2013 Index of Economic Freedom

Nepal

overall score50.4
world rank141
Rule of Law

Property Rights30.0

Freedom From Corruption22.0

Limited Government

Government Spending89.2

Fiscal Freedom85.8

Regulatory Efficiency

Business Freedom57.2

Labor Freedom44.3

Monetary Freedom75.1

Open Markets

Trade Freedom60.8

Investment Freedom10.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 28.5 million
  • GDP (PPP):
    • $37.8 billion
    • 3.5% growth
    • 4.4% 5-year compound annual growth
    • $1,328 per capita
  • Unemployment:
    • 46.0%
  • Inflation (CPI):
    • 9.6%
  • FDI Inflow:
    • $95.5 million
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Nepal’s economic freedom score is 50.4, making its economy the 141st freest in the 2013 Index. Its score has increased by 0.2 point since last year, with improvements in business freedom and the control of government spending offsetting deteriorations in labor freedom and trade freedom. Nepal is ranked 31st out of 41 countries in the Asia–Pacific region, and its score remains far below world and regional averages.

The Nepalese economy continues to lack the entrepreneurial dynamism needed for broad-based economic growth and sustainable long-term development. With the statist approach to the economy holding development progress far below the country’s potential, state interference continues to hurt regulatory efficiency, and there has been little effort to open the economy or engage in world markets. Nepal’s scores for investment and financial freedom are among the lowest in the world.

Lingering political instability undercuts the government’s ability and willingness to implement necessary institutional reforms, further undermining the already fragile foundations of economic freedom. Property rights are poorly protected by the inefficient judicial system, which is subject to substantial political influence. Systemic corruption in the non-transparent legal framework also continues to obstruct much-needed expansion of private investment and production.

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Background

Six years after the end of a Maoist insurgency and the abolition of the monarchy, political instability continues to plague Nepal. In May 2012, the Constituent Assembly was dissolved after the political parties failed to meet a deadline to form a new constitution. Interim Prime Minister Baburam Bhattarai was aiming for a resolution of the crisis by November. The reintegration of former Maoist fighters into the national army continues to be 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 22.0 Create a Graph using this measurement

The rule of law is weak and is being further damaged by deepening polarization and factionalism. Protections for property rights are not enforced effectively. The judicial system is inefficient, with lower-level courts particularly vulnerable to political pressure. Public-sector corruption continues to be a serious concern. Effective anti-corruption measures are not in place, and government officials exploit their positions for personal gain.

Limited GovernmentView Methodology

The top income and corporate tax rates are 25 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden equals 13.2 percent of total domestic income. Government spending is 18.9 percent of GDP. The budget balance has been in deficit, with public debt hovering around 34 percent of GDP. Subsidies, particularly to state-owned enterprises like the Nepal Oil Company, continue to stretch public coffers.

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 and costs over six times the level of annual average income. The labor market remains inefficient, and chronic unemployment and underemployment continue. Inflation has moderated but remains high.

Open MarketsView Methodology

Although some tariffs have been reduced, the trade-weighted average tariff rate remains high at 12.1 percent, and pervasive non-tariff barriers further restrict trade freedom. Private investment is hamstrung by political instability, and the inefficient investment regime further impedes foreign investment. 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 Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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