Situation and cooperation

Sherpa women in traditional attire take part in a ceremony to celebrate the completion of a project to lower the water level in Imja Lake, Nepal.

Nepal is one of the poorest countries in South Asia. Annual gross national income per capita is 730 US dollars (2015). The adult literacy rate is only about 65 per cent. Nepal ranks 149th out of 189 countries on the current Human Development Index (HDI).

The long years of civil war have massively impeded development in Nepal. Although a peace process was launched as early as in 2006, the environment for economic development has improved very little so far. While Nepal has made significant progress on poverty reduction in recent years, the severe earthquakes in April and May 2015 meant a major setback for the country. The natural disaster plunged at least an additional 700,000 people into poverty.

Even a year after the severe earthquake in Nepal in April 2015, there were still many places where the damage had not yet been repaired, for instance in this village in Dolakha District.


In 2014, the Nepalese government launched a territorial reform, establishing numerous new municipalities. Moreover, the new 2015 constitution laid down that the country would now have a federal structure consisting of seven provinces. The restructuring of the government system that is needed as a result is posing tremendous challenges for the government. Among other things, the new regional and local authorities have to be provided with sufficient budget funds, and local elections have to be held.

There are significant deficits with regard to the rule of law. Discrimination based on gender, caste, ethnic background and religion is widespread. There have also been repeated reports of instances of torture and abuse by the police. The victims have very little chance of taking legal action. The relevant authorities often prosecute human rights violations in a sluggish manner, if at all. Court decisions are often not enforced.

Widespread corruption is another problem. In the Corruption Perceptions Index compiled by the non-governmental organisation Transparency International in 2015, Nepal ranked 130th out of the 168 countries evaluated.

Slowdown of economic growth

Smallholder farming in the Kathmandu Valley

Nepal's development is being held back by political instability in combination with constantly changing government coalitions, bureaucratic inertia, serious energy shortages, an inadequate education system and a shortage of skilled labour, all of which are also a deterrent to investors.

For a number of years, economic growth in Nepal reached three to five per cent. However, as a result of domestic unrest and of the blockade of trade with India, economic development has slumped. The International Monetary Fund (IMF) estimates that economic growth in 2016 was probably no more than 0.6 per cent. It is expected, however, that the growth rate will recover in 2017.

Some 90 per cent of all Nepalese enterprises are small businesses. While they make an important contribution to employment, they account only for a small proportion of Nepal's gross domestic product. About one third of the national budget is financed by the international donor community through development cooperation. Another important source of capital flows to Nepal is remittances from Nepalese people working abroad, whose number is estimated at six million. Such remittances account for about one third of Nepal's gross domestic product. Nepal's economy is heavily dependent on agriculture, and the sector is characterised by subsistence farming. Even though only a small percentage of the land area is suitable for farming, two thirds of the country's jobs are in agriculture. The increasing tendency to cultivate land that is unsuitable for agricultural use has led to soil erosion in many places, which in turn has led to a greater risk of landslides and flood disasters.

The situation is further aggravated by global climate change. According to a study published in 2010, Nepal will be one of the countries in Asia worst affected by the consequences of climate change – in the form of more frequent storms, droughts and flooding, for instance.

Development potential

View of the mountains in the central Himalaya range near the glacier lake Tsho Rolpa

Nepal's mountainous terrain offers great development potential which, so far, has been left untapped. For instance, hydropower from the rivers flowing south from the Himalayas could be used to generate huge amounts of energy, for which there is great demand, especially in India.

Furthermore, Mount Everest and other eight-thousanders such as Annapurna and Kangchenjunga are popular destinations for mountaineers and trekking tourists. Growth in socially sensitive and environmentally sound eco-tourism could benefit the country's economy.

Nepal is working towards greater regional cooperation through, for example, the South Asian Association for Regional Cooperation (SAARC) and the International Centre for Integrated Mountain Development (ICIMOD), the latter being the only supra-regional climate research institute in the Hindu Kush Himalayan region. Both institutions have their headquarters in Nepal's capital city, Kathmandu.

Priority areas of German cooperation with Nepal

Germany is one of Nepal's most important bilateral donors. Through its bilateral development cooperation with the country, the German government seeks to help Nepal achieve greater political stability, overcome the after-effects of the civil war and reduce poverty. To that end, Germany has pledged a total of 36 million euros in new funding for the period of 2016 to 2017. The two countries' cooperation focuses on the following priority areas:

  • Renewable energy and energy efficiency
  • Health
  • Sustainable economic development and trade

In addition to these priority areas, the BMZ also supports municipalities that were newly formed after the territorial reform, assisting them on matters such as municipal administration, good governance and disaster preparedness.

At the two countries' government negotiations in November 2016, it was also agreed that Germany would provide further support to post-earthquake reconstruction. The BMZ is making available an additional three million euros for the continuation of ongoing programmes in the districts of Nuwakot, Rasuwa and Dhading.

Notwithstanding the difficult general environment, Nepalese-German development cooperation has achieved visible results in the regions affected by the earthquake. For example, 37 health posts and a temporary district hospital in Nuwakot District have been built. More than 1,250 people have been trained in earthquake-proof construction techniques – 40 per cent of them are women, who now have a vocational training certificate. And together with Norway, Germany has begun to build up to eleven new schools.

Support for renewable energy and energy efficiency

Nepal's economic development is being hampered very considerably by bottlenecks in the country's electricity supply. The industry and commerce sectors as well as private households suffer under frequent power outages. Almost 30 per cent of the country's rural people are not connected to the power grid.

But Nepal has gigantic hydropower potential. The entire country could be supplied with climate-friendly electricity without any disruptions. Germany is supporting Nepal in harnessing this potential. Among other things, two hydropower stations have been built on the Marsyangdi, a river in central Nepal.

As part of the multi-donor energy partnership "Energising Development" (EnDev), support is being provided for rural electrification. Assistance is given to municipalities as they begin to operate local power networks and to take responsibility for the billing and fee collection process between the national power authority and individual consumers. So far, households comprising almost 200,000 people, 500 social facilities, and more than 1,900 small and medium-sized enterprises in 46 municipalities have been connected to the public power grid with German support.

And Germany is helping to bring power supply to remote rural regions through decentralised small-scale hydropower plants. In order to provide financial stability for the operators of such facilities, a debt fund was established at two local commercial banks. So far, the operators of 27 small-scale hydropower plants have used this new opportunity to take out loans.

Another focus of Germany's support is on improving energy efficiency. KfW Development Bank has been supporting the construction of new transmission lines in order to bring climate-friendly energy to Nepal's economic hubs without significant losses. So-called "energy auditors" are being trained at the chambers of commerce and industry. They provide advice to industrial enterprises on how to make production processes more energy-efficient.

In regions that have no access to the grid, KfW finances the construction and expansion of solar and biogas plants.

Promoting the health system

Hospital in Kathmandu

Over the past few years, the health status of Nepal's people has improved considerably. In particular, the country has managed to reduce the number of maternal and newborn deaths significantly. However, there are still great gaps between the rich and poor and between urban and rural areas. The quality and availability of basic health care continue to be inadequate for large portions of the population.

The BMZ therefore assists the Government of Nepal in implementing its health sector strategy (2015–2020). The focus is on improving the quality of health services, ensuring that the financing of such services will be sustainable and socially equitable, and enhancing care for disadvantaged groups.

For example, there is a Technical Cooperation project that has made a decisive contribution to the political debate on health financing and social protection in health. In 2014, the Nepalese government decided to introduce a national health insurance system. In 25 of Nepal's 75 districts, the system is to be launched in the medium term. Nationwide coverage is to be achieved by 2022.

Another focus of Germany's programmes is on sexual and reproductive health. Among other things, new training programmes are being introduced at obstetric facilities.

In two of Nepal's most remote regions, where health care used to be particularly unreliable, KfW Development Bank supported a pilot project. A private specialised company was put in charge of the maintenance of medical equipment at 56 health posts. This involved regular maintenance visits, repair work where needed, and training for staff on how to use the equipment. To that end, the company installed a computer-based management system and set up small workshops in both regions. Mobile teams of mechanics are based at the workshops and drive out to the facilities from there.

Very quickly, the pilot project became a showcase programme. Nepal is planning to introduce this system nationwide now with support from KfW Development Bank.

Sustainable economic development and trade

Street scene in the Nepalese capital Kathmandu

One important objective of Nepalese-German cooperation is to ensure that economic development is socially balanced and thus helps build peace. Special attention is being given to the needs of Nepal's poorest people. The focus is on women, disadvantaged castes, ethnic and religious minorities, people affected by the civil war, and persons with disabilities.

Germany is supporting the dialogue between the private sector, government and civil society, and is providing advice to small and medium-sized businesses, chambers of trade and commerce, industry federations and cooperatives at the local and regional levels. The project seeks to promote the economic empowerment of target groups by strengthening selected value chains (such as honey, milk, medicinal plants and aromatic plants).

In order to boost the country's trade record and international competitiveness, Germany is assisting the Ministry of Commerce in its efforts to implement its trade strategy, which was adopted in 2010. These efforts focus on improving the political and legal environment for small and medium-sized enterprises that are potentially able to export goods and create jobs.

The tax-to-GDP ratio in Nepal is 18 per cent, one of the lowest in South Asia. Through GIZ, Germany is providing advice to the Nepalese tax authority with a view to improving tax collection systems. Specifically, Germany is assisting the authority in making sure that all groups of enterprises are covered, and in improving the quality of service, management, administration and information systems.

Efforts to promote the development of trade include close cooperation with the World Trade Organization (WTO) and the South Asian Association for Regional Cooperation (SAARC). Among other things, Germany provides training and advice for members of the SAARC network in order to boost trade between Nepal and other countries in the region.

BMZ glossary

Close window


Share page