KATHMANDU, Oct. 7 (Xinhua) -- The World Bank has slashed Nepal's economic growth projection to 2.1 percent for the current 2025-26 fiscal year, citing recent unrest and heightened political and economic uncertainty.

In its South Asia Development Update released on Tuesday, the global lender said Nepal's economy is expected to grow 2.1 percent in fiscal 2025-26, which began in mid-July, rather than the 5.2 percent projected in April.

An interim government was formed in Nepal on Sept. 12 after the head of the coalition government stepped down following protests in Kathmandu and other parts of the country, and a new general election has been scheduled for March 5, 2026.

The bank expects weaker investor confidence to likely impede private investment and non-hydro construction in Nepal, and foreign tourist arrivals to decline sharply amid prevailing political uncertainty.

While tourism is a major source of foreign exchange and job opportunities for Nepal, the country saw an 18.3 percent fall in tourist arrivals in September over the same month of last year.

In addition, asset losses during the protests will affect the insurance industry, and delayed rainfall in the major rice-producing province is expected to hamper the agricultural sector, the bank said.

However, the bank expects reconstruction efforts in the country to support recovery in fiscal 2026-27 and gain further momentum in fiscal 2027-28. ■