Historically, Nepal’s economy was based on the agriculture sector. Nowadays, the contribution of the sector is decreasing and accounts for 24 percent of the GDP while more than 60 percent of the population is involved in this sector. The service sector is in increasing order and the industrial sector is not satisfactory. The contribution of the service sector is increasing after implementation of liberalization policy. Banking sector, foreign employment, hydro sector, civil aviation, and health sectors are the most linearized sectors after restoration of democracy in Nepal after the 1990 movement.
The banking sector is one of the most outstanding developments in Nepal. After the 7th periodic plan only a limited number of financial institutions (FS) were existing and functioning. Deposit and landing from FIs was limited and difficult to exceed for the general public. After 1992 the scenario changed. Nowadays, access to the public is getting easy. The deposit and lending both are increasing with competitive costs.
Around 3m Nepalis are working abroad as foreign employment, of whom around 1.9m are working in the Gulf countries. The contribution of remittance with GDP was around 25 percent in previous years and it is found that the ratio and amount both are increasing.
However, around 40 percent of remittances come from Gulf countries and it may be adversely affected by the West Asia war. The remittance ultimately helped in reducing poverty and increasing consumption. The Balance of Payments (BoP) and liquidity position in the financial system are currently comfortable and remain supportive of overall economic stability.
Hydropower is another liberalized sector after restoration of democracy. Many private investors are investing in this sector because of the government’s liberal policy in investment and tax schemes. Generation of hydroelectricity (4105 MW) has increased by nearly 15 times. Following the adoption of the liberalization policy, the Civil Aviation Authority of Nepal (CAAN) was established in 1998 to regulate and develop the civil aviation sector. The implementation of the open-sky policy encouraged private airlines to operate both domestic and international flights. As a result, the quality and quantity of air services increased significantly, leading to greater competition in airfares, improved connectivity, higher revenue generation, and increased employment opportunities in the aviation industry.
Education and health are among the sectors that have benefited significantly from the liberalization policy. Although some challenges still exist, these sectors have experienced substantial growth and improvement. Every year, nearly 4,000 Nepali students receive scholarships in medical, nursing, and engineering programs. These scholarships provide valuable opportunities for talented and economically disadvantaged students to pursue higher education. The expansion of educational institutions and medical colleges has contributed to improving both the quality and quantity of healthcare and educational services.
Furthermore, the education and health sectors have created significant employment opportunities and have become important sources of revenue generation for the country.
Nepal’s economy has gradually shifted from an agriculture-based structure to a more service-oriented and liberalized system after the restoration of democracy in 1990. Although agriculture still employs more than 60 percent of the population, its contribution to GDP has declined to around 24 percent, while the service sector has grown significantly. Key sectors such as banking, foreign employment, hydropower, civil aviation, education, and health have expanded due to liberalization policies, improving access, efficiency, and overall economic performance. Foreign employment and remittance inflows have become major sources of income, contributing around one-third of GDP and supporting poverty reduction, consumption, and macroeconomic stability.
Hydropower development, civil aviation expansion, and improvements in education and health sectors have created employment opportunities and enhanced service delivery. Electricity generation has increased significantly, while air connectivity has improved through private sector participation and open-sky policies. The education and health sectors have also benefited through scholarship programs and institutional growth, providing opportunities for thousands of students. Despite these achievements, the industrial sector remains weak, indicating the need for more balanced and sustainable economic development in the future.
