Historically, Nepal has depended upon foreign aid for its economic development. On the other side, a lack of infrastructure, a small domestic market, a very high trade deficit, political instability, and an incapability of using natural resources are the major obstacles restricting the economic development of Nepal. As a developing nation, Nepal has been facing several challenges in the path of economic development. Some of the challenges of economic development in Nepal are listed below:
- It is challenging to address the country’s poverty (i.e. 20.27%) and inequalities (i.e. 30%) through high, sustained, and broad-based inclusive economic growth.
- Reducing dependency on foreign employment by creating employment opportunities at home and reaping demographic dividends by developing human resources as per national demands and needs is full of challenges.
- It is a challenging task to raise the level of saving and investment by discouraging necessary consumption. Increasing savings and investment leads to increasement in the production of output that leads to the creation of employment. This leads to an increase in the living standard of people and is seen as rapid economic growth in the economy.
- In 21stcentury, financial inclusion, access, and literacy are considered as main factors of economic growth and development as per the World Bank and IMF. It is a challenging task to increase financial literacy and access from 51.78% and 18.9% respectively to over 90-95 percent.
- About 66% of the total population of Nepal depends upon the agriculture sector which contributes only around 24% of the GDP. It is a challenging task to increase agriculture productivity and shift the access manpower to other sectors of the economy by way of certain opportunities.
- Nepal is ranked 94 among 190 countries in the ease of doing business as per the latest World Bank Annual Rating. It is challenging to create an investment-friendly environment and policy, institutional, and structural reform for attracting foreign as well as domestic investment in the country.
- It is a challenging task to mobilize resources as well as availability, assurance, and equitable distribution of resources at the federal, provincial, and local levels in line with the federal governance system.
- The creation of a corruption-free environment to ensure radical improvement in public service delivery mechanisms has become a challenge
- The development of a neutral and transparent tax system to control tax evasion and increase tax revenue to GDP ratio is a challenging task
- Reducing the dependency on foreign aid as well as foreign goods by producing goods and services in the home country and replacing the import culture with the export culture is full of challenges.
- Challenging to create an investment environment by converting the immense remittance received from abroad to Capital
- Challenges to accelerate development works by increasing capital expenditure
- The task of carrying out a social security program in an integrated way is full of challenges
- There is a challenge to achieving balanced and inclusive development by addressing geographical differences.
There remains a challenge to achieve high and sustained economic growth by concentrating investment on key drivers of growth of agriculture, tourism, hydroelectricity, and infrastructure.