Kathmandu-Nepal’s future productivity faces serious risk due to a widening human capital gap, according to a new World Bank report.

The Nepal Human Capital Review (NHCR) warns that a child born in Nepal today will achieve only 50 percent of their potential productivity as an adult. Weak education quality and poor health outcomes remain the main causes, despite gains in child survival and school enrolment.

The situation worsens when employment realities are considered. The Utilization Adjusted Human Capital Index falls to just 0.18., meaning  a child born today will use only 18 percent of their full potential because the labour market offers too few quality jobs. About 82 percent of Nepal’s workforce remains in informal employment, with low wages and limited protection.

The report highlights deep regional and gender gaps. Children born in Karnali Province are expected to reach only 46 percent of their potential, compared to 58 percent in Bagmati. Girls and boys accumulate similar skills, but outcomes diverge sharply in adulthood. A Nepali woman is projected to use only 12 percent of her potential, while a man uses 26 percent. Unpaid and subsistence work limits women’s participation.

Structural barriers continue to block progress. Public spending on education stands at 3.7 percent of GDP, while health spending is 2.1 percent. Both fall below global benchmarks. One in four children under five is stunted. Students spend more than 12 years in school but gain learning equivalent to just 7.2 years due to poor quality.

Air pollution and frequent disasters further disrupt health and education services.
Nepal aims to reach upper middle income status by 2030, but the World Bank warns the target is at risk. The report calls for higher investment in health and education, clearer federal roles for service delivery, and the creation of 6.5 million jobs over the next 30 years. Expanding childcare and family friendly policies could also bring more women into formal work.

Without urgent reforms, the report warns Nepal could lose its talent to migration and fail to build the human wealth needed for long term growth.