2017 Index of Economic Freedom

Nepal

overall score55.1
world rank125
Rule of Law

Property Rights37.3

Government Integrity26.7

Judicial Effectiveness32.0

Government Size

Government Spending89.5

Tax Burden84.9

Fiscal Health98.4

Regulatory Efficiency

Business Freedom64.6

Labor Freedom47.6

Monetary Freedom72.2

Open Markets

Trade Freedom68.1

Investment Freedom10.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 28.4 million
  • GDP (PPP):
    • $70.1 billion
    • 3.4% growth
    • 4.2% 5-year compound annual growth
    • $2,465 per capita
  • Unemployment:
    • 3.1%
  • Inflation (CPI):
    • 7.2%
  • FDI Inflow:
    • $51.4 million
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Nepal’s economy lacks the entrepreneurial dynamism needed for stronger economic growth and long-term development. Overall, weak reform efforts have failed to stimulate broad-based poverty reduction. The state continues to hinder private-sector development, and political instability further weakens the capacity to implement economic reform or create a stable development environment.

Overall, the statist approach to economic management and development has been a serious drag on business activity. Lack of transparency, corruption, and a burdensome approval process impede much-needed expansion of private investment and production. Property rights are undermined by the inefficient judicial system, which is subject to substantial corruption and political influence.

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Background

Political instability continues in Nepal, which has seen eight governments in the past decade. On September 20, 2015, Nepal finally approved a new constitution establishing itself as a federal republic and redrawing political boundaries. Ethnic Madhesis, who have close links to India, objected to the constitution and protested in street demonstrations. In July 2016, an impending vote of no confidence drove Prime Minister Khadga Prasad Oli to resign. The Nepali Congress party and the Communist Party of Nepal (Maoist-Center), which were allied against Oli, agreed to share rotating leadership of the government, and Communist Party chairman Pushpa Kamal Dahal became prime minister in August 2016. The dramatic drop in trade with India since adoption of the constitution has caused a fuel crisis in Nepal.

Rule of LawView Methodology

Property Rights 37.3 Create a Graph using this measurement

Government Integrity 26.7 Create a Graph using this measurement

Judicial Effectiveness 32.0 Create a Graph using this measurement

Property rights are not protected effectively, and it can take years to resolve property disputes. The law provides for an independent judiciary, but courts remain vulnerable to political pressure, bribery, and intimidation. There are numerous reports of corrupt actions by government officials, political parties, and party-affiliated organizations. Corruption and impunity in general are problems within the Nepal Police and Armed Police Force.

Government SizeView Methodology

The top individual income and corporate tax rates are 25 percent. Other taxes include a value-added tax and a property tax. The overall tax burden equals 16.1 percent of total domestic income. Government spending has amounted to 18.7 percent of total output (GDP) over the past three years, and budget surpluses have averaged 1.5 percent of GDP. Public debt is equivalent to 28.7 percent of GDP.

Regulatory EfficiencyView Methodology

Despite some progress in streamlining the process for launching a business, other time-consuming requirements reduce the efficiency of the regulatory system. Nepal’s labor regulations remain obsolete, and underemployment persists. In the wake of the devastating 2015 earthquake, Nepal has subsidized the rebuilding of homes, contingent on the use of earthquake-resistant methods and materials.

Open MarketsView Methodology

Trade is important to Nepal’s economy; the value of exports and imports taken together equals 53 percent of GDP. The average applied tariff rate is 10.9 percent. The judicial and regulatory systems impede foreign investment, and state-owned enterprises distort the economy. Nepal’s fragmented financial system remains vulnerable to government influence, and financial supervision is inadequate.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong89.81.2
2Singapore88.60.8
3New Zealand83.72.1
4Australia810.7
5Taiwan76.51.8
6South Korea74.32.6
7Malaysia 73.82.3
8Macau70.70.6
9Brunei Darussalam69.82.5
10Japan69.6-3.5
11Kazakhstan695.4
12Vanuatu67.46.6
13Thailand 66.22.3
14Philippines65.62.5
15Azerbaijan63.63.4
16Fiji63.44.6
17Tonga633.4
18Indonesia61.92.5
19Kyrgyz Republic 61.11.5
20Cambodia59.51.6
21Bhutan58.4-1.1
22Samoa58.4-5.1
23Tajikistan58.26.9
24China57.45.4
25Sri Lanka57.4-2.5
26Nepal55.14.2
27Solomon Islands558.0
28Bangladesh 551.7
29Mongolia54.8-4.6
30Micronesia54.12.3
31Laos544.2
32Pakistan 52.8-3.1
33India52.6-3.6
34Burma52.53.8
35Vietnam52.4-1.6
36Uzbekistan52.36.3
37Papua New Guinea50.9-2.3
38Kiribati50.94.7
39Maldives50.3-3.6
40Afghanistan48.9N/A
41Turkmenistan47.45.5
42Timor-Leste46.30.5
43North Korea4.92.6
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