Demographic Change in South Asia: From Tailwinds to Headwinds for Development
Nepal
South Asia enters the next decades with a formidable economic asset: one of the world’s largest working-age populations. The demographic transition promises substantial potential for growth through stronger job creation, greater private sector dynamism, and higher productivity. Realizing this opportunity further will require continued progress in expanding quality employment, enhancing skills and human capital, improving health and social protection systems, and strengthening the conditions for broad-based economic participation—all current top-of-mind policy challenges. At the same time, population aging is underway across much of the region, requiring countries to both maximize the benefits of today’s favorable demographics and lay the foundations for healthy, productive, and financially secure aging while unlocking the potential of the silver economy. These adjustments will be simpler if planning and learning from other countries’ experiences start earlier.
Nepal has a larger window for preparation than most of its South Asian neighbors, with its working-age population share projected to peak in 2047 and aged status expected in 2059. However, structural challenges are significant. Remittances account for approximately 25 percent of GDP and contributed to 40 percent of poverty reduction between 2001 and 2011—yet returnee migrants lag non-migrants in salary for approximately three years after return, suggesting that migration has not yet translated into durable productivity gains at home. Adolescent fertility rates remain high, continuing to curtail girls’ educational attainment. About 60 percent of doctors reside in urban areas, limiting access to health services for a predominantly rural population. Overall noncommunicable disease service readiness in health facilities stands at 28.4 percent. Nepalese women work, on average, 9 hours per week less than men, reflecting persistent care burdens that constrain female labor force participation. Among workers aged 65 and older, approximately 91 percent are informally employed, leaving the vast majority of older Nepalis outside any contributory pension system. Construction firms have seen high employment growth driven by the hydropower sector, providing some dynamism, but the economy’s employment base remains narrow.
Nepal’s Social Security Fund, established in 2018, is a contributory social insurance scheme financed by a 31 percent contribution rate; it provides government matching contributions of 9 percent for informal workers—a model that, if scaled, could significantly expand old-age income security. The Senior Citizen’s Allowance is a universal noncontributory pension of NPR 4,000 per month (US$30) for all citizens aged 70 and older, and 60 and older for Dalits and residents of the Karnali region—a critical income floor that should be preserved and progressively expanded. Bundling vocational training with job placement and life-skills services would improve returns to skill investment and help absorb returnee migrants more productively into the domestic labor market.
