Nepal is classified as a least developed country on account of a low per capita income of around US$ 220, low contribution of manufacturing sector in GDP (less than 10 percent) and low indices in the social indicators of development. The landlocked nature and the rugged mountain terrain of a large part of the country add to the economic rigidities of Nepal.

Nepal started programme of planned economic development as early as mid fifties with the launching of the First Five Year Plan in 1956 with others to follow.

The Government has expressed a strong commitment to achieve optimum growth of national production and its equitable distribution. Several new policy measures have been adopted in line with the free market oriented liberal economic policy to stabilize the economy and pave the way for accelerated economic and social development. Monetary policy is being fine-tuned to increase domestic resource mobilization, enhance efficiency of capital and provide credit to the priority and productive sectors. Steps are also being directed towards maintaining satisfactory balances in internal and external payments. In the field of industry and commerce, government policy is aimed at giving the private sector a dominant role. Private enterprises are expected to increase efficiency and productivity in industrial and commercial operations. The Government's role will be that of a facilitator providing infrastructure facilities and a conducive environment in which the private sector could perform effectively. Moreover, the private investment is also being encouraged in the development of infrastructure and operation and management of services like road, transport, water supply, etc. The government has implemented a bold privatization program. Likewise, private foreign investment has been highly encouraged. The trade policy is also directed towards reducing the trade imbalance through improved import management, export promotion and diversification. To make economy more competitive, tariff rates have made lowered and Nepali currency have been made fully convertible in all current account transactions. Quantitative restrictions and import licensing system are abolished to make congenial and investment friendly economic environment to help promote industrial development and make products more competitive. Export procedures have been simplified, and bonded warehouse and duty drawback facilities have been introduced to make trade competitive.

Besides, a wide ranging financial reform measures have also been carried out to strengthen the liberalisation process. Joint venture banks as well as finance companies have increased significantly in number. The Government has already initiated the effort of legal and procedural arrangements necessary for the implementation of the policies for permitting of up to 25 percent foreign investment on tourism (aviation companies and big hotels), water resources (power and drinking water), mines and mineral related industries and goods production and processing sources through stock market. This is in line with the government policy of opening foreign investment through the secondary market. The limitation of 25 percent foreign investment and its scope could be further extended in future based on the experiences. Government owned banks and financial institutions are also being either restructured or divested. Furthermore, formulation of necessary legislative measures are underway to establish off shore banking facility in Nepal