Based on the World Bank’s recent analysis and the Country Partnership Framework (FY2025-2031), 82% of Nepal’s workforce is currently in informal employment. To unlock Nepal’s economic potential it is paramount to tackle this start reality. This informality creates a cycle of low productivity, limited social protection, and high vulnerability to shocks.
Nepal can capitalize on its informal workforce to drive “Job-Creating Growth” by:
1. The Core Challenge: The Informality Trap
The World Bank notes that Nepal’s manufacturing sector has shrunk and exports have flattened. This has pushed the workforce into subsistence agriculture or low-value services.
“Behind this statistic [82% informality] lies a challenge: limited opportunities and structural barriers that inhibit progress.” – Toward job-creating growth in Nepal (World Bank, 2024).
To capitalize on this, Nepal must transition from a “remittance-dependent” model to a “domestic-production” model.
2. Strategic Pillars to Unlock Opportunity
A. Formalizing through SME Support
Small and Medium Enterprises (SMEs) constitute 90% of Nepal’s industrial firms. Because these businesses are often informal themselves, the workers remain outside the social safety net.
- Action: Capitalize by improving the “doing business” environment. Reducing regulatory bottlenecks allows SMEs to scale and formally register, which in turn formalizes their employees.
- Investment: The IFC plans to invest $750 million, specifically targeting MSME on-lending (including women-led businesses) to bridge the financing gap.
B. Closing the Human Capital Productivity Gap
A critical barrier to formalization is “job readiness.” Currently, a child born in Nepal is expected to achieve only half of their potential productivity due to gaps in education and nutrition.
- Action: Vocational training and entrepreneurship programs must be aligned with “Modern Economy” needs (Digital and Green sectors).
- Quote: “Expanding access to quality education, vocational training, and entrepreneurship can bridge the skills gap, boost productivity, and unleash innovation at scale.”
C. Leveraging the “Digital and Green” Dividend
Nepal’s hydropower potential and digital services offer a path to high-value formal jobs that don’t require migration.
- Tourism & Hydropower: These sectors can spark “green jobs” that are inherently more structured and formal than subsistence farming.
- Digital Connectivity: By expanding digital infrastructure, Nepal can tap into the global gig economy, turning informal domestic labor into formal international service exports.
D. Urbanization as an Engine
Cities like Kathmandu are becoming hubs of opportunity, but unplanned growth keeps many workers in informal “slum-adjacent” labor.
- Action: Strategic urban planning and investment in urban infrastructure can transform cities into organized economic zones where service delivery is more efficient and labor can be formally tracked and supported.
3. Capitalizing on the Female Workforce
With female labor force participation at only 27.6%, Nepal is missing a massive engine of growth.
- The Strategy: Capitalizing on the informal sector requires specifically targeting women in the informal agricultural sector and transitioning them into high-value agro-processing or hospitality roles.
According to the World Bank Group’s Country Partnership Framework (CPF), the roadmap involves:
- $1.9 billion in World Bank financing for policy reforms and infrastructure.
- Guarantees (via MIGA) to attract Foreign Direct Investment (FDI), which traditionally creates formal, high-standard employment.
- Local Capacity Building: Strengthening local governance to ensure that national policies (like the Social Security Fund) actually reach the informal workers in rural provinces.
By shifting the focus from simply “reducing poverty” to “creating high-quality domestic jobs,” Nepal can ensure its projected 22 million-strong workforce by 2030 stays at home to build the national economy rather than fueling the growth of other nations through labor migration.
Reference: Sislen, D., Fakhoury, I. N., & Di Iorio, A. (2025). Toward job-creating growth in Nepal. World Bank Blogs.