Nepal's Path to USD 2 Trillion Dollar Economy

Today, I attempted to forecast Nepal's economic trajectory over the next five decades. Over the past three years within this decade, Nepal has maintained an average GDP growth rate of 4.96%. According to IMF projections, Nepal's growth rate is expected to range between 5% and 5.3% until 2028.

Based on this trend, I extended the projection until 2030, assuming a consistent GDP growth rate of 5%. Subsequently, I envisaged a gradual increase in the GDP growth rate, reaching 10% by the year 2050.

Between 2045 and 2050, Nepal's growth rate is anticipated to peak, remaining robust at 9% to 10%. However, thereafter, a slowdown is projected, reversing the trend over the subsequent five years. The pinnacle of Nepal's economic growth is forecasted to occur in 2050. Following this peak, the growth rate is anticipated to decelerate, eventually reaching 6% by the year 2072.

This scenario paints an optimistic outlook for Nepal's economy, potentially leading to its transformation into a developed nation by 2072, with a projected GDP per capita of USD 63,000. This estimate signifies a substantial increase compared to the 2023 estimate, potentially reaching 42 times the current figure.

In the context of global comparisons, it's worth noting that only 11 nations have surpassed the USD 2 trillion GDP mark thus far. However, over the next 50 years, it's conceivable that this number could increase significantly, with possibly over 50 economies achieving this milestone.

Nepal, currently ranked 100th in terms of the size of its economy, has the potential to ascend the ranks and join the coveted Top 50 Club through sustained economic growth and development initiatives. This would represent a significant achievement and could signify Nepal's increasing prominence on the global economic stage.

These are the factors that support my confidence in Nepal's growth trajectory.

1. Exports to India and China: Having a developed neighborhood is a significant advantage for Nepal's growth prospects. With China and India ranking as the second and fourth largest economies globally, and boasting the first and third largest markets respectively, Nepal stands to benefit from increased tourism and export opportunities. Currently, Nepal's exports to India amount to USD 1 billion, while exports to China stand at USD 11 million. It's noteworthy that these figures have shown robust growth from USD 47 million and USD 185,000 respectively in 1995, indicating a strong annual growth rate of 16%.
2. Electricity Production and Trade: Recently, Nepal and India inked an agreement aiming to export 10,000 megawatts of electricity to India within the next decade. Additionally, Nepal is actively pursuing avenues to export electricity not only to India but also to China and Bangladesh. The country currently has 228 hydropower projects under construction, with a combined output capacity of 8,434 megawatts. Among these projects, notable ones include Tila-1 Hydropower Project, Tila-2 Hydropower Project, and Upper Tamor Project, boasting installed capacities of 440 MW, 420 MW, and 285 MW respectively.
3. Increased Tourism: Nepal, revered as one of the most cherished tourist destinations, holds immense potential for growth. The key requirement for experiencing exponential expansion lies in bolstering infrastructure to accommodate a large influx of tourists and enhancing connectivity. Remarkably, Nepal has witnessed significant progress in this regard, transitioning from having just one international airport to now boasting three international airports over the past five years. However, challenges persist, particularly concerning the Pokhara International Airport and Gautam Buddha International Airport, primarily due to airspace restrictions stemming from Chinese investment. Nevertheless, I anticipate that the governments of India and Nepal will collaborate to find a resolution promptly. This could potentially involve granting operating rights to an Indian Airport Management Company, such as Adani Airport Holdings Limited. Nepal stands poised to attract substantial tourist traffic across three main sectors: a) Mountaineering and sightseeing in the Himalayas, with Everest serving as a focal point. b) A surge in Buddhist religious tourism, drawing visitors from India, China, and other Asian nations. c) Hindu religious tourism, attracting pilgrims from India, Sri Lanka, and beyond. Currently, the primary impediments lie in connectivity and the cost of travel, but with strategic investments and collaborative efforts, these obstacles can be overcome, paving the way for Nepal to realize its full potential as a premier tourist destination.
4. Mining: The history of mining and mineral extraction in Nepal spans approximately two centuries, yet for various reasons, mining activities were not extensively encouraged across multiple sectors until recently. However, there has been a notable shift in sentiment within Kathmandu, with the current government actively soliciting investors from India and other nations to participate in the mining sector. In a significant development, the Nepal government has recently granted approval to 156 mining companies across 17 different types of mining activities this year. This initiative signals a positive shift towards the broader industrialization of the mining industry, which is expected to contribute significantly to the national GDP.
5. India-China Freight Corridor: This represents both the greatest opportunity and the most formidable challenge for Nepal. With India and China currently leading as the world's No. 1 and No. 3 markets, and also ranking as the world's No. 1 and 14th largest exporters, they are projected to ascend to even greater heights in the coming decades. Nepal stands at a historic crossroads, poised to seize this unparalleled opportunity. Significantly, Nepal has already made substantial strides in infrastructure development, including the construction of three international airports with substantial cargo capacities. Moreover, the ongoing construction of the fourth airport in Nijgarh, anticipated to be South Asia's largest airport in terms of size and capacity, underscores Nepal's commitment to capitalizing on this momentous occasion. Currently, there exist 22 designated trade routes between India and Nepal by road, along with six routes with China. Nepal has been actively collaborating with both India and China to enhance road infrastructure at these junctures, while also establishing state-of-the-art and secure quarantine and customs offices. Furthermore, China has proposed a railway project from Kerung in Tibet to Kathmandu, with plans for extension to Lumbini and Hetauda. While progress on the project has been hindered by uncertainties surrounding funding on the Nepalese side, China is nearing completion of its segment of the project. On the other hand, India has made significant strides in railway connectivity to Nepal, with the project linking Raxual in Uttar Pradesh to Kathmandu via Hetauda. Notably, the Indian and Chinese railway lines are anticipated to converge in three key hubs - Kathmandu, Hetauda, and Lumbini. Of particular significance is the connectivity being established to Lumbini, the birthplace of Gautam Buddha, through the East-West railway line being constructed with Indian assistance and funding. These interconnected developments underscore Nepal's strategic positioning and its potential to harness the economic opportunities presented by its proximity to two global economic powerhouses.

Closing Thoughts:

This analysis overlooks certain critical factors such as political instability, natural disasters, Human Development Index, climate change, inflation, and international turmoil, given Nepal's recent political maturity and its strategic location between two global superpowers. Indeed, Nepal's position could be likened to that of Switzerland in the 1970s, presenting both unique opportunities and challenges.

On one hand, Nepal's political stability and growing maturity among its populace are positive indicators for sustained economic growth and development. The country's strategic location between India and China offers immense potential for trade, investment, and strategic partnerships, akin to Switzerland's advantageous position in Europe during the 1970s. Additionally, Nepal's efforts to enhance infrastructure, such as the development of international airports and improved road and rail connectivity, underscore its commitment to capitalizing on its geopolitical advantages.

However, it's essential to acknowledge the potential risks and uncertainties that lie ahead. Political stability, while crucial, can be fragile and susceptible to internal and external pressures. Natural disasters, such as earthquakes and floods, pose significant challenges to Nepal's infrastructure and socio-economic development. Moreover, climate change exacerbates these risks, with Nepal being particularly vulnerable to its impacts, including glacial melting and erratic weather patterns.

Furthermore, the Human Development Index reflects the overall well-being and quality of life of Nepal's population, highlighting areas for improvement in education, healthcare, and income equality. Addressing these disparities is essential for sustainable and inclusive development.

Considering the global context, factors like inflation and international turmoil, including the possibility of conflicts escalating into a World War III scenario, cannot be discounted entirely. While Nepal may strive to remain neutral and maintain diplomatic relations with various nations, the repercussions of global conflicts and economic instability can still affect its economy and security.

In summary, while Nepal's prospects appear promising, it's essential to approach projections with caution and consider the multifaceted challenges and opportunities that lie ahead. By fostering a healthy discussion and engaging in critical analysis, stakeholders can better understand the dynamics shaping Nepal's future trajectory and work towards realizing its full potential while mitigating risks.

Sudeep Acharya Laxmi Khatiwada Sneh Sharma Khem R. Lakai, CHE Pradeep Bashyal Hemanta Shrestha, PhD Hemanta Lamichhane Krishna Bista Anup Kaphle Bibek Paudel Arun Thapa Binit Thapa Deep S. Prasoon P. Khanal Upendra Dulal Khada Dulal deependra khanal