One of the least developed counties in the world, that is how the United Nations (UN) sees Nepal.
The nation's gross domestic product (GDP) was $5 billion in 1999; with per capita GDP of $210.
Landlocked geography, rugged terrain, deficiency of natural resources, and poor infrastructure have mainly contributed to Nepal's underdevelopment.
China, India, Japan, the United States, and several European nations have made large investments in Nepal's economy through foreign aid since 1952. Still, the nation's economic growth has been slow.
Nepal's economy is characterised by heavy dependence on foreign aid, a narrow range of exports, increasing economic disparity between the mountain areas and the more developed Tarai region, excessive governmental control and regulation, and inefficient public enterprises and administration.
Tourism, a chief source of foreign exchange (along with international aid and Gurkha pensions), has been hurt by the escalation of the conflict with the country's Maoist rebels. Nepal's trade is overwhelmingly with India. In recent years, significant deforestation and a growing population have greatly affected the country.
In addition, the economy has not kept pace with the nation's high population growth. In particular, the slow growth of agriculture has resulted in food shortages and malnutrition for some of Nepal's people.
The economy is heavily dependent on imports of basic materials and on foreign markets for its forest and agricultural products.
Nepal imports essential commodities, such as fuel, construction materials, fertilizers, metals, and most consumer goods, and exports such products as rice, jute, timber, and textiles.
The political and administrative system of Nepal has not made those changes in trade, investment, and related economic policies that would expedite economic development and attract foreign capital. The government's development programmes, which are funded by foreign aid, also have failed to respond directly to the needs of rural people.
Agriculture is the mainstay of the economy, providing a livelihood for over 80 per cent of the population and accounting for 41 per cent of GDP.
Industrial activity mainly involves the processing of agricultural produce including jute, sugarcane, tobacco, and grain.
Production of textiles and carpets has expanded newly and accounted for about 80 per cent of foreign exchange earnings in the past three years.
Agricultural production is growing by about 5 per cent on average as compared with annual population growth of 2.3 per cent.
Nepal has considerable scope for accelerating economic growth by exploiting its potential in hydropower and tourism, areas of recent foreign investment interest. Prospects for foreign trade or investment in other sectors will remain poor.
The international community's role of funding more than 60 per cent of Nepal's development budget and more than 28 per cent of total budgetary expenditures will likely continue as a major ingredient of growth.