Nepal's Growth Target Out of Reach: Central Bank Admits Defeat Amid Floods and Unrest

It is the first time any government body has suggested that the growth target will not be achieved, although international institutions such as the World Bank have already revised Nepal’s growth estimate downward for the fiscal year that began in mid-July.

The Nepali government had set a six per cent economic growth target when it presented the budget at the end of May.

“Late monsoon for paddy transplantation and the subsequent heavy rainfall that triggered floods and landslides affected agriculture and other sectors,” the Nepal Rastra Bank (NRB), the country’s Central Bank, said while unveiling the first quarterly review of the monetary policy. “Economic growth in the current fiscal year will be slightly lower than the target.”

The NRB, however, did not project any specific growth figure. In early November, in its flagship report Nepal Development Update, the World Bank sharply lowered Nepal’s economic growth projection to 2.1 per cent from an earlier estimate of 4.6 per cent, citing the impact of public unrest in September and the resulting political instability.

During the Gen-Z protests in early September, Nepal witnessed destruction of public and private infrastructure and the deaths of several Gen-Z demonstrators. The protests, launched by unorganised youths, led to the collapse of the powerful government led by former Prime Minister K P Sharma Oli, paving the way for a new government under current Prime Minister Sushila Karki.

The World Bank said the projected slowdown is expected to be largely driven by the services sector. Tourism activity is projected to decline sharply, reflecting a significant drop in international tourist arrivals, while the spillover effects of asset losses are expected to hit the insurance industry.

However, the NRB said foreign tourist arrivals were not affected as severely as initially assumed, despite damage to hotels during the protests.

Foreign-branded hotels, including the Hyatt Regency and Hilton, were severely damaged during the violent protests. The Hilton was burnt to the ground, while the Hyatt remains closed for maintenance. Arson and vandalism at hotel properties in Kathmandu and other regions caused damage worth NPR 25 billion, according to the Hotel Association of Nepal.

“Nepal has witnessed a rise in foreign tourist arrivals as tourists appear confident about Nepal’s peace and security situation,” the NRB said. Nepal received 944,000 foreign tourists during the first 10 months of 2025, compared to 941,000 in the same period of 2024, according to the Nepal Tourism Board. Nepal did record an 18.3 per cent drop in foreign tourist arrivals in September due to the Gen-Z movement, but the country witnessed a rebound in October on a year-on-year basis.

Nepal’s Central Bank also projected lower inflation than previously targeted. Although the NRB aims to maintain inflation at five per cent, it has now projected average inflation at four per cent in its latest monetary policy review.

The NRB noted that lower-than-targetted inflation in India and further reductions in international petroleum prices are expected to help ease inflation in Nepal. In mid-October, Nepal's inflation had fallen to as low as 1.67 per cent. The Reserve Bank of India projects that India’s inflation will remain limited to 2.6 per cent in fiscal year 2025–26. Nepal, an import-dependent economy relying heavily on goods from its southern neighbour, is significantly influenced by India’s inflation trend.

- IANS