2014 Index of Economic Freedom

Nepal

overall score50.1
world rank149
Rule of Law

Property Rights30.0

Freedom From Corruption21.3

Limited Government

Government Spending89.6

Fiscal Freedom85.9

Regulatory Efficiency

Business Freedom58.5

Labor Freedom43.8

Monetary Freedom76.3

Open Markets

Trade Freedom61.0

Investment Freedom5.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 31.0 million
  • GDP (PPP):
    • $40.6 billion
    • 4.6% growth
    • 4.8% 5-year compound annual growth
    • $1,308 per capita
  • Unemployment:
    • 46.0%
  • Inflation (CPI):
    • 8.3%
  • FDI Inflow:
    • $92.0 million
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Nepal’s economic freedom score is 50.1, making its economy the 149th freest in the 2014 Index. Its score has decreased by 0.3 point since last year, with modest improvements in business freedom, monetary freedom, and the control of government spending outweighed by declines in investment freedom and freedom from corruption. Nepal is ranked 34th out of 42 countries in the Asia–Pacific region, and its score remains far below world and regional averages.

Nepal was first graded in the 1996 Index, and its economic freedom score since then has been largely stagnant, declining overall by less than half a point. Improvements in four of the 10 economic freedoms, including freedom from corruption, business freedom, monetary freedom, and trade freedom, have been more than offset by deterioration in other areas, particularly a 25-point decrease in investment freedom. Considered a “mostly unfree” economy throughout its history in the Index, Nepal achieved its highest score in 2007.

Overall, a statist approach to economic management and development is a serious drag on business activity. A lack of transparency, corruption, and a burdensome approval process impede much-needed 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

Seven years after the end of a Maoist insurgency and abolition of the monarchy, political instability continues to plague Nepal. In May 2012, interim Prime Minister Baburam Bhattarai dissolved the Constituent Assembly after the political parties failed to meet a deadline to form a new constitution. Elections scheduled for November 2012 were postponed. The reintegration of former Maoist fighters into the national army remains a controversial issue. Nepal is among the world’s poorest and least developed countries and benefits from very little foreign direct investment. The main industry is agriculture, which accounts for one-third of GDP.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 21.3 Create a Graph using this measurement

Corruption is endemic in politics and government. Many members of the legislature have been accused or convicted of corruption in the past, but high-level officials are rarely prosecuted. Graft is particularly prevalent in the judiciary, with frequent payoffs to judges for favorable rulings, and in the police force, which has been accused of extensive involvement in organized crime. Protections for property rights are not enforced effectively.

Limited GovernmentView Methodology

The top individual income and corporate tax rates are 25 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden is 12.6 percent of gross domestic income. Government expenditures are steady at around 19 percent of GDP. Public debt is about 33 percent of the domestic economy. The government’s ability to produce a budget has come into question because of political instability.

Regulatory EfficiencyView Methodology

Bureaucracy and a lack of transparency often make business formation and operation costly and burdensome. Business start-up is now more streamlined, but obtaining necessary licenses continues to be time-consuming. Labor regulations are rigid, and restrictions on work hours remain stringent. The government provides extensive subsidies to the state-owned electricity and oil companies.

Open MarketsView Methodology

Nepal’s average tariff rate is 12 percent. Tariffs are a significant source of government revenue. Consumers are not allowed to import used products. Foreign investors face government screening and a challenging economic environment. 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

Bar Graphs comparing Nepal to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong90.10.8
2Singapore89.41.4
3Australia82-0.6
4New Zealand81.2-0.2
5Taiwan73.91.2
6Japan72.40.6
7Macau71.3-0.4
8South Korea71.20.9
9Malaysia 69.63.5
10Kazakhstan63.70.7
11Thailand 63.3-0.8
12Azerbaijan61.31.6
13Samoa61.14.0
14Kyrgyz Republic 61.11.5
15The Philippines60.11.9
16Sri Lanka60-0.7
17Vanuatu59.52.9
18Mongolia58.9-2.8
19Fiji58.71.5
20Indonesia58.51.6
21Tonga58.22.2
22Cambodia57.4-1.1
23Bhutan56.71.7
24India55.70.5
25Pakistan 55.20.1
26Bangladesh 54.11.5
27Papua New Guinea53.90.3
28China52.50.6
29Tajikistan52-1.4
30Laos51.21.1
31Maldives512.0
32Vietnam50.8-0.2
33Nepal50.1-0.3
34Micronesia49.8-0.3
35Burma46.57.3
36Uzbekistan46.50.5
37Kiribati46.30.4
38Solomon Islands46.21.2
39Timor-Leste43.2-0.5
40Turkmenistan42.2-0.4
41North Korea1-0.5
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