An isolated, agrarian society until the mid-20th century, Nepal entered the modern era in 1951 without schools, hospitals, roads, telecommunications, electric power, industry, or civil service. The country has, however, made progress toward sustainable economic growth since the 1950s and is committed to a program of economic liberalization.
Nepal has used a series of five-year plans in an attempt to make progress in economic development. It completed its ninth economic development plan in 2002; its currency has been made convertible, and 17 state enterprises have been privatized. Foreign aid accounts for more than half of the development budget. Government priorities over the years have been the development of transportation and communication facilities, agriculture, and industry. Since 1975, improved government administration and rural development efforts have been emphasized.
Agriculture remains Nepal's principal economic activity, employing 80% of the population and providing 37% of GDP. Only about 20% of the total area is cultivable; another 33% is forested; most of the rest is mountainous. Rice and wheat are the main food crops. The lowland Terai region produces an agricultural surplus, part of which supplies the food-deficient hill areas.
Economic development in social services and infrastructure has made progress. A countrywide primary education system is under development, and Tribhuvan University has several campuses. Although eradication efforts continue, malaria had been controlled in the fertile but previously uninhabitable Terai region in the south. Kathmandu is linked to India and nearby hill regions by road and an expanding highway network. The capital was almost out of fuel and transport of supplies caused by a crippling general strike in southern Nepal on February 17, 2008.
Major towns are connected to the capital by telephone and domestic air services. The export-oriented carpet and garment industries have grown rapidly in recent years and together now account for approximately 70% of merchandise exports.
Nepal was at number 92 of 119 countries on Global Hunger Index in 2007, between Pakistan and India
Nepal's merchandise trade balance has improved somewhat since 2000 with the growth of the carpet and garment industries. In FY 2000-01 exports posted a greater increase (14%) than imports (4.5%), helping bring the trade deficit down by 4% from the previous year to $749 million. Trade with India rose rapidly after conclusion of the 1996 bilateral trade treaty between the two countries, and now accounts for 43% of all exports. Indian efforts to revise the treaty, which comes up for a 5-year review in December 2001, could dampen Nepal's export growth. The annual monsoon rain, or lack of it, strongly influences economic growth. From 1996 to 1999, real GDP growth averaged less than 4%. The growth rate recovered in 1999, rising to 6% before slipping slightly in 2001 to 5.5%.
Strong export performance, including earnings from tourism, and external aid have helped improve the overall balance-of-payments situation and increase international reserves. Nepal receives substantial amounts of external assistance from India, the People's Republic of China, the United Kingdom, the United States, Japan, Germany, and the Scandinavian countries. Several multilateral organizations, such as the World Bank, the Asian Development Bank, and the UN Development Programme also provide assistance. In June 1998, Nepal submitted its memorandum on a foreign trade regime to the World Trade Organization and in May 2000 began direct negotiations on its accession.
Progress has been made in exploiting Nepal's ic resources, tourism and hydroelectricity. With eight of the world's 10 highest mountain peaks, including Mount Everest at 8,850 m ( In the early 1990s, one large public sector project and a number of private projects were planned; some have been completed. The most significant private sector financed hydroelectric projects currently in operation are the Khimti Khola (60 MW) and the Bhote Koshi Project (36 MW).
The environmental impact of Nepal's hydroelectric projects has been limited by the fact that most are "run-of-river" with only one storage project undertaken to date. The largest under active consideration is the private sector West Seti (750 MW) storage project which is dedicated to exports. Negotiations with India for a power purchase agreement have been underway for several years, but agreement on pricing and capital financing remains a problem. Currently demand for electricity is increasing at 8%-10% a year.
Population pressure on natural resources is increasing. Over-population is already straining the "carrying capacity" of the middle hill areas, particularly the Kathmandu Valley, resulting in the depletion of forest cover for crops, fuel, and fodder and contributing to erosion and flooding. Although steep mountain terrain makes exploitation difficult, mineral surveys have found small deposits of limestone, magnesite, zinc, copper, iron, mica, lead, and cobalt.
Nepal is the largest mustard market in Asia.