Why Nepal is Often Referred to as a Poor Country?

Nepal is frequently characterized as a poor country due to a complex interplay of historical, geographical, political, and socioeconomic factors that have hindered its development. Let me explore these dimensions to provide a comprehensive understanding of Nepal's economic status.

Historical Context

Nepal was historically an isolated, pre-industrial society until the mid-20th century. When it opened to the modern era in 1951, it lacked basic infrastructure such as schools, hospitals, roads, telecommunications, electric power, industry, and civil service. This late start in modernization created a significant development gap compared to other nations.

Throughout its history, Nepal has experienced political instability:

- The monarchy maintained autocratic control until a democratic system was introduced in 1959, which was then abolished in 1962

- Political reforms in the 1980s and 1990s led to constitutional monarchy and multiparty democracy

- A decade-long civil war (1996-2006) severely damaged infrastructure and economic development

- Frequent changes in political leadership have hindered consistent economic policies

Economic Factors

Several key economic indicators confirm Nepal's status as a lower-income country:

1. GDP and Growth: Nepal's GDP was estimated at $50.83 billion (nominal) and $110.61 billion (PPP) for 2025, placing it among the smaller economies globally. While economic growth has been positive in recent years (4.5% projected for FY25), it remains insufficient to achieve rapid development.

2. Heavy Dependence on Agriculture: Agriculture remains Nepal's principal economic activity, employing about 65% of the population while providing 31.7% of GDP. Only about 20% of the total land area is cultivable, limiting agricultural productivity.

3. Remittance Dependency: Nepal's economy is heavily dependent on remittances from foreign workers, which account for approximately 9.1% of GDP. Remittance inflows reached 12.4% of GDP in the first half of FY25. This dependency creates economic vulnerability.

4. Trade Deficit: Nepal maintains a significant trade deficit, with imports far exceeding exports. Trade is dominated by transactions with neighboring India and China.

5. Poor Infrastructure: Nepal has been described as having "the worst road infrastructure in Asia," which hampers economic development, particularly in remote regions.

Social Challenges

Several social factors contribute to Nepal's economic challenges:

1. Food Security Issues: In the 2021 Global Hunger Index, Nepal ranked 76th out of 116 countries, with a score of 19.1, indicating a moderate level of hunger.

2. Education and Human Capital: While progress has been made, Nepal still struggles with developing comprehensive education systems, limiting human capital development.

3. Geographic Challenges: Nepal's mountainous terrain makes infrastructure development extremely costly and difficult, isolating many communities from economic opportunities.

4. Natural Disaster Vulnerability: Nepal is highly susceptible to natural disasters, as evidenced by the devastating 2015 earthquake that caused approximately $7 billion in damage (equivalent to about a third of its economy) and pushed an additional 3% of the population into poverty. More recently, floods and landslides in 2024 caused damage equivalent to 0.8% of GDP.

Recent Developments

Despite these challenges, Nepal has shown signs of progress:

1. Political Restructuring: Nepal has transitioned to a federal system following the 2015 Constitution, which presents opportunities to decentralize development benefits and improve service delivery.

2. Economic Improvements: Headline inflation eased to 5% in the first half of FY25, down from 6.5% in the same period of FY24.

3. Growth Projections: Nepal's economy is projected to grow by 4.5% in FY25, up from 3.9% in FY24, with expectations to average 5.4% annually in FY26-27.

4. Financial Management: The fiscal deficit has narrowed significantly, and the monetary policy stance has remained cautiously accommodative.

5. Private Sector Reforms: The economy may benefit from private sector-led growth reforms introduced through five ordinances passed in March 2025.

Future Outlook

Nepal faces both challenges and opportunities. The risks to economic growth include:

1. External factors such as geopolitical uncertainties and rising trade restrictions

2. Heavy reliance on remittances and tourism, making the economy vulnerable to global economic shifts

3. Financial sector asset quality deterioration

4. Bureaucratic reshuffles undermining policy consistency

5. Presence on the FATF Grey List (related to anti-money laundering measures)

6. Delays in implementing capital expenditure reforms

However, with continued political stability, infrastructure development, diversification of the economy, and effective implementation of development programs, Nepal has the potential to significantly reduce poverty and transition to middle-income status in the coming decades.