What are Economic Models?

In simple terms, an economic model is a theoretical construct representing economic processes by a set of variables and a set of logical and quantitative relationships between them. Think of them as maps of the economic landscape – they don't show every single tree or house, but they accurately depict major highways, cities, and geographical features, allowing us to move effectively.

They can be presented in various forms:

• Verbal Descriptions: Explaining a theory in words.

• Diagrams and Graphs: Visual representations of relationships.

• Mathematical Equations: Precise formulations of economic theories.

The primary goal of any economic model is to simplify reality to make it understandable and analyzable, allowing economists to isolate specific cause-and-effect relationships.

Importance of Economic Models

Economic models are indispensable tools for the following reasons:

1. Simplification of Reality: The economy is incredibly complex. Models strip away non-essential details to focus on the key variables and relationships, making complex situations comprehensible.

2. Prediction: By understanding how different variables interact, models can help forecast future economic trends, such as inflation rates, GDP growth, or unemployment.

3. Policy Formulation: Governments and central banks use economic models to evaluate the potential impact of various policies before implementing them. For example, a model might predict how a tax cut could affect consumer spending or investment.

4. Hypothesis Testing: Models provide a framework for testing economic hypotheses and theories against real-world data, helping to refine our understanding of economic behavior.

5. Communication: They offer a common language and framework for economists and policymakers to discuss and analyze economic issues.

Fundamental Economic Models

1. The Circular Flow Model

The circular flow model is one of the most basic and foundational economic models. It illustrates how money, goods, and services flow through an economy between two primary sectors: households and firms.

Imagine an economy where households own all the factors of production (labor, land, capital, entrepreneurship) and consume goods and services. Firms, on the other hand, produce goods and services using these factors of production and sell them to households.

In the circular flow, there are two main markets:

• Factor Markets: Where firms buy factors of production from households (e.g., firms hire labor from households, paying wages).

• Product Markets: Where households buy goods and services from firms (e.g., households buy consumer goods from firms, paying revenue).

Money flows in one direction (clockwise usually in diagrams) and goods/services/factors of production flow in the opposite direction (counter-clockwise).

Importance of Circular Flow Models:

• To understand Interdependence: It highlights the interdependence between different sectors of the economy.

• GDP Calculation: It forms the basis for understanding how Gross Domestic Product (GDP) can be measured through expenditure, income, or production.

• For Macro Policies: It can be expanded to include government, financial markets, and international trade, offering a more complete picture for policy analysis.

2. The Production Possibilities Frontier (PPF)

The Production Possibilities Frontier (PPF), also known as the Production Possibilities Curve (PPC), is a model that illustrates scarcity, trade-offs, opportunity cost, and efficiency in an economy.

Imagine an economy that can produce only two goods, say, "Cars" and "Computers," using all its available resources and technology efficiently. The PPF is a curve that shows the maximum possible output combinations of these two goods.

• Points on the curve: Represent efficient production, where all resources are fully employed.

• Points inside the curve: Indicate inefficient production or underutilization of resources.

• Points outside the curve: Are unattainable with current resources and technology.

The downward slope of the PPF demonstrates trade-offs: to produce more of one good, the economy must produce less of the other. The opportunity cost of producing one more unit of a good is the amount of the other good that must be sacrificed. A bowed-out shape typically indicates increasing opportunity costs, meaning that as you produce more of one good, the resources you reallocate become progressively less efficient at producing that good and better suited for the other.

We have an in-depth article on PPC for you to refer.

3. Supply and Demand Model

Perhaps the most famous and widely used economic model, the supply and demand model explains how prices and quantities of goods and services are determined in a competitive market.

• Demand Curve: Shows the relationship between the price of a good and the quantity consumers are willing and able to buy, holding all other factors constant. It typically slopes downward, reflecting the law of demand (as price increases, quantity demanded decreases).

• Supply Curve: Shows the relationship between the price of a good and the quantity producers are willing and able to sell, holding all other factors constant. It typically slopes upward, reflecting the law of supply (as price increases, quantity supplied increases).

The intersection of the supply and demand curves determines the equilibrium price and equilibrium quantity in the market. At this point, the quantity demanded equals the quantity supplied, and there is no pressure for the price to change.

4. The Aggregate Demand-Aggregate Supply (AD-AS) Model

The AD-AS model is a powerful tool for analyzing the overall level of output and prices in an economy, particularly for understanding business cycles, inflation, and unemployment.

• Aggregate Demand (AD): Represents the total demand for all goods and services produced in an economy at different price levels. It typically slopes downward because a lower overall price level tends to increase consumption, investment, government spending, and net exports.

• Aggregate Supply (AS): Represents the total supply of all goods and services produced in an economy at different price levels. The AS curve typically has two main segments:

• Short-Run Aggregate Supply (SRAS): Slopes upward, indicating that in the short run, firms can increase output in response to higher prices, often by utilizing existing capacity more intensively.

• Long-Run Aggregate Supply (LRAS): Is vertical at the economy's potential output (full employment output), indicating that in the long run, the total supply of goods and services is determined by the economy's resources and technology, not by the price level.

The intersection of the AD and AS curves determines the equilibrium level of real GDP and the aggregate price level. Shifts in either curve can lead to recessions, inflationary gaps, or economic growth.

5. The IS-LM Model (Investment-Saving / Liquidity Preference-Money Supply)

Developed by John Hicks and Alvin Hansen, the IS-LM model is a cornerstone of Keynesian macroeconomics. It analyzes the interaction between goods markets (IS curve) and money markets (LM curve) to determine equilibrium interest rates and national income (output).

Description:

• IS Curve (Investment-Saving): Represents all combinations of interest rates and levels of national income where the goods market is in equilibrium (total spending equals total output). It slopes downward because a lower interest rate stimulates investment, which in turn boosts aggregate demand and national income.

• LM Curve (Liquidity Preference-Money Supply): Represents all combinations of interest rates and levels of national income where the money market is in equilibrium (money demand equals money supply). It slopes upward because a higher national income leads to increased demand for money, which pushes up interest rates, given a fixed money supply.

The intersection of the IS and LM curves determines the unique equilibrium interest rate and national income level that simultaneously satisfy equilibrium in both the goods and money markets.

Theoretical Models in Economics – Foundations and Applications

Theoretical models are abstract representations of economic behavior constructed through a set of predefined assumptions. They use logical reasoning and mathematical structures to explore interactions, determine equilibrium conditions, and predict outcomes.

1. The Classical Model: The Invisible Hand at Work

The Classical Model, deeply rooted in the foundational works of pioneers like Adam Smith and David Ricardo, represents one of the earliest and most influential frameworks in economic thought. It posits a world where free markets are inherently self-regulating and efficient, requiring minimal to no government intervention to achieve optimal outcomes.

Core Assumptions & Principles:

• Flexible Prices and Wages: A cornerstone of the Classical Model is the assumption that prices and wages are perfectly flexible and adjust quickly to changes in supply and demand. This flexibility ensures that markets always "clear," meaning there are no persistent surpluses or shortages. If there's an excess supply of labor, wages fall, increasing demand for labor until full employment is restored.

• Say's Law: Often summarized as "supply creates its own demand," Say's Law implies that the act of producing goods and services generates an equivalent amount of income, which is then spent on those goods and services. This essentially means that overproduction leading to widespread unemployment is a temporary phenomenon, as markets will always adjust.

• Rational Economic Agents: Individuals and firms are assumed to act rationally, making decisions that maximize their self-interest (e.g., consumers maximize utility, firms maximize profits).

• Full Employment: The economy naturally gravitates towards full employment in the long run. Any deviations are temporary and corrected by the market's self-adjusting mechanisms.

• Limited Government Intervention (Laissez-Faire): Due to the self-correcting nature of markets, the Classical Model advocates for a laissez-faire approach, suggesting that government intervention (e.g., fiscal or monetary policy) is largely unnecessary and often counterproductive.

Mathematical Representation:

The fundamental equilibrium condition in the Classical Model, particularly in a closed economy context that can be expanded, often focuses on the national output being equal to the sum of its components when all markets are in balance:

Y = C + I + G + NX

Where:

• Y represents National Output (or Real GDP), the total value of all goods and services produced.

• C denotes Consumption, spending by households on goods and services.

• I signifies Investment, spending by firms on capital goods and by households on new housing.

• G corresponds to Government Spending, expenditure by the public sector on goods and services.

• NX represents Net Exports, the difference between exports and imports (relevant for open economies, sometimes simplified out in basic closed-economy discussions of the classical model).

This equation, when viewed through the classical lens, suggests that output is primarily determined by the supply-side factors (e.g., available labor, capital, technology), and demand will adjust to absorb this supply.

2. The Keynesian Model: The Power of Aggregate Demand

Developed by John Maynard Keynes during the tumultuous era of the Great Depression, the Keynesian Model emerged as a revolutionary counterpoint to classical economic thought. It fundamentally challenged the notion of self-correcting markets, arguing that an economy could remain stuck in prolonged periods of high unemployment and underproduction due to insufficient aggregate demand.

Core Assumptions & Principles:

• Sticky Prices and Wages: Unlike the Classical Model, Keynesian economics posits that prices and wages are "sticky" in the short run, meaning they don't adjust immediately to clear markets. This rigidity (due to factors like labor contracts, menu costs, or psychological resistance to wage cuts) can prevent the economy from quickly returning to full employment.

• Role of Aggregate Demand: Keynes emphasized that the overall level of economic activity is primarily determined by aggregate demand (total spending in the economy). If aggregate demand is too low, firms will reduce production and lay off workers, leading to a recession.

• Underemployment Equilibrium: The economy can settle at an equilibrium level where resources, particularly labor, are underemployed. This directly contradicts the classical idea of automatic full employment.

• Multiplier Effect: A key concept is the multiplier, which states that an initial change in spending (e.g., government investment) can lead to a proportionally larger change in national income.

• Active Government Intervention: Given the potential for prolonged recessions, Keynesian theory advocates for active government intervention through fiscal policy (changes in government spending and taxation) and monetary policy (central bank control over the money supply) to stimulate demand and stabilize the economy.

Mathematical Representation:

A central element of the Keynesian Model is the consumption function, which describes the relationship between consumption and disposable income:

C = C₀ + cY_d

Where:

• C₀ (Autonomous Consumption): This is the level of consumption that occurs even when disposable income is zero. Households may finance this consumption by drawing on savings or borrowing.

• c (Marginal Propensity to Consume, MPC): This represents the fraction of an additional dollar of disposable income that households spend on consumption. It always lies between 0 and 1 (0 < c < 1).

• Y_d (Disposable Income): This is the income households have available after paying taxes and receiving transfers.

This function highlights how consumption, a major component of aggregate demand, is driven by current income levels and intrinsic spending habits.

3. The Monetarist Model: The Centrality of Money Supply

Led by Milton Friedman, the Monetarist Model emerged as a critique of Keynesianism. Monetarists argue that the primary driver of economic health is not aggregate demand, but the total supply of money in circulation. According to this view:

• Excessive growth in the money supply is the fundamental cause of inflation.

• Sudden contractions in money supply can lead to recessions.

Core Principles:

• Money Neutrality (Long Run): Changes in money supply may affect output in the short run, but in the long run, they only influence the price level.

• Rejection of Discretionary Fiscal Policy: Monetarists see government spending as largely ineffective, often crowding out private investment. They advocate instead for a steady, predictable growth rate of the money supply.

• The Quantity Theory of Money: This theory forms the mathematical backbone of the model:

MV = PY

Where:

• M = Money supply

• V = Velocity of money (how often a unit of currency is spent)

• P = Price level

• Y = Real output (GDP)

4. The Supply-Side Model: Incentivizing Production

The Supply-Side Model emphasizes the “supply” side of the economy, arguing that growth is best achieved by lowering barriers to production. This approach became highly influential in the 1980s, often associated with Reaganomics.

Core Principles:

• Tax Cuts as Stimulus: Lowering marginal tax rates encourages individuals to work more and businesses to invest, expanding the economy's productive capacity.

• Deregulation: Reducing government oversight lowers production costs and sparks innovation.

• The Laffer Curve: Suggests there is an optimal tax rate that maximizes revenue. Too high a tax rate can discourage work and investment, reducing total revenue.

T_R = f(t)

Where:

• T_R = Total tax revenue

• t = Tax rate

5. The New Classical Model: Rational Expectations

The New Classical Model modernizes classical economics by incorporating Rational Expectations. It assumes people are forward-looking and use all available information to make decisions.

Core Principles:

• Policy Ineffectiveness: If the government announces a stimulus, rational citizens anticipate inflation and adjust their behavior (e.g., demanding higher wages), which can neutralize the policy’s intended effect.

• Efficient Markets: Markets are assumed to be highly efficient and reach equilibrium almost immediately.

• Expectations-Augmented Phillips Curve: There is no long-run trade-off between inflation and unemployment. The relationship is expressed as:

π = π_e + β(u - u_n)

Where:

• π = Actual inflation

• π_e = Expected inflation

• u = Unemployment rate

• u_n = Natural rate of unemployment

Growth and Dynamic Models

Beyond daily market fluctuations, economists use specialized models to study how nations grow over decades and how specific industries fluctuate.

Convergence vs. Divergence Models

a. Convergence (Solow-Swan Model):

This theory suggests “catch-up growth” occurs. Since capital exhibits diminishing returns, poorer countries with less capital tend to grow faster than rich countries, eventually reaching a similar level of wealth.

Equation:

k̇ = s·f(k) − (δ + n)·k

Where:

• k = Capital per worker

• s = Savings rate

• δ = Depreciation rate

• n = Population growth

b. Divergence

In contrast, the Divergence model explains why some countries remain trapped in poverty while others continue to prosper.

Major Drivers of Divergence:

1. Structural Constraints: Poor infrastructure, limited access to technology, and weak financial systems prevent capital accumulation and efficient production.

2. Institutional Weakness: Countries with weak governance, corruption, or political instability often fail to create an environment conducive to economic growth.

3. Technological Monopolies: Rich nations or large corporations may dominate advanced technologies, creating barriers that developing nations cannot easily overcome.

4. Human Capital Gaps: Differences in education, skills, and healthcare affect labor productivity, keeping poorer nations at a disadvantage.

5. Geographical and Environmental Factors: Landlocked countries, harsh climates, or resource scarcity can limit trade and growth potential.

Outcome:

• Rich countries continue to grow and innovate, benefiting from capital accumulation, technological progress, and efficient institutions.

• Poor countries struggle to catch up, often facing cycles of stagnation or slow growth.

The Divergence model emphasizes that economic growth is not automatic. Without structural reforms, institutional development, and investment in human capital, poorer nations may remain economically marginalized despite global economic expansion.

2. The Cobweb Model: The Pendulum of Prices

The Cobweb Model is a dynamic framework used to analyze markets where production takes time. This time lag causes price and quantity fluctuations that, when graphed, resemble a spider web. It is particularly useful for understanding cyclical "boom and bust" patterns in industries like agriculture, livestock, and real estate.

This happens due to a time lag between production decisions and actual sales. For example:

• If strawberry prices are high this year, all farmers plant strawberries.

• Next year, the market sees a surplus, prices crash, and farmers stop planting.

• The following year, a shortage occurs, causing prices to rise again.

This cycle creates the characteristic “see-saw” of prices.

The mechanism is simple: producers base their future output on today's price, but by the time that output reaches the market, the volume of supply creates a new price.

Mathematically:

• Future output: Q(t+1)

• Current price: P(t)

The next period’s price P(t+1) is then determined by the total quantity reaching the market.

Three Types of Cobweb Phenomena

The market behavior—whether it stabilizes or spirals out of control—depends on the relative steepness (elasticity) of the supply and demand curves.

1. The Convergent (Damped) Case

• Condition: The demand curve is flatter (more elastic) than the supply curve.

• Outcome: Consumers respond more to price changes than producers, gradually damping price swings.

Initially, prices swing up and down, but each swing is smaller than the previous one. Eventually, the market reaches stable equilibrium. In the above diagram, arrows spiral inward. A high price increases production slightly, and the subsequent price drop is small, narrowing the gap until equilibrium is reached.

2. The Divergent (Explosive) Case

• Condition: The supply curve is flatter (more elastic) than the demand curve.

• Outcome: Producers overreact to price changes, causing increasingly violent fluctuations.

A small price rise triggers a large surge in production. When the resulting oversupply hits the market, prices crash dramatically, leading to near-production halts, followed by another spike.

In In the above graph, the arrows spiral outward, illustrating a market that becomes increasingly unstable. This explains why some industries may require government intervention. This explains why some industries may require government intervention.

3. The Continuous (Persistent) Case

• Condition: The slopes (elasticities) of supply and demand are exactly equal.

• Outcome: Prices and quantities follow a perpetual loop, neither stabilizing nor exploding.

The market enters a state of constant oscillation, with prices and quantities cycling indefinitely around the equilibrium.

In thee graph above, the "web" forms a perfect rectangle, showing a balanced but never-ending cycle. The path forms a perfect rectangle or closed loop around the equilibrium point. This occurs when the slopes (elasticities) of the supply and demand curves are exactly equal. The market repeats the same price and quantity swings indefinitely.

Empirical Models

While the above models are theoretical “maps”, Empirical Models use real data to test their accuracy.

1. Regression Models

These analyze historical data to find correlations. A simple model looks like:

Y = α + βX + ε

Where:

• X = Independent variable (e.g., education)

• Y = Dependent variable (e.g., salary)

• α = Intercept, β = Coefficient, ε = Error term

2. Econometric Models

Econometric models are sophisticated extensions of simple regression analysis. Unlike basic regressions that examine the relationship between two variables, econometric models can simultaneously analyze dozens of variables, allowing economists to capture the complexity of real-world economies.

These models are widely used to forecast national and global economic trends, such as:

• GDP growth over time

• Inflation patterns

• Unemployment fluctuations

• Investment and consumption behavior

By incorporating multiple factors—like interest rates, government spending, trade balances, and demographic shifts—econometric models provide more accurate and reliable predictions. Policymakers, financial institutions, and researchers rely on these models to design effective economic policies and respond to emerging economic challenges.

Main Advantages:

• Handles multiple variables simultaneously for robust analysis

• Predicts short-term and long-term economic trends

• Helps policymakers plan fiscal and monetary interventions

3. Simulation (DSGE) Models

Dynamic Stochastic General Equilibrium (DSGE) models are advanced economic simulations used by central banks, financial institutions, and government agencies. These models simulate how the entire economy responds to shocks, including both domestic and international disturbances.

Common scenarios analyzed using DSGE models include:

• Oil price spikes impacting production and inflation

• Global pandemics affecting consumption, investment, and labor markets

• Monetary policy changes and interest rate adjustments

By combining dynamic equations with stochastic (random) shocks, DSGE models allow economists to study both the short-term fluctuations and long-term equilibrium of the economy. This makes them indispensable for risk assessment, policy planning, and crisis management.

Main Advantages:

• Simulates complex interactions between sectors of the economy

• Assesses potential outcomes of economic policies before implementation

• Supports data-driven decision-making for central banks and governments

Critical Limitations of Economic Models

Here are the primary limitations of economic models:

1. The "Ceteris Paribus" Fallacy

Most economic models rely on the principle of ceteris paribus—a Latin phrase meaning "all other things being equal." In a model, an economist might isolate how a change in interest rates affects investment while assuming political stability, consumer confidence, and global trade remain unchanged.

In the real world, "other things" are never equal. A sudden geopolitical conflict or a technological breakthrough can happen simultaneously, rendering the model's isolated conclusion inaccurate.

2. The Over-Simplification of Human Behavior

Many fundamental models, such as the Classical and New Classical models, assume that humans are Homo Economicus—perfectly rational actors who always seek to maximize utility with perfect information.

However, the field of Behavioral Economics has proven that humans are often irrational, driven by emotions, social pressure, and cognitive biases. Models often fail to account for "panic buying," "irrational exuberance," or the herd mentality that leads to market bubbles and crashes.

3. Sensitivity to Initial Assumptions

An economic model is only as strong as its foundation. If the starting assumptions are slightly off, the entire output can be wildly misleading.

For instance, the Keynesian Multiplier assumes a specific "Marginal Propensity to Consume" ($c$). If the government estimates that citizens will spend 80% of a tax rebate, but citizens—fearing a recession—decide to save 80% instead, the resulting policy will fail to stimulate the economy as predicted.

4. The "Black Swan" Blind Spot

Empirical and Econometric models rely heavily on historical data. They look at the past to predict the future. This works well during stable times but fails during "Black Swan" events—rare, unpredictable occurrences with extreme impacts.

Models used before the 2008 financial crisis or the 2020 global pandemic did not have these scenarios in their "historical memory," making the models essentially blind to the approaching catastrophes.

5. Time Lags and Dynamic Complexity

As seen in the Cobweb Model, there is often a significant delay between an economic cause and its effect. Models struggle to capture the "messy" transition periods.

While a model can show the starting point and the eventual equilibrium, it often fails to predict how long the transition will take or the "frictional" costs (like temporary unemployment or business closures) that occur while the market is trying to adjust.

6. Neglect of Non-Quantifiable Factors

Economic models excel at processing numbers—GDP, interest rates, and tax percentages. However, they often struggle to incorporate qualitative factors that are just as important, such as:

• Institutional Quality: The level of corruption or the strength of the rule of law.

• Culture: Societal attitudes toward work, debt, and risk.

• Environmental Impact: Many traditional growth models (like the Solow-Swan Model) historically ignored the depletion of natural resources or the cost of pollution.

7. The Policy Ineffectiveness Counter-Action

Highlighted by the New Classical Model and the concept of Rational Expectations, models can be undermined by the very people they are trying to analyze.

If a central bank uses a model to predict that a "surprise" inflation boost will lower unemployment, but the public anticipates this move based on the same economic logic, workers will demand higher wages immediately. This "rational" reaction can neutralize the policy's effect, making the model’s predicted outcome impossible to achieve.

Conclusion

Economic models provide a structured methodology for analyzing economic phenomena, providing clarity on both theoretical mechanisms and empirical realities. From the Classical Model’s focus on free-market efficiency to the Econometric Model’s data-driven forecasts, these tools help us interpret central economic problems. Although they are not crystal balls, they are the most effective way to shape the economic strategies of the future.

Geographical location and area of Nepal:

Physical features of Nepal:

1. Himalayan Region

• The great Himalayas
• Inner Himalayas
• Tibetan Marginal the Himalayas

2. Hilly Region

• Midland
• Mahabharat Leks
• Churia Hills

3. Terai Region

• Outer Terai
• Inner Terai
• Bhabar Tract

River-based division of Nepal:

Administrative Division of Nepal:

Nepal is composed of seven provinces. They are defined by schedule 4 of the new constitution, by grouping together the existing districts. Two districts, however, are split into two parts ending up in two different provinces.

Source: Wikipedia

Climate & Weather in Nepal

Nepal’s climate varies with its topography. It ranges from tropical to arctic depending upon the altitude. The Terai region, which lies in the tropical southern part of the country, for instance, has a hot, humid climate. The mid-land regions are pleasant almost all year round, although winter morning and nights are cool. The northern mountain region, around an altitude above 3,353 meters has an alpine climate with a considerably lower temperature and thin air in winter as can be expected.

Nepal has four climatic seasons:

(a) Spring: March - May,
(b) Summer: June - August,
(c) Autumn: September - November and
(d) Winter: December -February.

Spring is a colorful season which is punctuated by the odd shower of life-giving rain but the heat gradually builds until the monsoon relief arrives. During summer the Monsoon; moisture-laden wind, gathers in the Bay of Bengal and sweep up across India to spend its force on the Himalayan mountain chain. Autumn is renowned for clear skies and pleasant temperature.

By winter the high hills take dry brown shades and the mountains are occasionally dusted with fresh snow. However, due to Nepal’s vast range of diversified land orientation as well its amazing climatic variation effects regular seasons different and are six in Nepal.

Nepali Seasons:

Spring -     Basanta           April-May
Summer -  Grishma          June-July
Monsoon - Barsha           Late June-Mid September
Autumn -  Sharad            September-November
Winter -    Hinud              December-January
Windy -     Sisir                February-March

Short Description of Past Development Plans of Nepal

First Periodic Plan of Nepal (1956-1961)

Sustainable Development Goals and Nepal

There are a total of 17 Sustainable Development Goals in the UN. The Sustainable Development Goals (SDGs) are 17 interconnected global goals. These are meant to make the future a better and more sustainable place for everyone. The UN General Assembly established the SDGs in 2015 AD to achieve them by 2030 AD. In this article, we will have a brief insight into some sustainable development goals and Nepal.

No poverty, and Nepal

The first of the Sustainable Development Goals (SDGs), which make up the 2030 Agenda for Sustainable Development, is to eliminate or nullify all forms of poverty. The SDG-1, "No Poverty," suggests the following goals:

• Eliminate extreme poverty for all people worldwide by 2030, which is currently defined as a person making less than $1.25 per day.
• Reduce the percentage of men, women, and children of all ages living in poverty in all manifestations by at least 50% by 2030, as determined by national definitions.
• Implement social protection systems and policies for all, including floors, at the national level, and by 2030, substantially all the poor and vulnerable will be covered.
• By 2030, make sure that all men and women, especially the weak and poor, have equal access to economic resources, ownership of land and other forms of property, inheritance, and natural resources, as well as to financial services, including microfinance.
• Develop the resilience of the underprivileged and those in vulnerable circumstances by 2030, and lower their exposure and susceptibility to extreme weather-related events and other economic, social, and environmental shocks and disasters.

Other goals in SDG-1 include: ensuring significant resource mobilization from a variety of sources, including through improved development cooperation, to give developing nations, especially least developed nations, adequate and predictable means to implement programs and policies to end poverty in all of its dimensions; and developing sound policy frameworks at the national, regional, and global levels.

Nepal's national defined poverty target for 2030 is less than 5%. Between 2015 and 2019, there has been remarkable progress in reducing poverty and increasing per capita income. Using an international standard for extreme poverty (US$ 1.25 per day), Nepal's national poverty rate was 21.6 percent in 2015 but dropped to 18.7 percent in 2019. Also, while Nepal's poverty rate was estimated to be 36% in 2015, it dropped to 15% in 2019.

The Multidimensional Poverty Index (MPI) (external link) is expected to fall below 6% by 2030. It was 44.2 percent in 2015 and 17.4 percent in 2022. Nepal plans to increase per capita income to $2,500 by 2030, up from $766 in 2015. It is expected to reach $1051 in 2019 and $1097 in 2020/21. To address poverty more quickly while maintaining average income growth, the consumption share of the bottom 20% of households is expected to rise from 7.6 percent in 2015 to 12 percent in 2030. In 2019, it increased to 12.05 percent. Similarly, social protection spending is expected to account for 15% of the federal budget by 2030. It was 11% in 2015 and had risen to 11.7 percent in 2019.

Zero hunger and Nepal

The following major targets are part of SDG: 02, "Zero Hunger," which aims to eradicate hunger, achieve food security, and improve nutrition:

• End hunger by 2030 and ensure that everyone has access to year-round, healthy food, with a focus on the poor and those in vulnerable situations, such as infants.
• End all forms of malnutrition by 2030, including reaching the goals for preventing stunting and wasting in children under five years old by 2025. Take care of the nutritional needs of older people, pregnant and lactating women, and adolescent girls.
• Double the agricultural productivity and incomes of small-scale food producers by the year 2030, with a focus on women, indigenous peoples, family farmers, pastoralists, and fishers. This will be accomplished by ensuring that all producers have equal access to land, other productive resources, knowledge, financial services, markets, and value-adding and non-farm employment opportunities.
• Implement resilient agricultural practices that boost productivity and production, support ecosystem preservation, bolster capacity for adaptation to climate change, extreme weather, drought, flooding, and other disasters, and gradually improve land and soil quality by 2030.
•  Maintain the genetic diversity of seeds, cultivated plants, domesticated animals, and their related wild species by 2020, including through well-managed, diverse seed and plant banks at the national, regional, and international levels. Additionally, promote access to and equitable sharing of benefits from using genetic resources and related traditional knowledge, per an international agreement.

In addition to the goals listed above, SDG-2 also has the following objectives: increase investment, including through improved international cooperation, in rural infrastructure, agricultural research and extension services, technology development, and plant and livestock gene banks to increase agricultural productivity capacity in developing countries, particularly least developed countries; correct and prevent trade restrictions and distortions in global agriculture.

Nepal has a score of 46 on the Global Food Security Index. The Global Hunger Index gives Nepal a score of 19.1 (external link), which is still high. The prevalence of stunting and underweight in children has decreased significantly, even though undernourishment decreased from 36.1 percent of the population in 2015 to 8.7 percent in 2019.

Over time, child malnutrition has decreased, but not quickly enough. In Nepal, the percentage of underweight children (aged 6-59 months) was 30.1% in 2015, fell to 27% in 2016, and has since fallen to 24.3% in 2019. By 2030, Nepal wants to bring this down to 9 percent. Similarly, the prevalence of stunting among children under five dropped from 36% in 2015 to 31.6 % in 2019. Underweight children tend to be born to mothers who lack education or come from lower-income families, and they are more prevalent in rural areas.

Government spending on agriculture accounted for 2.21 percent of the budget in 2017–18 and will rise to 2.8 percent in 2020–21. The target was to produce 376 kg of food grains per person in 2019–20. Though it accounts for 33 percent of all irrigated land, year-round irrigated land has not made much progress.

Quality Education and Nepal

The targets for SDG:4, or quality education, are as follows:

• Make sure that by 2030, both girls and boys have received a free, equitable, and high-quality primary and secondary education that produces useful and efficient learning outcomes.
•  By 2030, ensure that every boy and girl has access to high-quality pre-primary education so they are prepared for primary education.
•  By 2030 all men and women will have equal access to affordable and high-quality technical, vocational, and tertiary education, including higher education.
•  Increase youth and adult populations who possess the necessary skills—including technical and vocational ones—for employment, respectable jobs, and entrepreneurship—by a significant margin by 2030.
•  Eliminate gender disparities in education by 2030, and guarantee that all disadvantaged groups, including people with disabilities, indigenous peoples, and children in precarious situations, have equal access to all education and vocational training levels.
•  By 2030, most men and women and all young people will have mastered literacy and numeracy.
•  By 2030, make sure that all students have the knowledge and abilities necessary to advance sustainable development, including, but not limited to, education for sustainable development and sustainable lifestyles, human rights, gender equality, the promotion of a culture of peace and non-violence, global citizenship, and an understanding of cultural diversity and its role in sustainable development.

Besides the targets mentioned above, the other targets included in SDG-4 are to build and upgrade education facilities that are child, disability, and gender sensitive and provide safe, non-violent, inclusive, and effective learning environments for all; by 2020, substantially expand globally the number of scholarships available to developing countries, in particular, least developed countries, small island developing States and African countries, for enrolment in higher education, including vocational training and information and communications technology, technical, engineering and scientific programs, in developed countries and other developing countries; and by 2030, substantially increase the supply of qualified teachers, including through international cooperation for teacher training in developing countries, including through international cooperation for teacher training in developing States.

Nepal has pledged to fulfill its people's right to an education. It has made significant efforts to ensure that all people, including the poor and disadvantaged, have access to educational services. As a result, the Net Enrollment Rate (NER) in primary education reached 97.2 percent in 2019, just shy of the goal of 99.5 percent by 2030. The proportion of students who complete grade eight is 79.3 percent, while the total number of students enrolled in secondary school is 71.4 percent.

Similarly, the population aged 15-24 had an 88.6 percent literacy rate in 2015, which increased to 92 percent in 2019. As a result, it is close to meeting its target date of 2030. However, only 31% of the working-age population received vocational and technical training, whereas the target was 38%. The increase in Internet users is encouraging, with 58 percent of adults using the Internet in 2019.

In 2019, the Gender Parity Index (GPI) (external link) in primary school enrollment was 1.06, compared to the target of 1.01. In primary schools, girls outnumbered boys. However, the GPI for the secondary level in 2019 was only 0.95. This demonstrates that gender parity has improved. The government recently approved the National Framework for SDG 4 - Education 2030. Some provincial and local governments have also begun to develop educational plans and programs.

Decent work, Economic growth, and Nepal

The SDG 8 Goal of decent work and economic growth includes the following targets:

• Maintain per capita economic growth under national circumstances, with the least developed countries achieving at least 7% annual GDP growth.
• Increase economic productivity through diversification, technological advancement, and innovation, focusing on high-value-added and labor-intensive sectors.
• Encourage the formalization and growth of micro, small, and medium-sized enterprises, including access to financial services, through development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation.
• Improve global resource efficiency in consumption and production gradually through 2030, and strive to decouple economic growth from environmental degradation, under the 10-year framework of sustainable consumption and production programs, with developed countries leading the way.
• Achieve full and productive employment and decent work for all women and men, including young people and people with disabilities, by 2030, as well as equal pay for equal work.
• Reduce the proportion of youth not in employment, education, or training by 2020.
• Take immediate and effective steps to eliminate forced labor, modern slavery, and human trafficking, as well as the prohibition and elimination of the most heinous forms of child labor, such as recruitment and use of child soldiers, and end child labor in all its forms by 2025.
• Protect workers' rights and promote safe and secure working conditions for all employees, including migrant workers, particularly women migrants and those in precarious employment.
• Create and implement policies to promote sustainable tourism that creates jobs while promoting local culture and products by 2030.
• Increase domestic financial institutions' capacity to encourage and expand access to banking, insurance, and financial services for all.

Other targets included in SDG-8 are to increase Aid for Trade support for developing countries, particularly least-developed countries, including through the Enhanced Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries, and to develop and operationalize a global strategy for youth employment and to implement the International Labour Organization's Global Jobs Pact by 2020.

The per capita GDP growth rate increased from 2.3 percent in 2015 to 5.6 percent in 2019. However, due to COVID-19, the growth rate in 2019/20 was limited to 2.3 percent. One of the SDG-2 targets is to achieve full and productive employment and decent work for all women and men. Nepal's unemployment rate (15-59 years) was 27.8 percent in 2015, dropping to 19.6 percent in 2019.

The goal also includes making financial services available to everyone. 81.2 percent of the population had access to financial services within a 30-minute walk, and the population per financial institution was 3363. The population with access to cooperatives within 30 minutes of walking distance was 60%, compared to the target of 60.9 percent by 2019. The Nepalese labor market is mostly informal, with 59.2 percent of informal employment in the non-agriculture sector. Because more than half of the population works in the informal sector and is not covered by social security, the government is working to include this population in the social security scheme.

Employing the population that is now returning from various destinations as a result of COVID-19 will be a major challenge for the government. As a result, it is committed to putting a special emphasis on agriculture and the promotion of small and medium-sized enterprises, individual entrepreneurship, and skill development to create job opportunities for both returning and unemployed people.

The negative impact of COVID-19 on the tourism (external link) industry has impacted many people in Nepal. It is critical to reduce poverty and promote prosperity in the country by ensuring rapid, inclusive, and sustainable economic growth by developing agriculture, industries, and services sectors. As a result, the government has prioritized increasing productive capacity across sectors, developing technical skills and entrepreneurship, ensuring access to credit for small and medium-sized enterprises, encouraging the establishment of export promotion zones (EPZs) and special economic zones (SEZs), and facilitating enterprise export capacity.