Amid recent anti-corruption demonstrations in Kathmandu, a leading ratings agency warns that Nepal economic output recovery could face setbacks from disrupted business and waning investor sentiment.
Kathmandu, Nepal – Rating agency Fitch Ratings has cautioned that Nepal’s economic output faces heightened risks from political unrest, including violent protests that erupted earlier this month, potentially straining the country’s fiscal position and credit profile.
The assessment, released on Friday, September 19, 2025, highlights how the demonstrations disrupted normal activities and eroded confidence among consumers and businesses. This comes as Nepal navigates a projected GDP growth of 4.5 per cent for fiscal year 2025, according to the World Bank, amid broader South Asian economic pressures.
Nepal’s economic output, already vulnerable to external shocks and domestic instability, underpins regional stability in South Asia, where remittances and trade flows interconnect with neighbours like India and Bangladesh. Persistent protests could ripple into reduced foreign investment and heightened borrowing costs, exacerbating poverty and migration pressures across the subcontinent. For a landlocked nation reliant on tourism and agriculture, such disruptions threaten to widen inequality and hinder sustainable development goals shared by the region.
Recent Protests Disrupt Nepal Economic Output
The unrest in Nepal stemmed from youth-led demonstrations against corruption, nepotism, and a controversial social media ban imposed on September 4, 2025. What began as peaceful gatherings by Generation Z activists quickly escalated into widespread violence, with protesters vandalising government buildings and clashing with security forces in Kathmandu and other cities.
According to the World Bank, Nepal’s economy showed signs of recovery in the first half of fiscal year 2025, with real GDP expanding by 4.9 percent, driven by agricultural and industrial sectors. However, the protests, peaking around September 9, 2025, halted commercial operations and deterred tourism, a key contributor to the nation’s economic output.
Fitch Ratings noted in its statement that “calm has returned, but we believe the violence has dampened near-term growth prospects by curbing normal economic activity, and hurting consumer and business confidence.” This assessment aligns with observations from the Asian Development Bank (ADB), which forecasted Nepal’s GDP growth at 4.4 per cent for fiscal year 2025 prior to the unrest, emphasising the role of services like wholesale trade in bolstering output.
The protests led to the resignation of Prime Minister K.P. Sharma Oli on September 9, 2025, amid arson attacks on the Supreme Court and parliament buildings. Interim Prime Minister Sushila Karki was appointed on September 12, 2025, as Nepali Army troops were deployed to restore order outside key sites like the presidential building, Shital Niwas.
Inflation, projected to moderate to 5 per cent in fiscal year 2025 by the World Bank, could face upward pressure if supply chains remain disrupted. Nepal’s external position, bolstered by remittance inflows equivalent to about 9.1 per cent of GDP, provides some buffer, but the International Monetary Fund (IMF) warns that geopolitical uncertainties and trade restrictions pose downside risks to the 4.0 per cent growth projection for 2025.
Youth-Led Unrest Targets Systemic Issues
The demonstrations, dubbed the “Gen Z protests,” highlighted deep-seated frustrations over youth unemployment and elite capture of economic opportunities. Organisers from groups like Hami Nepal decried the social media blackout as an attempt to suppress exposés on nepotism, which controls sectors such as banking and real estate. Violence intensified after security forces used live ammunition against protesters, resulting in fatalities and prompting international calls for accountability from human rights organisations. By September 9, 2025, the government lifted the ban on 26 platforms, but not before it had ignited nationwide fury.
Economic data from official sources underscores the stakes. The ADB reports that agricultural growth, expected at 3.2 per cent in fiscal year 2025 due to a favourable monsoon, supports 65 per cent of the workforce and contributes 31.7 per cent to GDP. Yet, the protests’ fallout could delay infrastructure projects under the Belt and Road Initiative and Indian partnerships, further constraining Nepal’s economic output.
Background
Nepal’s political landscape has been marked by chronic instability since the 2008 transition to a federal republic, with four coalition shifts in recent years. The current crisis echoes earlier unrest, such as the March 2025 protests in Tinkune that claimed two lives, amid concerns over debt sustainability and placement on the Financial Action Task Force’s grey list in February 2025. Economically, Nepal’s public debt is projected to reach 43.4 per cent of GDP by fiscal year 2027, remaining within sustainable limits per World Bank analysis. However, reliance on concessional loans and remittances leaves little room for shocks like those from the recent Nepal economic output disruptions tied to protests.
Reforms introduced via five ordinances in March 2025 aim to spur private sector-led growth, but bureaucratic reshuffles and capital expenditure delays pose ongoing challenges. The IMF’s May 2023 consultation emphasised policy consistency to mitigate these vulnerabilities.
What’s Next for Nepal’s Economic Recovery
As Nepal’s interim government prepares for early elections in 2026, restoring investor trust will be paramount to safeguarding economic output amid lingering protest effects. With inflation easing to an average of 4.4 per cent over fiscal years 2026-2027, per World Bank estimates, sustained reforms could stabilise credit metrics and avert a Fitch downgrade. Yet, addressing youth grievances through anti-corruption measures remains essential to prevent future disruptions to Nepal’s economic output and the’ cycle of protests.
Published in SouthAsianDesk, September 19th, 2025
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