Nepal is going through a profound demographic change, marked by a rapid shift in fertility and mortality rates from historically high levels to significantly lower levels in both. Over recent decades, improvements in public health, education—especially of girls—and access to family planning have driven fertility downwards, while expanded healthcare and sanitation have reduced mortality. As a result, Nepal’s age structure has transformed: the share of children under 15 has fallen sharply, the working-age population has expanded to a historic high, and life expectancy has risen. By 2021, children (0–15 years) comprised 27.8 per cent, older adults (65 years and above) 6.9 per cent, and the working-age population (15–64 years) 65.2 per cent.

These changes can unlock a demographic dividend—a time-bound window of opportunity in which a rising share of people are of working age relative to dependents, potentially boosting growth through higher labour supply, savings, and human-capital investment. But this outcome is not pre-ordained: without rapid improvements in job creation, skills alignment, gender equity, and good governance, this dividend can become a ‘demographic burden’ marked by underemployment now and accelerated ageing soon. This is a major concern currently in Nepal, given the present socio-economic and political situation.

The pattern of demographic change in Nepal positions it between Stage 3 and Stage 4 of the classic demographic transition model (DTM). In this model, Stage 1 is marked by high fertility and mortality that limit population growth. Stage 2 begins when mortality (especially of infants and children) declines with improvements in sanitation, vaccination, and nutrition, while fertility remains high. Stage 3 features falling fertility, as urbanisation grows, and female education and access to family planning improve. Stage 4 stabilises at low fertility and mortality, with ageing and slow or negative population growth. Some scholars also add a Stage 5, in which there will be a continuation of sub-replacement fertility and population shrinkage (in absolute numbers) as seen in some developed nations.

The demographic transition taking place in Nepal, however, differs from the classical model developed based on the European situation. It differs in three main respects: i. timing and sequencing, ii. economic structure, and iii. policy environment.

Europe’s transition began earlier and unfolded over a longer time period, with mortality declines from the late 19th century and fertility declines by the mid-20th century. Most of the developed countries experienced demographic dividends in the post-war decades and now face an ageing population (Stage 4/5). Nepal’s dividend began later (around the early 1990s) and has been compressed into a few decades (50–55 years, depending on estimates, around until 2050) as fertility has fallen rapidly after the 1990s while mortality has also continued to decline.

In terms of economic structure, the demographic dividend in developed nations coincided with industrialisation, widespread wage employment in the non-farm sector, and the build-up of social insurance. On the other hand, Nepal’s mortality and fertility declines were driven by primary health care, vaccination, girls’ education, and family planning improvements while the structural economic transformation lagged. This lag in economic transformation is seen in the limited proportion of productive non-farm jobs because of the virtual lack of an industrial sector. Extensive foreign labour migration has depressed the domestic labour supply while remittances support consumption requirements.

In terms of the policy environment, European countries invested early in mass education, urban infrastructure, and social protection. Nepal has made some strides in this area, especially in education and health, but faces many challenges, and there are disparities in access and outcomes. The crucial element here is the ability of the country to provide social protection when the population starts ageing.

Even though the European context in which DTM was developed may not exactly suit Nepal, this comparison clearly indicates that Nepal will have a hard time supporting an ageing population if critical reforms are not introduced in the next two decades to put in place social, economic, and physical infrastructures to support an ageing population. What European countries were able to achieve over a century, Nepal must do in the next two decades.

Dividend or burden?

There are many risks that the demographic dividend could turn into a demographic burden in Nepal. Lack of employment opportunities within the country, out-migration drain, gender gap, and a rapidly ageing population are all risks that could prevent the conversion of ‘dividend’ into development of the country. At present, the share of the working-age population is at a historic high (65.2%), but the country’s economy has not created enough productive formal employment to absorb new labour entrants. There is already high unemployment, and every year about half a million youths enter the labour market. Foreign labour migration has been a pressure valve, employing some 2–3 million Nepalis. It has been generating remittances to the tune of about USD 1 billion a month, which is largely used to meet household consumption requirements and also pay for imports. But this migration has removed the domestic labour and entrepreneurial energy needed in Nepal to develop productive assets and enterprises.

Nepal is now locked into a remittance–consumption equilibrium rather than an investment-led one. If those working in foreign countries were employed in productive sectors within the country, it would have led to the development of various infrastructures and enterprises. Similarly, if remittances had been invested in such projects, there would have been some chance of sustainable economic growth. The uncertainty of continued employment and remittances because of geopolitics can also create problems in remittance-dependent economies like Nepal.

Women’s economic participation is also equally important for taking advantage of the demographic dividend. Nepal has made good progress in narrowing gaps in literacy and maternal health, but several factors still suppress female labour-force participation. These include restrictive socio-cultural norms, early marriage, and the heavy burden of unpaid care work. Limited access to decent jobs, persistent wage gaps, and concentration in informal employment further reduce opportunities. In addition, barriers to skills training, finance, and asset ownership, along with concerns over safety, mobility, and lack of childcare and transport, continue to constrain women’s engagement in the labour market.

There is also a rapid rise in the share of the old-age population (i.e., aged 65+), projected to increase from 6.9 per cent in 2021 to 11–13 per cent by 2041–2046 and 15 per cent in 2051. Without early investments in healthy ageing, pensions, and long-term care, there will be social and fiscal strains in the coming years. Even at present, the few policies supporting the elderly in health care and minuscule old-age pensions have been considered a burden to the economy. Neither has the government been able to fully implement these policies. This is mainly because economic transformation has not accompanied or preceded the demographic transition.

Turning the dividend window into sustained gain

Nepal can utilise the opportunities of its demographic window by acting on a few important areas. First, there is a need to build strong human skills quickly—this means making sure every child learns basic reading, maths, and digital skills; improving secondary schooling; fixing technical and vocational training to match industry/market needs; and improving universities to enable students to study practical subjects like technology, business, and tourism. Second, Nepal needs to create jobs where people live now and where they are moving from. As more young people are moving to towns and cities, the government should plan better urban areas with good roads, electricity, land, and housing so that businesses want to invest. It should also make it easier for industries to start and grow by reducing complicated rules and helping small businesses access loans, new machines, and training.

Third, the country must support women to work by improving childcare, transport safety, flexible work options, and enforcing equal-pay laws. Providing good family-planning and health services for girls and young women also helps them stay in school and join the workforce later. Fourth, Nepal should turn migration into a strength. Migrant workers need better skills before leaving, agreements with destination countries should recognise Nepali qualifications, and returning migrants should have chances to use their skills at home. Remittances can also be turned into investments if the government offers safe and attractive options such as matched-savings schemes or local bonds. Finally, Nepal must prepare early for an ageing population by investing in primary health care, preventing chronic diseases, and expanding pension systems and community-based care for older people.

All these actions support each other. For example, childcare helps women work, which increases savings and investment in education; strong and well-planned cities create jobs and so fewer people feel forced to migrate; and a stronger economy gives the government more money to care for an ageing population. Nepal’s census data clearly show that when the number of dependants falls, and the share of workers rises, the economy grows. Hence, acting now is essential while this window of opportunity is still open.

It should be remembered that a demographic transition is not development per se but it can amplify development. Nepal’s age structure, as it stood in 2021, confirms a favourable moment. The dividend window that opened by 2019 could close around 2051, as the 65+ age group share crosses the 15 per cent mark. In order to take advantage of favourable demographic conditions, Nepal’s challenge now is to squeeze in all the required actions into two decades, something that took Europe over a century to accomplish.