discussion paper.” The government has also claimed continuity and full implementation of the 100-point governance reform agenda it had introduced earlier. Economists, however, argue that achieving the set targets will be highly challenging for the government.

Nepal’s economic growth has remained comparatively low and unstable. Over the past decade, the country’s average annual economic growth rate has stood at 4.2 percent. During this period, the economy contracted by as low as 2.4 percent and expanded by a maximum of only 9 percent. Due to sluggish economic activities in recent years, the economy, which expanded by 4.61 percent in fiscal year 2024-25, is projected to grow by only 3.5 percent in fiscal year 2025-26.

As Nepal’s economy shifted towards the service sector without sufficient industrialisation, the contributions of industry and agriculture to the economy have continued to shrink, while the service sector’s share has expanded. The condition of productive industries remains weak even now. Over the past decade, the industrial sector’s average contribution to gross domestic product (GDP) has been only 5.4 percent. While the overall economy expanded by an average of 4.2 percent during the period, productive industries grew by only an average of 2.9 percent. Given such conditions, the government’s declaration of the coming year as the beginning of a decade of average 7 percent economic growth will not be easy to achieve.

Economist Kalpana Khanal said achieving 7 percent economic growth would be challenging but not impossible.

“If the government can increase capital expenditure and encourage the private sector to expand investment, targeted economic growth is possible,” she said.

The government has proposed formalising the economy into a cashless, transparent, and revenue-leakage-free system by integrating all economic transactions onto digital platforms. Different government reports suggest that nearly 49 percent of Nepal’s economy remains informal. Transforming the informal economy into a formal one will not be easy. Nevertheless, the government has set a target to conduct economic transactions through digital payment systems and to reduce revenue leakage.

Similarly, the government has adopted a policy to review the tax structure and reduce the burden on entrepreneurs and middle-class families.

“The tax structure will be reviewed to reduce the burden on entrepreneurs and middle-class families,” the policies and programmes document states. “The revenue system will be made business-friendly through voluntary tax compliance, technology-friendly revenue administration, and a fast-track tax dispute settlement system.”

The government also plans to expand double taxation avoidance agreements with various countries and gradually integrate pollution, infrastructure, and other scattered fees into a unified “green tax” system. It has also stated that under-invoicing at customs points will be controlled, and systems for refunding value-added tax and other taxes will be automated and time-bound.

However, Nepal’s revenue growth situation is not very encouraging. In the five fiscal years before fiscal year 2019-20, average annual revenue growth stood at 14.9 percent, but in the following five fiscal years it declined to 8.7 percent. Over the past decade, revenue mobilisation has grown by an annual average of 12.3 percent. Until the end of March, revenue mobilisation increased by only 4.4 percent compared to the same period of the previous fiscal year. This confirms that revenue collection has remained below targets.

Likewise, over the past decade, revenue mobilisation has achieved only 87.6 percent of the targets set in the budget. By the end of mid-March, revenue mobilisation stood at 82.6 percent of the target set for the period and a corresponding percentage of the annual target.

Experts say the government’s policies to expand the tax net and control leakage through the simplification and digitalisation of tax administration will determine whether revenue collection targets can be achieved.

The government, through policies and programmes, has said it will introduce new models of infrastructure financing by mobilising alternative development finance, diaspora capital, and private investment.

“Foreign aid, loans, and private sector investment will be focused on high-return projects. Transformative projects will be advanced with clear targets, fixed budgets, and strict deadlines,” the government said.

“It will introduce performance agreements with project chiefs, digital progress tracking, resolution of land acquisition and forest-related obstacles, and a system under which key personnel will not be transferred until project completion.”

However, private-sector investment has steadily declined in recent years. Due to weak investment demand, more than Rs 1.1 trillion in loanable funds have accumulated in banks and financial institutions. The decline in private investment has directly affected revenue collection and public debt. Mandatory liabilities such as social security and subsidies alone exceed revenue collection by Rs 150 billion. Under such circumstances, the government faces the challenge of mobilising the investment necessary to achieve targets such as 7 percent economic growth, per capita income of $ 3,000, and an economy worth Rs 100 trillion.

Although the government has pledged to expand investment, the condition of foreign investment in Nepal remains fragile. Foreign investment in Nepal amounts to only 0.2 percent of GDP. At a time when domestic investment has not been increasing, boosting foreign investment will also be highly challenging for the government.

According to the latest data from Nepal Rastra Bank, during the first nine months of the current fiscal year, Nepal received Rs 14.55 billion in foreign direct investment (equity only). During the same period last fiscal year, such FDI (equity only) stood at Rs 8.94 billion.

The government has also stated that public expenditure will be made results-oriented, with priority given to reforming public enterprises, reducing expenditure, and improving service delivery. The policy includes classifying public enterprises and pursuing mergers, private-sector partnerships, strategic partnerships, or divestment.

Anjan Shrestha, president of the Federation of Nepalese Chambers of Commerce and Industry, said the policies and programmes are balanced and have addressed the private sector's concerns.

“The government has spoken about a decade of average 7 percent economic growth and graduating to a middle-income country. Whether these will be achieved will depend on what kinds of programmes are introduced in the budget in line with the policies,” he said.

“Expansion of private investment and project construction under the PPP model is very positive. The effectiveness of those programmes remains to be seen.”

Similarly, Birendra Raj Pandey, president of the Confederation of Nepalese Industries, said while the policies and programmes appear good, achieving the targets would depend on implementation.

“It is too early to analyse whether the targeted growth will be achieved,” he said. “The private sector sees the policies positively, as many suggestions regarding tax, industry, and investment facilitation have been incorporated. But results will depend on how they are implemented.”

The government has also announced that it will formulate a new National Employment Policy integrating skills, education, labour market information, social security, and employment service systems.

To support this, the government is preparing legal arrangements for a remote work policy that would allow people to work from Nepal for foreign employers.

“The skills of youths returning from foreign employment will be documented through a digital skills passport, and international professional certification will be provided,” the policies and programmes state.

The government has also pledged to ensure legal assistance and access to justice for workers, implement a digital labour inspection system to ensure minimum wages, and guarantee occupational safety and health in workplaces.

The government said it would make foreign employment safe, organised, and productive, while taking action against excessive service fees and labour exploitation. Separate services would also be provided for those going abroad for employment.

The government plans to channel remittance inflows into productive sectors. For this purpose, it said labour diplomacy would be used to diversify destination countries that offer higher wages, and that a “Remittance Investment Fund” would be established to transform remittances from consumption-oriented use into productive investment.

Rescue and welfare programmes for families of migrant workers who die or become disabled abroad will also be strengthened. The government said it would launch a “10-year Programme for Domestic Employment Promotion” to transform foreign employment from a compulsion into an option.

During the first nine months of the current fiscal year until mid-April, Nepal received Rs 1.65 trillion in remittances. By mid-April, remittance inflows had increased by 39.1 percent compared to the same period of the previous fiscal year. During the same period last year, remittance inflows had increased by 10.2 percent.

The government also stated that sports would be linked with national unity, health, tourism, and the economy, and talent identification programmes would be launched from the school level onward.

“The sports sector will be commercialised, private sector participation increased, and social security for athletes ensured,” the government said.

It also said a National Volunteer Programme would be launched to mobilise youths in digital literacy, community service, innovation, and local development.

The government is preparing to implement an integrated service model, with the necessary human resources, medicines, equipment, and infrastructure, by enforcing “minimum standards” for basic healthcare services nationwide. It also plans to ensure access to basic hospitals at the local level to make health services cost-effective and citizen-friendly.

“The health insurance programme will be restructured. Specialist consultation services will be provided to citizens in remote areas through telehealth platforms,” the policies and programmes state.

“A Centre for Disease Control will be established for disease surveillance and control, and a National Health Accreditation Authority will be established to improve healthcare quality.”

The government has also emphasised prevention over treatment for controlling non-communicable diseases such as cancer, including awareness campaigns, regular testing, and lifestyle-based strategies. Mental health will be established as an integral part of public health through the implementation of a National Mental Health Policy.

Similarly, the government’s policy is to establish education as the foundation of equality and prosperity and ensure free education up to the secondary level.

“Education will be made qualitative, practical, and employment-oriented through easy distribution of textbooks, midday meals, and uniforms, while curricula at all levels will be reviewed in line with the times,” the policies and programmes document states.

“Long-term investment in public education will be increased, and healthy regulation will be introduced to make privately run educational institutions service-oriented and quality-focused.”

The government also plans to expand e-learning, virtual classrooms, open digital content, and artificial intelligence-based learning systems, while restructuring universities academically and administratively to align higher education with the labour market.

It has also announced plans to expand high-speed internet, digital content, and AI-based learning systems in 10,000 community schools, and implement integrated programmes for school mapping, school mergers, teacher position adjustments, and improvements in libraries and laboratories.

Krishna Hari Budhathoki, chair of Parliament’s Finance Committee, claimed that the government had identified information technology, hydropower, tourism, and high-value agriculture as the main pillars of economic growth in its policies and programmes for the coming fiscal year.

“The government has mainly emphasised the development of the capital market, investment, and the private sector. Through policies such as restructuring Nepse and the clearing and settlement system, encouraging institutional investors, attracting investment from non-resident Nepalis, and introducing investment express mechanisms, it appears to have adopted strategies to accelerate the mobilisation of private and foreign capital,” he said.

“This can be expected to contribute to expanding economic activities and increasing production, investment, and employment.”

He added that the government has prioritised the digital economy and service exports through a policy to develop Nepal as a “tech hub.” The goal is to strengthen information technology, digital services, remote work, and international payment systems, both legally and structurally, to expand knowledge-based service exports.

He also said the government had introduced policies to make the agricultural sector commercial, modern, and self-reliant through mechanisation, digital agritech, land banks, minimum support prices, and concessional agricultural loans.

Reacting to the document, former finance minister Prakash Sharan Mahat said the government has not introduced a clear new plan to strengthen state institutions and improve their capacity. He noted that while digitalisation has been prioritised, most of the policies and programmes appear to be continuations of existing measures rather than new initiatives.

Mahat also said that although the government talks about incentives and tax relief, the current approach still lacks a strong focus on bringing vulnerable and marginalised groups into the development process.