Kathmandu, April 10 (NationPress) The Asian Development Bank (ADB) has indicated a notable deceleration in Nepal's economic growth for the fiscal year 2025–26, attributing this trend to the repercussions of last year’s civil disturbances and the ongoing conflict in West Asia involving the United States, Iran, and Israel.

In its recent economic report published on Friday, the ADB forecasted that Nepal’s economy is projected to expand by 2.7% in FY2025–26, a decline from 4.6% in FY2024–25.

As per the latest evaluation, this economic slowdown follows the Gen-Z protests that occurred in early September last year, sparked by youth discontent over a social media ban, inadequate government accountability, and limited job opportunities. The protests ultimately led to the resignation of former Prime Minister K P Sharma Oli, exacerbating political instability. However, the results of the federal elections held on March 5 are anticipated to foster improved political stability in the forthcoming months, according to the ADB.

Post-elections, Nepal has established a new government boasting nearly a two-thirds majority under the leadership of the Rastriya Swatantra Party (RSP).

Despite the apparent stabilization of internal political conditions, the ongoing conflict in West Asia continues to present substantial risks to Nepal's economy, mainly through escalating global oil prices, a decline in tourist arrivals, and a potential decrease in remittances—especially from Gulf Cooperation Council (GCC) nations, which contribute roughly 40% of Nepal’s total remittance inflows, the ADB pointed out.

When compared to other nations in South Asia, Nepal’s economic performance is expected to lag behind that of most countries in the region, with the exceptions of Maldives and Afghanistan.

“While the renewed political stability is likely to facilitate reforms and enhance economic confidence, significant risks persist, particularly stemming from the Middle East conflict, which is influencing oil prices, tourism, and remittance flows,” stated Arnaud Cauchois, ADB Country Director for Nepal.

The report indicated that all sectors of the economy — agriculture, industry, and services — are projected to underperform relative to the previous fiscal year.

Agricultural growth is forecasted to decrease to 2.7% in FY2025–26, down from 3.3% in FY2024–25, largely due to a reduction in paddy production resulting from delayed monsoon rains and flooding in October 2025. The industrial sector is expected to see growth decline to 2.8%, down from 4.5% for the same period, as diminished investor sentiment and postponed capital expenditures adversely affect manufacturing and construction.

Similarly, the services sector is anticipated to slow, with growth projected to drop to 2.8% in FY2025–26 from 4.2% in the preceding fiscal year. This decline is primarily linked to weaker performance in wholesale and retail trade, as well as sluggish real estate activities. Furthermore, the impact of the West Asia conflict on tourism is likely to burden the sector, as disruptions at key Middle East transit hubs during Nepal’s peak spring climbing season (March to May) may diminish tourist inflows.