Nepal’s Salary and Wage Growth: Regional Disparities Highlight Economic Challenges in FY 2081/82

Nepal Rastra Bank (NRB) has released its economic data for the first eight months of fiscal year 2081/82 (2024/25), alongside a detailed Salary and Wage Index by Province, revealing significant regional disparities in wage growth. The overall Salary and Wage Index rose by 2.85% year-on-year in December/January 2024/25, but this growth falls short of the national inflation rate of 3.75%, indicating a decline in real wages for many Nepalis. While Sudurpashchim Province saw the highest wage growth at 7.59% year-on-year, provinces like Koshi and Bagmati lagged behind with 1.30% and 1.73% growth, respectively. This data, combined with broader economic indicators such as a 57.2% surge in exports and a 9.4% increase in remittance inflows, underscores the need for targeted policies to address wage disparities and ensure equitable economic growth.

Salary and Wage Index: A Provincial Breakdown

The Salary and Wage Index, with the base year 2023/24=100, tracks quarterly wage changes across Nepal’s seven provinces from 2022/23 to 2024/25. The overall index increased from 94.68 in December/January 2022/23 to 102.79 in December/January 2024/25, a 5.56% rise over two years. However, year-on-year growth (Dec/Jan 2024/25 over Dec/Jan 2023/24) was more modest at 2.85%, and quarter-on-quarter growth (Dec/Jan 2024/25 over Sep/Oct 2023/24) was only 0.36%, reflecting a slowdown in wage increases.

- Sudurpashchim Province: This province recorded the highest growth, with the index rising from 88.14 in Dec/Jan 2022/23 to 107.49 in Dec/Jan 2024/25, a 13.35% increase over two years. Year-on-year growth was 7.59%, the highest among all provinces, and quarter-on-quarter growth was 1.41%. This significant rise suggests improved economic activity or labor demand in this remote region, possibly driven by infrastructure development or remittance-supported consumption.

- Gandaki Province: The index grew from 92.53 to 102.51 over two years, a 7.88% increase, with a year-on-year growth of 2.70%. Quarter-on-quarter growth was modest at 0.57%, indicating steady but slow wage increases. Gandaki’s growth may be linked to its tourism sector, which likely benefits from seasonal labor demand.

- Koshi Province: Koshi saw a 7.42% increase over two years, with the index rising from 92.98 to 101.18. However, its year-on-year growth was only 1.30%, the lowest among provinces, and quarter-on-quarter growth was a mere 0.13%. This sluggish growth suggests limited economic opportunities or labor market constraints in the region.

- Madhesh Province: The index increased from 94.01 to 103.23, a 5.32% rise over two years, with a year-on-year growth of 4.26%. Quarter-on-quarter growth was 0.21%, indicating moderate wage increases. Madhesh’s agricultural and industrial base may have contributed to this growth, though it lags behind more remote provinces like Sudurpashchim.

- Bagmati Province: Despite having the largest weight (31.89%), Bagmati’s index grew from 96.34 to 102.14, a 4.22% increase over two years, with a year-on-year growth of 1.73%. Quarter-on-quarter growth was 0.34%, reflecting slow wage increases in this economic hub, possibly due to saturation in urban labor markets like Kathmandu.

- Lumbini Province: Lumbini had the lowest growth over two years at 0.98%, with the index rising from 99.04 to 103.38. Year-on-year growth was 3.37%, and quarter-on-quarter growth was 0.20%. This slow growth may reflect limited industrial activity or labor market challenges in the region.

- Karnali Province: Data for Dec/Jan 2022/23 is unavailable, but the index rose from 98.16 in Sep/Oct 2022/23 to 103.39 in Dec/Jan 2024/25. Quarter-on-quarter growth was 2.18% (Dec/Jan 2023/24 over Sep/Oct 2022/23), the highest among provinces, and year-on-year growth was 3.08%. Karnali’s growth, though starting from a lower base, indicates potential economic improvements in this remote region.

Broader Economic Context: Inflation and Growth

The NRB’s economic report for FY 2081/82 provides a broader context for these wage trends. Inflation stood at 3.75% in March 2024/25, as reported earlier, with an average of 4.72% for the first eight months of 2024/25 (from the National CPI data). The overall Salary and Wage Index growth of 2.85% (year-on-year) falls below this inflation rate, suggesting a decline in real wages nationally. However, provinces like Sudurpashchim (7.59%) and Madhesh (4.26%) saw wage growth exceeding inflation, indicating real wage gains in these regions.

Nepal’s external sector showed strength, with exports surging by 57.2% and imports growing by 11.2%, leading to a balance of payments surplus of NPR 310.37 billion. Foreign exchange reserves reached USD 17.27 billion, providing a buffer against global uncertainties. Remittance inflows grew by 9.4% in Nepali rupees, supporting household consumption and likely contributing to wage growth in provinces like Sudurpashchim, where remittance dependency is high.

Fiscal indicators reveal challenges, with government expenditure at NPR 839.36 billion and revenue at NPR 720.35 billion, indicating a fiscal deficit. Broad money supply grew by 9.9% year-on-year, and private sector credit increased by 7.7%, reflecting increased liquidity but also potential inflationary pressures.

Regional Context from Previous Data

The regional CPI data (Table 4) showed inflation varying from 3.25% in Kathmandu Valley to 4.77% in the Mountain region, with a national average of 3.75% in March 2024/25. This aligns with the National CPI data (Table 5), which reported an average inflation of 4.72% for 2024/25. Provinces like Sudurpashchim and Karnali, which overlap with remote Hill and Mountain regions, experienced higher inflation (e.g., 4.77% in Mountain regions), yet their wage growth (7.59% and 3.08%, respectively) outpaced inflation, suggesting real income gains. In contrast, Bagmati Province, which includes the Kathmandu Valley, had lower inflation (3.25%) but also lower wage growth (1.73%), indicating stagnant real wages in this urban hub.

Interpretation: Regional Disparities and Economic Implications

The Salary and Wage Index data highlights significant regional disparities and their implications for Nepal’s economy:

- Real Wage Trends: The national year-on-year wage growth of 2.85% is below the 3.75% inflation rate, indicating a decline in real wages for many workers. This is particularly concerning in provinces like Koshi (1.30%) and Bagmati (1.73%), where wage growth significantly lags inflation, reducing purchasing power. However, Sudurpashchim (7.59%) and Madhesh (4.26%) show real wage gains, suggesting that economic activity or remittance inflows are supporting income growth in these regions.

- Urban vs. Rural Dynamics: Bagmati Province, despite its economic dominance (31.89% weight), shows sluggish wage growth (1.73% year-on-year), possibly due to labor market saturation in urban areas like Kathmandu. In contrast, remote provinces like Sudurpashchim (7.59%) and Karnali (3.08%) exhibit higher growth, likely driven by infrastructure development, remittance inflows, or labor shortages that increase wage bargaining power.

- Quarterly Slowdown: The quarter-on-quarter growth rates (e.g., 0.36% for the Overall Index, 5 over 4) are notably low, indicating a slowdown in wage increases in 2024/25. This aligns with the broader economic stability seen in NRB data, such as the 57.2% export growth and 9.4% remittance increase, which support consumption but may not translate into rapid wage growth due to structural labor market constraints.

- Remittance Impact: The 9.4% growth in remittance inflows likely plays a significant role in provinces like Sudurpashchim, where wage growth is highest. Remittances boost household income, increasing labor demand in local economies and driving wage increases, particularly in rural areas.

- Inflationary Pressures: The National CPI data showed inflation peaking at 6.05% in December 2024/25, which coincides with the Dec/Jan 2024/25 wage data. This high inflation in earlier months may have eroded real wages, particularly in provinces with low wage growth like Koshi and Bagmati, before inflation moderated to 3.75% by March.

Policy Recommendations

To address these disparities and ensure equitable wage growth, the following measures are recommended:

1. Targeted Wage Support in Low-Growth Provinces: Provinces like Koshi and Bagmati, where wage growth lags inflation, need targeted interventions such as minimum wage adjustments or labor market reforms to boost incomes and protect purchasing power.

2. Infrastructure Development in Remote Areas: The high wage growth in Sudurpashchim and Karnali suggests that infrastructure investments can drive economic activity and wage increases in remote regions. Continued investment in roads, electricity, and connectivity can sustain this trend.

3. Monitor Inflation and Wage Alignment: With inflation at 3.75% and wage growth at 2.85% nationally, the NRB and government should monitor real wage trends closely. Policies to control inflation, such as improving supply chains (as seen in the regional CPI’s food price declines), can help ensure wage growth translates into real income gains.

4. Leverage Remittance and Export Growth: The 9.4% remittance growth and 57.2% export surge provide opportunities to stimulate local economies. Channeling remittance inflows into productive investments and supporting export-oriented industries can create jobs and drive wage growth, particularly in provinces like Madhesh and Lumbini.

Nepal’s Salary and Wage Index reveals a complex picture of wage growth in FY 2081/82, with significant regional disparities. While Sudurpashchim and Madhesh show promising real wage gains, provinces like Koshi and Bagmati lag behind, highlighting the need for targeted policies to address labor market challenges. The broader economic context, with strong export growth and remittance inflows, provides a foundation for sustained growth, but aligning wage increases with inflation will be critical to ensuring equitable economic progress across Nepal’s diverse provinces.