Kathmandu, April 10 (IANS) The Asian Development Bank (ADB) has projected that Nepal’s economic growth will decelerate significantly in the current fiscal year 2025–26 due to the impact of last year’s civil unrest and the ongoing conflict in West Asia involving the United States, Iran, and Israel.

In its flagship economic publication released on Friday, the ADB said Nepal’s economy is expected to grow by 2.7 per cent in FY2025–26, which ends in mid-July, down from 4.6 per cent in FY2024–25.

According to the latest assessment, the slowdown follows the aftermath of the Gen-Z movement in early September last year, when youth-led protests erupted over a social media ban, weak government accountability, and limited employment opportunities. The protests eventually forced the then government led by former Prime Minister K P Sharma Oli to resign, deepening political instability. However, the outcome of the federal election held on March 5 is expected to pave the way for improved political stability in the coming months, the ADB said.

Following the elections, Nepal has formed a new government with a nearly two-thirds majority led by the Rastriya Swatantra Party (RSP).

While internal political conditions appear to have stabilised, the conflict in West Asia continues to pose significant downside risks to Nepal’s economy through rising global oil prices, declining tourist arrivals, and a potential drop in remittances—particularly from Gulf Cooperation Council (GCC) countries, which account for around 40 per cent of Nepal’s total remittance inflows, the ADB noted.

In South Asia, Nepal’s economy is expected to perform worse than most countries in the region, except for Maldives and Afghanistan.

“While renewed political stability is expected to support reforms and bolster economic confidence, substantial downside risks remain, particularly from the Middle East conflict, which is affecting oil prices, tourism, and remittance flows,” said Arnaud Cauchois, ADB Country Director for Nepal.

According to the report, all three sectors of the economy — agriculture, industry, and services — are expected to perform weaker in the current fiscal year compared to the last fiscal year.

Agricultural growth is expected to slow to 2.7 per cent in FY2025–26 from 3.3 per cent in FY2024–25 due to a decline in paddy production caused by delayed monsoon rains and floods in October 2025. The industrial sector is projected to see growth fall to 2.8 per cent from 4.5 per cent over the same period, as weaker investor sentiment and delayed capital spending weigh on manufacturing and construction.

The services sector is also expected to slow, with growth projected to decline to 2.8 per cent in FY2025–26 from 4.2 per cent in the previous fiscal year.

This is attributed to weaker performance in wholesale and retail trade and sluggish real estate activity. Additionally, the impact of the West Asia conflict on tourism is expected to weigh on the sector, as disruptions at key Middle East transit hubs during Nepal’s peak spring climbing season (March to May) could reduce tourist inflows.

–IANS

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