Kathmandu, April 8 – The World Bank said in a report on Wednesday that Nepal's economic growth is projected to slow significantly in the current fiscal year 2025–26, weighed down by the over-a-month-long US-Iran war and the lingering effects of the Gen Z movement in September last year.
Real gross domestic product (GDP) growth is expected to moderate to 2.3 per cent in fiscal year 2025–26, which ends in mid-July, according to the World Bank's biannual flagship report, Nepal Development Update.
"The slowdown is likely to be most pronounced in the services sector, driven by a decline in tourist arrivals during the peak March–May season."
Nepal witnessed a drop in foreign tourist arrivals in March for the first time since September last year, when the country saw massive Gen Z protests and subsequent destruction of public and private property, leading to political changes.
In March this year, the number of foreign tourists decreased by one per cent to 120,516, according to the Nepal Tourism Board, as conflict raged in West Asia.
A 15-day ceasefire has now been announced between US and Iran.
Nepal also saw a significant drop in tourist arrivals from Europe and the Americas in March, as many visitors from these regions typically use West Asian cities such as Dubai, Doha, and Istanbul as transit hubs.
"The drop in tourism is expected to adversely affect key service industries, including accommodation, food services, and transportation, which are heavily reliant on seasonal inflows of foreign visitors," the report said.
"Rising fuel prices – triggered by global supply disruptions – and moderating, though still relatively strong, remittance growth are also expected to weaken household purchasing power. This, in turn, is likely to dampen domestic trade and slow activity in the real estate sector."
"Industrial growth is projected to soften as well, particularly in non-hydropower construction. Higher input costs and declining investor confidence are expected to weigh on new investments and ongoing projects," the report said.
Meanwhile, the conflict is projected to push an estimated 17,267 additional Nepalis below the poverty line in fiscal year 2025–26, the report added.
The World Bank report said that poverty in Nepal, measured at $4.2 per day threshold, is expected to rise slightly to 6.6 per cent in fiscal year 2025–26 under the conflict scenario, in comparison to 6.5 per cent in the pre-conflict baseline.
"While the increase appears marginal at the aggregate level, it translates into a significant rise in the number of people falling into poverty," the World Bank said.