Nepal risks failing to make the jump to “middle income” status by relying too heavily on remittance incomes, a new report by the Overseas Development Institute (ODI) and South Asia Watch on Trade, Economics and Environment (SAWTEE) has warned.

Economists at the two think-tanks have calculated how, based on past growth rates, Nepal is on course to graduate from a low-income country (LIC) to a lower-middle-income country (LMIC) by 2030.However, this would require the creation of 6.1 million jobs, of which 3.1 million are needed simply to match population growth.

The report, ‘Pathways to prosperity and inclusive job creation in Nepal’, details how growth since 2000 has not been based on high-quality jobs. Instead, the lack of good jobs has resulted in young people looking for work overseas. It is estimated that up to 4 million people are working abroad, generating remittances worth more than 30% of GDP.

Researchers have now urged the government and all political actors to put a long-term plan in place for economic transformation and job creation in four key sectors identified in the report – agro-processing and light manufacturing; information and communication technology (ICT); tourism; and hydropower.

The ODI-SAWTEE report examines, in detail, what is currently holding the four priority sectors back, from the perspectives of individual firms. Accounting for political instability and the unique circumstance of Nepal’s high labour migration, and a resulting overreliance upon remittances, the report finds that there must be urgent action to ensure the target for graduation to LMIC by 2030 stays on track.

The paper also suggests agriculture, forestry and fishing is an important sector due to its major impact on growth and jobs in the past and because it is regarded as inclusive.

The paper argues that by focusing on priority sectors with potential, through targeted policy action and better co-ordination, Nepal can achieve economic transformation. It offers recommendations for five areas for action including around transport and energy, infrastructure, on-the-job and technical training to fill the skills gap, relaxing capital account restrictions, increased advocacy and improved tertiary education.

Dirk Willem te Velde, director of Supporting Economic Transformation at ODI, said: ‘Nepal urgently needs a unifying, practical vision on how it will create jobs and transform the economy, focusing on tackling the most binding constraints (such as targeted energy and transport infrastructure, on the job training and improved state-business relations) in sectors such as agro-processing and light manufacturing, ICT and tourism’.

Dr. Posh Raj Pandey, Executive Chairman, South Asia Watch on Trade, Economics and Environment (SAWTEE), says: ‘Promoting a nation-building project is a responsibility for the government but they also need to create a policy framework which incentivises them to create enough jobs.’

On 26 October 2017 a launch event for the research included the participation of a range of important stakeholders such as the National Planning Commission, several private sector business associations including the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and also the Nepal Trade Union Congress gathered to discuss the findings and next steps.

The report, has been published by the Overseas Development Institute on Thursday 26 October 2017 on the SET Programme Website.

The Overseas Development Institute (ODI) is the UK’s leading think-tank on international development. This paper has been drafted with South Asia Watch on Trade, Economics and Environment (SAWTEE)

This paper was prepared by ODI’s Supporting Economic Transformation program,