ADB Projects Sharp Slowdown in Nepal’s Economy Amid Political Turmoil and Climate Shocks

The Asian Development Bank (ADB) has forecast a widespread slowdown in Nepal’s economy this year, citing political instability, delayed monsoon, and flood-induced disruptions.

Although the government has targeted 6 percent economic growth for the current fiscal year, ADB’s latest Nepal Macroeconomic Update estimates the growth rate will remain around 3 percent. Nepal had recorded 4.6 percent growth in the previous fiscal year. The World Bank had earlier projected that Nepal’s economy would expand by only 2.1 percent this year, warning of worsening political uncertainty.

According to ADB, the Gen Z movement and the political turmoil that followed have sharply affected the productive sector, particularly manufacturing. The manufacturing sector, which grew by 3.8 percent last fiscal year, is expected to slow to around 1.7 percent this year. ADB noted that the protests have shaken private-sector confidence, making it difficult for industries to maintain their growth momentum.

“Political instability has disrupted production, weakening overall growth. Uncertainty in the investment climate has discouraged both domestic and foreign investors, many of whom are delaying new investments,” the report stated.

During the movement, public and private properties suffered extensive damage. According to data released by the Prime Minister’s Office on Thursday, total losses amounted to Rs 84.45 billion. Government property damage was estimated at Rs 44.93 billion, while private-sector losses stood at Rs 33.54 billion. Several government offices inside Singha Durbar, along with other offices nationwide, were vandalised or set on fire. Private entities—including Bhatbhateni stores, Chaudhary Group warehouses, Hotel Hilton, and Hyatt Regency—also suffered significant losses. The private sector has been demanding relief and stronger security assurances.

ADB has also projected a slowdown in the construction sector this fiscal year. Weak capital expenditure remains a key constraint, with capital spending in the first four months at less than 6 percent—lower than last year's 9.3 percent during the same period. However, the Bank expects budget execution to improve in the coming months. The government’s recently announced “Economic Revival and Business Restoration Plan,” aimed at restoring confidence and addressing private-sector needs, is expected to push up both capital and recurrent spending.

Wholesale and retail trade are also expected to remain subdued. The hotel and accommodation sector is likely to be affected as well, with many tourists uncertain about visiting Nepal following the Gen Z unrest. Tourist arrivals in October, however, were 3 percent higher than the same month last year. The transport and storage sector is also projected to slow due to the unstable political environment.

Growth in the agriculture sector is expected to remain modest. Although agricultural output grew by 2.8 percent last fiscal year, ADB forecasts a 3.3 percent growth rate this year. Delayed monsoon and flood-related losses have affected paddy output, which contributes 6 percent to the national economy. According to the Ministry of Agriculture and Livestock Development, paddy plantation reached about 95 percent this year, down from 98.5 percent last year.

Despite these setbacks, ADB expects agriculture to expand slightly, albeit at a low rate.

The financial sector, meanwhile, is expected to remain relatively active. Insurance claim filings have risen sharply due to damages from the Gen Z protests, with claims exceeding Rs 23 billion. While this has increased activity in the insurance industry, ADB noted that it will also put pressure on short-term profitability.