Nepal needs a new economic model toachieve faster and sustained growth as well as furtherimprovements in human development and poverty outcomes.Economic growth, while ro¬bust at around 4 percent annualaverage since 2005, is far from the level needed to achievethe government s ambitious targets. The economy, highlydependent on remittances, lacks the nec¬essary dynamism.While substantial gains have been made to reduce poverty andexpand access to services, achieving further progress willrequire more determined and targeted state intervention. Toredefine Nepal s growth model, public policy should focus on3I s: Investment, In¬frastructure, and Inclusion.Investment is the bedrock of a sustainable growth model butin Nepal, the state, firms and households criticallyunder-invest, with gross fixed capital formation between19.9 and 22.2 percent of GDP over the past decade (comparedto 30 percent or more in fast-growing countries in EastAsia). In order to unlock investment as well as to expandaccess to services and opportunities for all, publicinfra¬structure is critical, but Nepal is under-connectedand under-powered. Finally, growth alone will notdeliver continued fast progress on inequality and poverty reductionunless the growth model is calibrated for inclusion, whichin turn can help sustain dynamic growth.
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