Summary :

The Nepal Competitiveness Index (NCI) 2026 is the fourth edition of this joint research initiative by the Nepal Institute for Policy Research (NIPoRe) and the Asia Competitiveness Institute (ACI). NCI ranks Nepal’s seven provinces across 64 indicators grouped into four environments: Macroeconomic Stability; Government and Institutional Setting; Financial, Business, and Manpower Conditions; and Quality of Life and Infrastructure Development. A central theme of the 2026 report is the performance of fiscal federalism, specifically the gap between fiscal allocation and actual utilisation as Nepal prepares for its LDC graduation by the end of 2026. For the second consecutive year, the report integrates findings from a Provincial Competitiveness Perception Survey, which captures the lived realities of 140 business executives, to complement secondary data.

Key Findings of NCI 2026 for Overall Competitiveness Ranking:

Bagmati Maintains Dominance: Bagmati continues to rank as the top province in overall competitiveness across all environments, a position it has held since the NCI report’s inception in 20233.

Dynamic Middle Rankings: While the top and bottom ranks remained constant, significant movement occurred among other provinces; for instance, Gandaki moved up to Rank 2 in 2025, while Sudurpaschim improved its standing to Rank 5.

Persistent Structural Asymmetries: The index reveals deep structural challenges in provinces such as Karnali and Sudurpaschim, while others, such as Bagmati and Gandaki, continue to lead in infrastructure and fiscal management.

Fiscal Execution Gap: Perception survey results indicate concerns over budget execution and fiscal transparency in several provinces. In Karnali, surveyed business respondents reported particularly high dissatisfaction with budget execution.

High Sensitivity to Institutional Reform: Simulation analysis shows that provinces with weaker baseline capacities, such as Karnali, exhibit the largest potential for upward mobility in rankings through targeted institutional and governance improvements.

Conclusion

The NCI 2026 concludes that the success of Nepal’s federalism depends on moving beyond basic administrative setup toward a “delivery-first” governance model. To sustain competitiveness post-LDC graduation, provinces must prioritise fiscal accountability, digital transparency, and institutionalised project management. Bridging the gap between provincial planning and on-the-ground implementation, while restoring the social contract through improved service delivery, remains the essential pathway to Nepal’s inclusive growth.

By Siddhartha Rayasmajhi