Nepal: Selected Issues

This Selected Issues paper examines how weak governance in Nepal can fuel youth exclusion, outward migration, remittance dependence, and recurrent social instability, generating a self-reinforcing, low-trust low-investment equilibrium. The paper argues that achieving durable and inclusive growth in Nepal requires a well-sequenced reform strategy centered on stronger governance, higher investment, and improved labor market outcomes. Credible governance reforms are essential to break the cycle of low investment and weak public trust while creating an environment that encourages private investment and job creation. Enhancing the quality and efficiency of public investment through better project selection, execution, and maintenance can address infrastructure bottlenecks, improve connectivity, and stimulate private sector activity. Complementary reforms in labor markets and human capital development would strengthen productivity and expand domestic employment opportunities. Over time, these measures can rebalance Nepal’s growth model by reducing dependence on labor migration while preserving its role as a source of economic stability. Sustained progress requires clear policy communication, realistic sequencing, and broad stakeholder ownership to maintain reform momentum despite institutional capacity constraints and political uncertainty, ensuring lasting improvements in growth, productivity, and economic inclusion.