Kathmandu, May 11: Nepal’s economy is increasingly becoming service-driven without adequate industrialisation emerging from the agricultural sector, leading to what the Ministry of Finance describes as “premature de-industrialisation.”
According to the recently published Nepal’s Current Economic Situation Paper, the contribution of agriculture and industry to the national economy has steadily declined over the past decade, while the service sector has continued to dominate.
Over the past decade, Nepal’s average annual economic growth remained modest at 4.2 percent, fluctuating between a contraction of 2.4 percent and growth of 9 percent. Although the economy expanded by 4.61 percent in fiscal year 2024/25, growth is projected to slow to 3.5 percent in 2025/26, remaining below the pace of neighboring South Asian countries.
The report noted that Nepal’s economy still heavily depends on traditional agriculture. The agriculture sector, which employs around 62 percent of the population, contributes 25.2 percent to GDP.
The agriculture sector’s contribution to the Gross Domestic Product (GDP) declined from 28.4 percent in fiscal year 2015/16 to 25.2 percent in 2024/25. Similarly, the industrial sector’s share fell from 14.1 percent to 12.8 percent during the same period.
In contrast, the service sector expanded significantly, increasing its contribution to GDP from 57.5 percent in 2015/16 to 62 percent in 2024/25.
The report also highlighted the weak condition of Nepal’s manufacturing sector. Over the past decade, manufacturing contributed an average of only 5.4 percent to GDP.
While the overall economy grew at an average annual rate of 4.2 percent, the manufacturing sector expanded by just 2.9 percent on average.
According to the ministry, inadequate investment, dependence on imported raw materials, limited adoption of innovation and advanced technology, and high production costs have weakened industrial competitiveness.
As a result, Nepal has struggled to build a strong industrial base capable of generating productive employment and boosting exports.
The Ministry of Finance stressed that Nepal now requires structural transformation focused on increasing productivity and generating income.
Agricultural growth averaged only 3 percent annually over the last decade, while crop productivity remains below the South Asian average. Paddy productivity stands at 4.19 tonnes per hectare, wheat at 3 tonnes, and maize at 3.46 tonnes per hectare.
The ministry emphasized the need to modernize and commercialize agriculture to improve productivity.
However, the report noted significant progress in electricity generation. Nepal’s installed electricity generation capacity increased from 697.85 megawatts by mid-July 2011 to 4,200 megawatts by mid-May 2026 — nearly a sixfold rise within a relatively short period.
Despite the expansion of the service sector, the report said sufficient decent employment opportunities have not been created.
Growth in the service sector has mainly been concentrated in trade, accommodation, public administration, and traditional financial services, while high value-added sectors such as information technology, knowledge-based services, and innovative industries remain underdeveloped.
The ministry stressed the need to build a competitive economy by expanding modern sectors such as artificial intelligence, robotics, data centers, and digital technologies alongside creating skilled employment opportunities.
The report stated that the lack of productive industries and limited domestic employment opportunities have fueled labour migration.
According to the Fourth Nepal Living Standards Survey, Nepal’s unemployment rate stands at 12.6 percent.
Over the past decade, the number of Nepali workers obtaining labour permits for foreign employment increased at an average annual rate of 28.6 percent.
In fiscal year 2024/25 alone, 839,000 Nepali workers received labour approvals for foreign employment, including 506,000 new permits and 333,000 renewals.
Similarly, by mid-May of the current fiscal year, 557,000 workers had already obtained labour permits, including 283,000 new approvals and 274,000 renewals.
While remittances continue to support household consumption, poverty reduction, and external sector stability, experts have warned that excessive dependence on foreign employment could weaken Nepal’s domestic human capital and long-term productive capacity. #Nepal
