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Aug 7, 2026 at 05:38 PM (NPT)Information Technology

Nepal’s IT sector growth

#Nepal IT sector#software exports#digital economy Nepal#IT freelancers Nepal#NAS-IT#IIDS report 2022
Nepal’s IT sector growth
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Abstract

This paper analyzes Nepal’s IT sector growth trajectory, particularly its IT service export performance, which reached an estimated USD 1 billion in 2025–26—a doubling from USD 515 million in 2022. The analysis draws on official reports from the Nepal Association for Software and IT Services (NAS-IT) and the Institute for Integrated Development Studies (IIDS), alongside industry assessments from 2024–2026. We examine the sector’s composition, including contributions from 106 registered IT export companies, 14,728 software development freelancers, and 51,781 IT-enabled service (ITeS) freelancers. The study identifies key growth drivers such as favorable tax policies, a growing freelance ecosystem, and increased international demand for Nepali software development and outsourcing services. Concurrently, we assess persistent challenges, including education-industry mismatch, infrastructure limitations, and regulatory uncertainties, that could constrain future expansion. The findings suggest that sustaining 20% annual growth will require targeted interventions in human capital development, digital infrastructure, and policy stability.

📋 Table of Contents

Introduction

Nepal’s information technology sector has emerged as a significant contributor to the national economy over the past five years, with IT service exports becoming a notable source of foreign exchange earnings. Historically, Nepal’s IT landscape was characterized by limited domestic capacity and reliance on imported software solutions. However, recent years have seen a structural transformation driven by globalization, digitalization, and policy reforms.

The sector now includes over 180 registered IT companies, more than 60,000 freelancers, and a growing number of startups in fintech, healthtech, and e-commerce. This paper situates Nepal’s IT sector within the broader context of South Asian digital economies, focusing on export performance, employment generation, and policy evolution. We evaluate whether the sector’s rapid growth—from USD 314 million in 2020 to an estimated USD 1 billion in 2026—reflects structural competitiveness or temporary external conditions.

The central hypothesis underpinning this study is that Nepal’s IT sector can sustain export-led growth only if it addresses systemic constraints in education quality, digital infrastructure, and regulatory clarity. While export figures are encouraging, their durability depends on aligning skill supply with demand, improving internet reliability, and establishing predictable tax regimes. This paper integrates multiple data sources to assess the sector’s current state and future potential.

Related Work

Recent literature on Nepal’s digital economy highlights a consensus on the sector’s exponential growth. The IIDS report titled “Unleashing IT: Advancing Nepal’s Digital Economy” provides the most comprehensive data to date, documenting 64.2% export growth in 2022, driven by an 80.5% increase in company exports and 55.2% growth among freelancers (IIDS, 2024). The report identifies over 106 IT export companies and 66,509 freelancers exporting services through digital platforms, reflecting a diversified export base.

The NAS-IT budget recommendations for fiscal year 2026/27 propose a 1% corporate tax rate for IT firms and the establishment of an Autonomous IT Promotion Board, aiming to attract foreign investment and formalize earnings currently routed through informal channels (NAS-IT, 2026). These recommendations are grounded in the sector’s estimated value of Rs 145 billion (USD 1 billion) annually, though this figure remains unverified due to the prevalence of remittance-based earnings.

Analyses from Sarbatra.com and Padmashree College corroborate the rapid expansion, projecting employment growth from 70,000 in 2022 to over 100,000 by 2026, with women comprising only 7.9% of the workforce—a gap that industry leaders acknowledge requires policy intervention (Sarbatra, 2026; Padmashree College, 2026). The Kathmandu Post (February 2026) further questions the sustainability of growth, emphasizing the need for education reform, digital infrastructure investment, and policy stability to support the goal of 500,000 tech-enabled jobs by 2035 (Chand, 2026).

Methodology

This study employs a mixed-methods approach combining quantitative analysis of sectoral data and qualitative synthesis of policy documents and industry reports. The primary data source is the IIDS 2022 report, which provides baseline metrics on export values, company counts, and freelancer demographics. Secondary sources include NAS-IT’s 2026 budget recommendations, Sarbatra’s hiring trend analysis, and sectoral reports from AITC International and 6W Research.

We calculate average annual growth rates using compounded figures: from USD 314 million in 2020 to USD 515 million in 2022 (64.2% growth), and from USD 515 million to an estimated USD 1 billion in 2026 (20% average annual growth). This growth rate is benchmarked against Nepal Rastra Bank’s balance-of-payments data, which showed a 20.28% increase in IT services earnings during the first four months of fiscal year 2024/25 (NRB, 2025).

The analysis also draws on company-level data from NAS-IT’s list of active member firms, employment estimates from NecoJobs, and sectoral projections from Statista and AITC International. We compare Nepal’s IT export performance with regional peers such as India and Bangladesh, noting that Nepal’s exports remain small in absolute terms but significant relative to the size of its economy.

Results & Analysis

Export Performance and Sector Composition

The IT service export industry in Nepal reached an estimated USD 1 billion in 2025–26, with contributions from both formal companies and freelancers. According to NAS-IT, the sector’s growth reflects increased demand for software development, IT outsourcing, AI services, and healthcare data analytics (NAS-IT, 2026). The IIDS study confirms that 106 registered companies exported services worth USD 314 million in 2022, growing to USD 515 million—a 64.2% increase in a single year (IIDS, 2024).

Freelancers represent a substantial share of the export base, with 14,728 software development freelancers and 51,781 ITeS freelancers actively exporting services through platforms like Upwork and Fiverr. This dual structure—formal companies and informal freelancers—creates both resilience and fragility: resilience through diversification, fragility through regulatory exposure.

Employment and Skill Trends

Employment in the IT sector has grown from approximately 70,000 in 2022 to an estimated 100,000 in 2026, with projections reaching 500,000 by 2035. However, sectoral representation remains concentrated in Kathmandu, where over 90% of IT professionals are based (Padmashree College, 2026). The gender gap is pronounced, with women constituting only 7.9% of the IT workforce—a disparity that industry leaders attribute to cultural barriers and limited access to technical education in rural areas.

Emerging skill demands include full-stack development, cloud platforms (AWS, Azure), AI tool fluency, and cybersecurity. The shift toward remote work for international clients has further elevated the earning potential of Nepali developers, with salaries in 2026 reflecting global standards adjusted for local cost of living.

Company Landscape and Innovation

Over 180 IT companies operate in Nepal, with active members of NAS-IT including CloudFactory, Deerwalk, Fusemachines, Leapfrog Technology, and Cedar Gate Technologies. These firms specialize in custom software development, healthcare analytics, fintech solutions, and enterprise IT consulting. For example, Deerwalk’s acquisition by Cedar Gate in 2025 underscores the global demand for Nepali healthcare IT talent, particularly in data analytics and compliance systems (DEV Community, 2025).

Emerging companies like Vertex Special Technology and TechCraft are gaining recognition for niche services such as UI/API testing automation and cloud-based digital transformation solutions. These firms target North American and Middle Eastern markets, leveraging cost competitiveness and high-quality delivery.

Policy and Regulatory Framework

NAS-IT’s 2026 budget recommendations propose several policy interventions:

  • ▸
    A concessional 1% corporate tax for IT firms
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    Establishment of an Autonomous IT Promotion Board
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    An 8% export rebate for IT services
  • ▸
    Simplified foreign investment mechanisms
  • ▸
    Priority for Nepali software in government procurement up to Rs 100 million

These proposals aim to formalize the sector, attract foreign capital, and align domestic consumption with production. However, implementation remains contingent on parliamentary approval and inter-ministerial coordination, creating short-term uncertainty.

Challenges to Sustainable Growth

Despite robust growth, the sector faces structural challenges:

  1. ▸

    Education-Industry Mismatch: Nepali universities produce graduates with outdated curricula, particularly in AI, cloud computing, and cybersecurity. Only 80+ NAS-IT member firms collaborate with academic institutions to bridge this gap (NAS-IT, 2026).

  2. ▸

    Digital Infrastructure: While Nepal has expanded 4G networks and fiber optic cables, rural connectivity remains unreliable. Limited domestic cloud infrastructure increases dependence on foreign servers, posing data sovereignty risks.

  3. ▸

    Regulatory Ambiguity: Freelancers and small firms operate in a gray area regarding tax compliance and foreign exchange regulations, despite NAS-IT’s advocacy for clearer frameworks.

  4. ▸

    Capital Flight: A significant portion of earnings from freelancers and small firms is repatriated through informal channels, reducing the visible contribution to GDP.

  5. ▸

    Gender Inequality: Cultural barriers and limited access to technical training in schools and colleges impede women’s participation in the IT workforce.

Discussion

The data support the hypothesis that Nepal’s IT sector has achieved export-led growth through a combination of global demand, favorable demographics, and policy momentum. However, sustaining this trajectory will depend on resolving structural constraints. The 20% annual growth rate observed since 2022 is exceptional for a landlocked economy with limited infrastructure, but it is not unprecedented in global IT history—Bangladesh’s IT exports grew at a similar pace in the 2010s.

A key insight is the sector’s dual character: formal companies provide stability and scalability, while freelancers offer flexibility and rapid response to market demand. This dual model has enabled Nepal to penetrate diverse markets, from US healthcare data analytics to Australian loan processing. Yet, the heavy reliance on informal channels for repatriation highlights the need for policy reforms to formalize earnings and improve tax compliance.

Comparatively, Nepal lags behind India’s USD 200 billion IT export industry but outperforms regional peers like Sri Lanka and Pakistan in terms of growth rate. The difference lies in India’s mature ecosystem of universities, venture capital, and global delivery centers. Nepal’s advantage lies in lower costs and a young, English-speaking workforce.

The policy recommendations from NAS-IT—particularly the 1% tax rate and export rebates—are consistent with successful models in Ireland and Estonia, where low corporate taxes attracted multinational firms. However, Nepal must balance such incentives with fiscal sustainability and equitable development.

The gender gap remains a critical social challenge. With women comprising less than 8% of the IT workforce, the sector risks underutilizing half the talent pool. Initiatives such as coding bootcamps targeted at women and scholarships for STEM education could address this imbalance.

Finally, the sector’s growth has implications for Nepal’s broader digital economy. Increased IT exports can fund infrastructure upgrades, improve digital literacy, and catalyze innovation in traditional sectors like agriculture and tourism. However, these benefits will materialize only if growth is inclusive and sustainable.

Conclusion

Nepal’s IT sector has demonstrated remarkable resilience and growth potential, reaching an estimated USD 1 billion in exports by 2026. This expansion reflects increased global demand for software development, outsourcing, and specialized IT services, supported by a growing freelance ecosystem and policy reforms.

However, the sector’s long-term viability hinges on addressing structural weaknesses in education, infrastructure, and regulation. Without targeted interventions, the current growth rate may decelerate as global competition intensifies and domestic constraints become binding.

The findings suggest that Nepal can sustain its IT export momentum by:

  • ▸
    Reforming technical education to align with industry needs
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    Investing in domestic digital infrastructure, including secure cloud services
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    Formalizing freelancer earnings and simplifying tax compliance
  • ▸
    Promoting gender inclusion in the IT workforce
  • ▸
    Establishing predictable and competitive tax policies

If these measures are implemented, Nepal’s IT sector could evolve from a source of export earnings into a catalyst for broader economic transformation, creating high-skilled jobs and fostering innovation across industries. The trajectory is promising, but the window for strategic action is narrow.

References

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