The World Bank Group in Nepal, 2014-23
Chapter 1 | Introduction
Highlights
This Country Program Evaluation assesses the World Bank Group’s overall program performance in supporting Nepal’s development during FY 2014–23. It provides an in-depth analysis of its support for reforms that have consistently been highlighted as critical for Nepal’s development—namely, federalism, private sector development and job creation, and resilience to natural and climatic disasters.
Nepal made important development gains and has reduced poverty despite relatively modest growth driven by high remittances. The economy remains constrained by critical private sector development challenges that hinder productive private investment and diversification, resulting in low competitiveness and few good jobs.
Nepal continues to be affected by political economy and governance challenges and is in the middle of a complex transition to a federal system that remains incomplete and contested. As a result, the country has struggled with weak institutions and thinly stretched capacity.
This report presents an evaluation by the Independent Evaluation Group (IEG) of the performance of the World Bank Group’s support to Nepal from FY 2014 through FY23. This duration spans two country strategies: the FY14–18 Country Partnership Strategy (CPS) and the FY19–24 Country Partnership Framework (CPF). The evaluation encompasses World Bank, International Finance Corporation (IFC), and Multilateral Investment Guarantee Agency support, including financing, knowledge, and convening support. All activities during the 10-year period are included (see appendix B). This report is timed to inform the next CPF, which is scheduled for delivery in fiscal year 2025.
The evaluation broadly assesses the relevance, effectiveness, and adaptability of Bank Group support while looking in depth at three themes. This includes a review of the Bank Group’s strategies, portfolios, financing instruments, results, collaboration, coordination, and response to major shocks—namely, the major earthquake in 2015 and the COVID-19 pandemic. The evaluation’s three key themes are (i) federalism; (ii) private sector development (PSD) and job creation, including transport, trade connectivity, electrification, tourism, hydropower exports, and skills development from a job creation perspective; and (iii) strengthening resilience to natural and climate-induced disasters. The evaluation’s Approach Paper (World Bank 2023b) identified these themes as the most important development challenges, underscored by the 2018 Nepal Systematic Country Diagnostic (SCD; World Bank 2018c). IEG confirmed the choice of the themes in consultation with the Country Management Unit.
Overall, the evaluation finds that the Bank Group took decisive action in response to major earthquakes and the COVID-19 pandemic but did not always effectively consider the country’s capacity and political economy challenges. The Bank Group mounted fast and large responses to major shocks in close collaboration with other development partners and the government. However, financing support sometimes surpassed Nepal’s absorptive capacity, which undermined outcomes to strengthen the country’s policy and institutional environment. The inadequate consideration of political economy challenges was reflected in initial delays and missteps in supporting the country’s transition to federalism. This evaluation provides lessons and suggestions to help the Bank Group rethink its program approach in Nepal and designs a new CPF that breaks from past approaches.
Background and Country Context
Nepal made strong development progress over the evaluation period despite relatively modest economic growth. Nepal is a lower-middle-income country with a population of 30 million. GDP growth over the past decade has averaged 4 percent, which is low compared with the rest of the region. Nonetheless, the country has made rapid improvements in living standards. Electricity and internet access has increased. Indicators of education enrollment and completion show strong improvements, with the precise figures varying by data source. The 2023 Nepal Living Standards Survey shows large increases in mean per capita expenditures and reductions in poverty headcounts, driven by high rates of international migration (National Statistics Office 2024a).
The economy is characterized by high remittances, low economic competitiveness and diversification, and few good jobs. Nepal has one of the world’s highest rates of remittances as a share of GDP (figure 1.1). Remittances allowed Nepal to achieve many of its recent development gains, supporting the economic transformation away from agriculture and industry toward services and consumption. The World Bank’s 2017 Country Economic Memorandum and the 2018 SCD note that Nepal’s remittances create dynamics akin to Dutch disease—a phenomenon typically characterized by a shift in relative international and domestic prices, which undermines economic competitiveness. Remittances also reduce political pressure to generate more productive employment opportunities at home. They have largely supported consumption, which is reflected in the low levels of productivity and limited foreign direct investment. In the absence of focused support for enabling a more diversified private sector through competition and innovation, private investment and good job creation in the country remain limited.
Figure 1.1. Remittances as a Share of GDP in the South Asia Region, 1980–2022

Sources: Independent Evaluation Group based on World Development Indicators (database), World Bank, https://databank.worldbank.org/source/world-development-indicators.
Inclusions based on gender, ethnicity, and geographic location remain development challenges. Gender gaps in health, education, governance, and financial inclusion decreased. However, women trail men by 5 percentage points in tertiary education enrollment (World Bank 2024a). Female labor force participation remains low, at 24 percent, against 52 percent for men (National Statistics Office 2024b), and jobs available to women are of low quality. Women’s representation has improved in government as a result of quotas for women’s representation in the lowest tiers of government (Gurung 2024). Indigenous Peoples, Madheshi, Dalits, and Muslims continue to experience discrimination based on cultural identity, caste hierarchy, region, and religion.
Nepal’s development is exposed to risks that range from geopolitical tensions to climate change. Nepal’s economy is highly exposed to the Indian economy and has had to manage geopolitical competition between its neighbors. This exposure has complicated the development of energy exports, for example. Climate and disaster risk is high, especially floods, landslides, and earthquakes. Rising temperatures, melting glaciers, and more intense rainfall will increase climate-related hazards (World Bank Group 2022).
Nepal’s development is also challenged by critical political economy and governance issues that are affecting its ongoing transition to federalism. Nepal’s transition to a federal political system is a decades-long process that is still underway. Nepal’s armed conflict of 1996–2006 ended with the signing of the 2006 Comprehensive Peace Accord, which laid out steps that eventually led to the new constitution, adopted in 2015, which created Nepal’s federal system of government. However, the principles and implementation of federalism remain contested, and Nepal has struggled to transform its institutions and systems (Adhikari et al. 2023; Khan et al. 2022). The provinces rely on earmarked federal fiscal transfers, which they fail to fully absorb while struggling with staffing shortages in the absence of a Civil Service Act. These challenges in transitioning to federalism are exacerbated by Nepal’s underlying political economy and governance issues, such as unstable political coalitions, influential stakeholder interests, thin public sector capacities, and a high staff turnover.
Evaluation Questions and Methodology
The evaluation answers the following questions:
- How relevant was the Bank Group–supported strategy to Nepal’s development needs, and how well did it evolve in response to changes in country context, major shocks, and emerging lessons? The report addresses these questions in chapter 2 and, to some extent, in all chapters.
- How effective has the Bank Group been in preparing for and supporting Nepal’s transition to federalism? How effectively has the Bank Group adjusted to the new federal government structure, and how effective has it been as a convenor on federalism? The report addresses these questions in chapter 3.
- How effective has the Bank Group been in supporting PSD and job creation in Nepal? The report addresses this question in chapter 4.
- How effective has the World Bank been in strengthening Nepal’s resilience to natural and climate-induced disasters? The report addresses this question in chapter 5.
The evaluation used a wide variety of methods and data sources: a literature review, focused on the Bank Group’s and partners’ publications and international and Nepalese research; semistructured interviews with government counterparts, past and current donor representatives, key informants in academia and civil society, and Bank Group staff; portfolio review and analysis using data and documents on the Bank Group’s financing; reconstruction of theories of change for selected outcome areas; statistical analysis of survey, administrative, and portfolio data; geospatial analysis of World Bank financing; analysis of development partner financing; and field visits. For more details, see appendix A.