2016 Index of Economic Freedom

Nepal

overall score50.9
world rank151
Rule of Law

Property Rights30.0

Freedom From Corruption29.0

Limited Government

Government Spending91.1

Fiscal Freedom85.1

Regulatory Efficiency

Business Freedom64.9

Labor Freedom47.3

Monetary Freedom70.8

Open Markets

Trade Freedom55.6

Investment Freedom5.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 28.1 million
  • GDP (PPP):
    • $66.8 billion
    • 5.5% growth
    • 4.5% 5-year compound annual growth
    • $2,376 per capita
  • Unemployment:
    • 2.7%
  • Inflation (CPI):
    • 9.0%
  • FDI Inflow:
    • $29.6 million
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Nepal’s agriculture-dominated economy lacks the entrepreneurial dynamism needed for broad-based growth. A statist approach holds development far below the country’s potential. Government interference continues to hurt regulatory efficiency, and there has been little effort to modernize the trade and investment regimes.

Economic Freedom Snapshot

  • 2016 Economic Freedom Score: 50.9 (down 0.4 point)
  • Economic Freedom Status: Mostly Unfree
  • Global Ranking: 151st
  • Regional Ranking: 34th in the Asia–Pacific Region
  • Notable Successes: None
  • Concerns: Rule of Law, Open Markets, and Labor Freedom
  • Overall Score Change Since 2012: +0.7

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Background

Nearly 10 years after the end of a Maoist insurgency and abolition of the monarchy, Nepal finally passed a new Constitution on September 20, 2015, establishing the country as a federal republic and redrawing political boundaries. Ethnic Madhesis, who live in the southern plains of Nepal and have close links to India, have objected to the Constitution and taken to the streets in protest, leading to sporadic street clashes that have killed nearly 40 since August. Trade between Nepal and India has dropped dramatically since the adoption of the Constitution, causing a fuel crisis in Nepal and forcing it to look to China as an alternative supplier. A poor, landlocked country bordering the Himalayan Mountains, Nepal attracts little foreign direct investment. A devastating earthquake on April 25, 2015, killed more than 8,500 and injured 18,000. The international community has pledged nearly $423 million in assistance, but the government estimates that it will cost around $7 billion to rebuild.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 29.0 Create a Graph using this measurement

Although corruption remains endemic in Nepali politics and government, a spirit of national unity after two 2015 earthquakes moved the deeply divided political parties to make encouraging progress in drafting a new constitution that could improve the rule of law. Graft has been particularly prevalent in the judiciary and the police force, which reportedly is extensively involved in organized crime. Property rights are not protected effectively.

Limited GovernmentView 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 15.3 percent of total domestic income. Government spending amounts to 17.2 percent of GDP. The budget balance has been in deficit, with public debt around 25 percent of GDP. Spending on subsidies, particularly to state-owned enterprises like the Nepal Oil Company, continues.

Regulatory EfficiencyView Methodology

Despite some progress in modernizing the regulatory framework, time-consuming and costly requirements continue to reduce overall regulatory efficiency. Completing licensing requirements takes more than 100 days. The labor market remains inefficient, and chronic unemployment and underemployment continue. Subsidies expanded significantly in the aftermath of the devastating April 2015 earthquake.

Open MarketsView Methodology

Nepal’s average tariff rate is 14.7 percent. The government relies extensively on tariffs for revenue. Some goods may be subject to export taxes, and beef imports are restricted. The government screens new foreign investment. Several state-owned enterprises distort the economy. The financial sector remains fragmented, and government ownership and influence in the allocation of credit remain substantial.

Country's Score Over Time

Bar Graph of Nepal Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Hong Kong88.6-1.0
2Singapore87.8-1.6
3New Zealand81.6-0.5
4Australia80.3-1.1
5Taiwan74.7-0.4
6Japan73.1-0.2
7South Korea71.70.2
8Malaysia 71.50.7
9Macau70.1-0.2
10Brunei Darussalam67.3-1.6
11Thailand 63.91.5
12Kazakhstan63.60.3
13Samoa63.51.6
14Philippines63.10.9
15Vanuatu60.8-0.3
16Azerbaijan60.2-0.8
17Sri Lanka59.91.3
18Tonga59.60.3
19Kyrgyz Republic 59.6-1.7
20Bhutan59.52.1
21Indonesia59.41.3
22Mongolia59.40.2
23Fiji58.8-0.2
24Cambodia57.90.4
25India56.21.6
26Pakistan 55.90.3
27Vietnam542.3
28Maldives53.90.5
29Bangladesh 53.3-0.6
30Papua New Guinea53.20.1
31China52-0.7
32Micronesia51.82.2
33Tajikistan51.3-1.4
34Nepal50.9-0.4
35Laos49.8-1.6
36Burma48.71.8
37Solomon Islands470.0
38Kiribati46.2-0.2
39Uzbekistan46-1.0
40Timor-Leste45.80.3
41Turkmenistan41.90.5
42North Korea2.31.0
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