IMF revise Nepal’s growth forecast to 5.2 pc, Citing domestic weakness and global slowdown

KATHMANDU: The International Monetary Fund (IMF) has revised down Nepal’s economic growth projection to 5.2 percent for the current fiscal year, according to its World Economic Outlook (WEO) October 2025 report titled “Global Economy in Flux, Prospects Remain Dim.” The latest projection marks a slight downgrade from its previous estimate of 5.5 percent published in April 2025.

According to the IMF, Nepal’s revised forecast reflects the combined effects of domestic structural weaknesses, slowing investment activity, and reduced external demand amid a turbulent global environment. The report suggests that while Nepal’s economy continues to recover from post-pandemic disruptions, the pace of growth remains weaker than anticipated due to import restrictions, under-execution of capital projects, and lower remittance utilization in productive sectors.

The Fund’s South Asia analysis highlights that Nepal’s growth prospects are weaker than its regional peers. India is projected to expand by 6.3 percent, Bangladesh by 5.7 percent, while Nepal trails behind at 5.2 percent, driven largely by slowing private investment and policy uncertainties.

The IMF report explains that this revision is modest compared to the World Bank’s broader downgrade, indicating that Nepal’s economy is showing moderate resilience despite rising fiscal and external vulnerabilities. The Fund attributes the slowdown partly to domestic unrest and youth-led protest movements, which have disrupted production and reduced business confidence.

The WEO notes that global trade tensions, triggered by the United States’ tariff hikes in April 2025, have dampened export competitiveness and investment sentiment across developing countries, including Nepal. The IMF warns that Nepal’s foreign direct investment (FDI) inflows remain weak, while capital formation is slow due to tighter liquidity and bureaucratic inefficiencies.

At the same time, the report predicts inflation hovering around 5.6 percent, largely influenced by supply-side pressures, high import dependency, and rising service costs. The IMF cautions that inflationary pressure and delayed fiscal spending could constrain consumption and fiscal sustainability over the medium term.

For the global economy, the IMF projects growth of 3.2 percent in 2025 and 3.1 percent in 2026, which is 0.2 percentage points lower than last year’s outlook. The Fund describes the global environment as “fragile and uncertain,” citing persistent trade disputes, rising protectionism, and a slowdown in investment across both advanced and emerging economies.

The IMF’s Chief Economist Pierre-Olivier Gourinchas remarked that the revised outlook reflects the ongoing impact of global trade disruptions and tight financing conditions. He noted that although the risk of global recession remains contained, low-income economies like Nepal are increasingly vulnerable to shrinking aid flows and rising external debt costs.

The report calls for policy predictability, fiscal transparency, and stronger institutional reform in Nepal to sustain economic growth. It emphasizes the need for targeted investment in infrastructure, energy, and export diversification, as well as for policies that encourage private sector participation and innovation.

The IMF warns that continued policy instability could undermine investor confidence and delay Nepal’s growth recovery. It further advises Nepal’s authorities to focus on improving project implementation capacity, attracting foreign investment, and maintaining monetary discipline to stabilize the macroeconomic environment.

Despite the slight downgrade, the IMF maintains a cautiously optimistic view of Nepal’s economic trajectory. The country’s external reserves remain adequate, remittance inflows are steady, and inflation is relatively controlled compared to other low-income nations. However, the Fund cautions that Nepal’s dependence on remittance-driven consumption and limited industrial diversification leave it exposed to future shocks if structural reforms are delayed.