NEFsearch | Artificial Intelligence (AI) in Nepal

January 2026

Artificial Intelligence (AI) in Nepal

Understanding the Evolving Landscape and Structural Barriers

TitleArtificial Intelligence (AI) in Nepal: Understanding the Evolving Landscape and Structural Barriers

Contributors

Aaryan Kuikel (Fellow, NEF)

Heykha Rai (Fellow, NEF)

Mahotsav Pradhan (Aspiring Beed, Beed Management Pvt Ltd )

Nasala Prajapati (Beed, Beed Management Pvt Ltd )

Pransu Khakurel (Beed, Beed Management Pvt. Ltd.)

Sanjit Tuladhar (Beed, Beed Management Pvt. Ltd.)

Suyasha Shakya (Consultant, NEF)

Edited by - Manju von Rospatt (Fellow, NEF) and Suyasha Shakya (Consultant, NEF)

Designed by - Aashima Chalise (Social Media Consultant, NEF)

Abbreviations and Acronyms

Abstract

Tying it All Together: A Roadmap for Nepal’s Tourism Future Works Cited 1 2 3 4

Introduction The Volume Legacy and Its Challenges

Diversification: The Key to Sustainable Growth

AbbreviationsandAcronyms

AI Artificial Intelligence

BFIs Banks and Financial Institutions

CHEERS Hospital for Children, Eye, ENT and Rehabilitation Services

DNF Digital Nepal Framework

DPI Digital Public Infrastructure

EU European Union

FAST Future-Ready Digital Foundations, Access to Digital Services, Skills and Digital Literacy, Transformation of Digital Economy

FEM Foreign Exchange Management

GDPR General Data Protection Regulation

GPU Graphics Processing Unit

ICT Information and Communication Technology

IP Intellectual Property

ISPs Internet Service Providers

IoT Internet of Things

KPI Key Performance Indicator

MoCIT Ministry of Communication and Information Technology

NAAMII Nepal Applied Mathematics and Informatics Institute for Research

NAST Nepal Academy of Science and Technology

NCSC National Cyber Security Centre

NITC National Information Technology Center

NPCERT National Information Security Response Team

NRB Nepal Rastra Bank

NPR Nepalese Rupee

NTA Nepal Telecommunications Authority

PPP Public-Private Partnership

TB Tuberculosis

UNESCO United Nations Educational, Scientific and Cultural Organization

WHO World Health Organization

January 2026

Artificial Intelligence (AI) in Nepal:

Abstract

by the NEF Team

This research paper provides a systematic examination of Nepal's AI landscape, analyzing the technological, regulatory, and socioeconomic dimensions that shape the country's AI trajectory Through a comprehensive review of policy documents, institutional frameworks, sectoral applications, and comparative international experiences, the study identifies both the opportunities and obstacles confronting Nepal's AI ecosystem The analysis is structured across four main sections: first, an assessment of the current technological landscape, including infrastructure, education, and the innovation environment; second, an evaluation of the evolving regulatory framework and key policy instruments; third, an identification of barriers and emerging risks spanning regulatory, economic, technological, and human capital challenges; and fourth, an exploration of possible policy recommendations based on examples from other countries

Key words

Artificial Intelligence, Nepal, Technology, Digital Infrastructure, Regulation, Data, Policy, Landscape, Ecosystem, Innovation, Startup, Education

Introduction

Artificial Intelligence (AI) has emerged as a transformative force in the past few years in economies and societies worldwide. For developing countries like Nepal, it presents significant opportunities in leapfrogging various sectors to a new era Over the past decade, the country has witnessed remarkable growth in digital infrastructure and has created a basis for the development of AI that is taking place today. Overall, broadband penetration has reached 143 01% and smartphone ownership is at nearly 73% of households as of 2025 Building on this foundation, Nepal has shown promise in the AI sector through increased education, awareness, and the emergence of companies and startups working on or adopting AI. The AI innovation ecosystem of the country is also developing with the presence of multiple hackathons, incubators, accelerators, and research labs. Moreover, the government has also shown proactivity in developing policies to foster AI innovation and regulation In particular, the approval of the National AI Policy in August 2025 and the establishment of the National AI Centre in November 2025 marked significant milestones in the nation’s commitment to harnessing AI for economic growth and social development.

However, while the country is making advances in the field of AI, there are various challenges that are obstructing

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Nepal’s AI ambitions Currently, the country ranks 104 on the Government AI Readiness Index, reflecting gaps in institutional capacity, human capital, and enabling infrastructure Similarly, while regulatory frameworks have been made, they remain fragmented and nonbinding, with overlapping jurisdictions across multiple agencies creating coordination challenges. th

This research paper provides a systematic examination of Nepal's AI landscape, analyzing the technological, regulatory, and socioeconomic dimensions that shape the country's AI trajectory Through a comprehensive review of policy documents, institutional frameworks, sectoral applications, and comparative international experiences, the study identifies both the opportunities and obstacles confronting Nepal's AI ecosystem The analysis is structured across four main sections: first, an assessment of the current technological landscape, including infrastructure, education, and the innovation environment; second, an evaluation of the evolving regulatory framework and key policy instruments; third, an identification of barriers and emerging risks spanning regulatory, economic, technological, and human capital challenges; and fourth, an exploration of possible policy recommendations based on examples from other countries.

CurrentTechnologicalLandscapein Nepal

Nepal's technological landscape has evolved rapidly due to advancements in digital infrastructure, digital ecosystems, and the adoption of innovative technologies Emerging technologies like artificial intelligence (AI) have further enhanced this evolution, particularly in terms of improved digital infrastructure and connectivity These developments highlight a growing trend in Nepal's digital and AI ecosystem that connect technological progress with economic growth

1.1. Technological Infrastructure of Nepal

Over the last 10 years, there has been a significant rise in the proportion of households with access to electricity, witnessing a stark growth from 60% in FY 2013/14 AD (2070/71 BS) to 97% in FY 2023/24 AD (2080/81 BS) As of FY 2024/25 AD (2081/82 BS), among the 753 local levels, 539 are substantially electrified and 196 are significantly electrified by the Nepal Electricity Authority (NEA) grid, whereas the remaining 18 rely on isolated solar or micro-hydropower systems. 1 2

Building on improved access to electricity, digital infrastructure in Nepal has expanded as well. This has allowed citizens to benefit from existing and emerging technological developments. According to the 2021 National Census,

although only about 15% of Nepali households reportedly owned a computer or laptop, smartphone ownership was relatively high at 72.94%.

As of November 2025, broadband service penetration stood at 143.01%, indicating that many individuals subscribe to more than one internet service Population penetration of 4G and fiber internet services also reached 89 64% and 50 07% respectively as of November 2025. However, despite Nepal Telecom (NTC) being the first to introduce 3G in South Asia in 2007, the rollout of 5G has remained uncertain High infrastructure costs, geopolitical sensitivities, and the absence of clear government policy have slowed progress beyond initial trials 3 4 5 6 7

1.2. The AI Ecosystem in Nepal: Education, Startups, and Innovation Environment

AI in Nepal is an emerging field that has rapidly gained attention in recent years. According to the 2025 Government AI Readiness Index, Nepal ranks 104 out of 195 countries This ranking is based on an assessment exploring government readiness across six core pillars including policy capacity, governance, AI infrastructure, public sector adoption, development and diffusion, and resilience. Despite this middle tier ranking, there is growing national recognition of AI’s transformative

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potential for the Nepali economy, as evidenced by the release of the National Artificial Intelligence (AI) Policy 2025 Both the government and private sector are increasingly investing in AI education, encouraging startups, and building supportive infrastructure. 10

1.2.1. AI Education in Nepal

AI-focused education in Nepal has evolved from a niche curiosity into a growing academic domain. A decade ago, formal AI courses were rare, but today, several Nepali universities offer dedicated AI degree programs. For example, Kathmandu University offers programs in AI at both the undergraduate and graduate levels and also provides an undergraduate program in data science. The university was the first educational institute to launch formal undergraduate and graduate programs in AI in August 2021 Pokhara University also offers a Bachelor of Artificial Intelligence and Data Science (BAIDS) program. Meanwhile, Tribhuvan University offers bachelor's and master's programs in data science that integrate AI fundamentals with mathematics and statistics. Private institutions like The British College and Islington College have also launched specialized bachelor's programs focusing on AI 11 12 13 14 15

That said, AI education in Nepal extends beyond standalone degrees. For instance, Nepal Open University offers AI as an elective in its MPhil in Information and Communication Technology 16

Many other computer science programs across teaching institutions in Nepal have also embedded core AI topics into their existing curricula, ensuring broader access to the field

Beyond formal curricula, international partnerships are creating intensive AI learning opportunities. Nepal Applied Mathematics and Informatics Institute for Research’s (NAAMII's) Annual Nepal AI School (ANAIS) brings world-class researchers for an 11-day program combining lectures, hands-on labs, and hackathons. For deeper professional training, the Fusemachines AI Fellowship, designed by leading US university faculties and AI industry experts, offers Fusemachines’ microdegree program with the goal of producing high-quality AI and data science talent. Together, these programs create practical pathways to advanced AI expertise outside traditional academic settings 17 18

The government has also recognized the need to support AI education. Under the Digital Nepal Framework 2019, a five-year plan for ICT growth, improving tech education is a priority Additionally, the National AI Policy emphasizes digital literacy in schools and has even proposed incorporating AI education into the national curriculum at various levels. There are also plans to establish specialized AI research centers at universities and provide grants and scholarships to encourage AI-related research. 19 20 21

Despite these advances, significant challenges persist in Nepal and across the broader South Asian region The World Bank’s South Asia Development Update: Jobs, AI, and Trade (October 2024) notes that the region lacks several prerequisites necessary to fully realize the benefits of AI, including a skilled workforce, reliable electricity, and stable, high-speed internet connectivity. In Nepal, these constraints are compounded by structural and operational weaknesses within the higher education system in STEM, such as low graduate employability, chronic underfunding, inadequate physical and technological infrastructure, limited research capacity, and persistent brain drain. Addressing these interconnected challenges is essential to strengthening Nepal’s capacity to compete globally in AI and to foster domestic innovation in the field.

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1.2.2. Innovation Environment

Hackathons for AI

Hackathons have become instrumental in advancing AI talent and experimentation in the country In December 2025, Aadyanta Advisory, supported by the U.S. Embassy in Nepal, American Chamber of Commerce in Nepal (AMCHAM Nepal), and Aadhyanta Fund Management Limited, launched Code for Impact: U.S.Nepal Tech Innovation Hackathon Series. The six-month nationwide program aimed to help young innovators and early-stage startups from all seven provinces of Nepal turn ideas into 24

market-ready tech solutions through mentorship on problem validation, solution design, and the use of DevOps and AI and machine learning (ML) tools.25

Similarly, in May 2024, The Institute for Integrated Development Studies (IIDS) organized the GenAI Hackathon. Over three months, teams worked on projects in education, healthcare, and disaster management This momentum has extended to the financial sector as well.

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In May 2025, The Global IME Bank Hackathon brought together tech enthusiasts to develop innovative digital and AI-driven solutions aimed at enhancing banking and financial services in Nepal. 26

Other recent hackathons include Nepal Hacks @ SecurityPal (2025), The Impact Hackathon (2024), HackaDev by NAAMII and Diyo AI (2022), and NCIT HackFest (2024).29

Incubators/Accelerators

The past decade saw the rise of startup incubators in Nepal with some hosting AI-related startups Idea Studio Nepal is one such program and runs a flagship "National Idea Hunt" program, which identifies and incubates innovative startups while providing support to entrepreneurs at various stages of development Technology and digital startups have featured among Idea Studio's finalists in recent years In November 2025, Aadyanta Advisory, supported by the U S Embassy in Nepal, AMCHAM Nepal, and Aadhyanta Fund 30 31

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Management Limited, also launched Seeding Innovations. The program, ending in March 2026, aims to empower founders and early-stage entrepreneurs to build market-ready, AI-enabled ventures through bootcamps, mentorship, and investor readiness training. 32 33

Research Labs, Innovation Hubs, and Collaborations

Individual universities have started their own labs related to AI and innovation. Kathmandu University houses an Innovation Center and has labs in robotics, signal processing, and nascent AI fields under its engineering and science departments It has also run a supercomputer center in partnership with foreign universities, indicating capacity to handle complex tech projects Meanwhile, Tribhuvan University’s Institute of Engineering (Pulchowk Campus) has an Artificial Intelligence and Machine Learning Lab Cluster International research centers are also extending support for innovation in technology in Nepal For instance, International Maize and Wheat Improvement Center (CIMMYT) cohosted a ‘Digital Agriculture Hackathon 2024’ to bridge tech and farming

Associations and Groups

AI associations and groups have also played an important role in advancing AI in Nepal through pooling of experts and collaboration The AI Association of Nepal was established in February 2025 through a collaborative initiative of AI

experts, entrepreneurs, and researchers. As a non-profit dedicated to advancing AI research, development, and education in Nepal, the association seeks to promote inclusive, transparent, and responsible AI technologies in the country. Similarly, the National Innovation Center (NIC), a technology innovation hub, has been supporting AI projects and education such as an AI education partnership with Omdena

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National AI Center

The Council of Ministers formally approved the National Artificial Intelligence Policy on August 11, 2025. In line with this policy, the Government of Nepal established a National AI Centre under the Ministry of Communication and Information Technology (MoCIT) on November 10, 2025, to enhance efficiency in public and private sector services through digital technology 41 42

1.2.3. AI Literacy and Awareness

According to a research conducted by researchers from Tribhuvan University and George Mason University, AI awareness in Nepal remains low. The study surveyed 250 respondents in Kathmandu through structured surveys assessing AI-enabled product usage and awareness levels. AI awareness was evaluated across six dimensions, including AI-enabled product usage, demographic factors, business responsibility in AI, societal impact of AI, government responsibility in AI, and ethical and privacy concerns.

Results showed that only 15% of the urban population is fully aware of AI applications. The study also found that youths aged 18 to 29 are more aware of AI applications and are more engaged in using AI, compared to the older population With an increase in age, there is also a documented reduction of conscious and active engagement with AI However, usage patterns indicated frequent AI usage, with 79% of respondents reporting 4-6 instances of AI product use within the preceding seven days Thus, despite the widespread use of AI in Nepal, awareness about AI remains low.

1.2.4. AI Startups, Companies, and Industry Applications in Nepal

Nepal’s nascent startup ecosystem has seen a surge of companies exploring AI solutions across various sectors. Nepal’s AI startups often originate from young tech entrepreneurs or diaspora communities who see opportunities to apply AI solutions to local contexts For instance, Paaila Technology, a company specializing in robotics and AI, was founded by a team of Nepali engineers in their twenties, which garnered media attention for being built entirely in Nepal Likewise, SecurityPal, a startup cofounded by a Nepali in Silicon Valley, has its main operations hub in Kathmandu, where it uses a blend of AI software and Nepali analysts to automate security compliance for clients like OpenAI and Figma. 51 52

Table 1 highlights some notable AI-driven startups and companies operating in Nepal and their focus areas.

Table 1. Selected AI-Focused Startups and Companies in Nepal

1.3. Public and Private Sector

Adoption of AI

As AI technologies continue to evolve globally, Nepal is beginning to explore their practical applications across both public and private sectors AI adoption in Nepal is emerging at a different pace across public and private sectors, reflecting distinct drivers, capabilities, and challenges This section explores the current applications in urban infrastructure, financial services, and healthcare.

Urban Infrastructure

Urban infrastructure is gradually adopting AI in Nepal. The end of 2024 marked the implementation of Nepal’s first AI-integrated traffic light system at Pulchowk in the Lalitpur Municipality in Kathmandu Valley. Depending on the real-time volume of vehicular traffic in each direction, the lights switch and change from manual to adaptive traffic control systems. The system is also equipped with a license plate scanner, helping the traffic police track and record accidents. Though cities in Nepal have experimented with smart traffic lights before, this implementation has served as a model for other locations looking to transition from basic smart traffic lights to fully AI-integrated systems.

Nepal’s transition to digital technologies is slower than its neighbors, but there is gradual growth. For example, the Nagarik App, a unified mobile platform launched in 2021, allows citizens to apply 61

for services such as driving licenses, and police reports from their smartphones. Similarly, the Nepal National Single Window (NNSW) was also introduced in 2021 to streamline cross-border trade by enabling importers and exporters to submit all regulatory documents through a single online portal.

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Despite these initiatives, the country still struggles with technology adoption. Public sector IT audits report frequent system downtimes, slow response times, and subpar systems management, including fragmented databases and inconsistent user interfaces. As a result, many digital services experience delays or require parallel manual processes, undermining end-user confidence. Given this backdrop, integrating AI into public service delivery remains at an early, experimental stage, and widespread adoption is likely to take several more years

Financial Sector

According to research conducted on financial institutions in Nepal, AI is widely adopted by banks and financial institutions (BFIs) compared to other sectors. Based on a quantitative survey of 100 financial institutions, including commercial banks, microfinance institutions, and insurance companies, commercial banks have the highest adoption rate at 45%, followed by insurance companies with 35%.

Microfinance institutions are behind with only a 20% adoption rate. These findings are further supported by 64 65

qualitative insights from 20 different financial institutions operating in Nepal.

Furthermore, the use of AI in each of the BFIs is different Commercial banks use AI for credit scoring and fraud detection, and both commercial banks and insurance companies use AI for customer service, such as through chatbots. Insurance companies also use AI for claims processing and risk assessment. Meanwhile, microfinance institutions use it for loan assessment and predicting borrowers’ creditworthiness. 66 67 68

Given this background, the Nepal Rastra Bank (NRB) also rolled out the Artificial Intelligence Guidelines in December 2025, providing Nepal's financial institutions a regulatory framework to navigate AI implementation while addressing these opportunities and challenges systematically. The NRB’s Artificial Intelligence Guidelines are further examined in detail in a following section on regulatory guidelines. The financial sector’s AI adoption appears promising, as they are investing in digital technology and adapting to digital solutions Further, there is more scope for AI with high perceived benefits of AI adoption in improving operational efficiency, customer experience, financial inclusion, cost reduction, and risk management. However, challenges persist in improving these tasks due to a shortage of affordable skilled staff, concerns about data accessibility and privacy, and poor digital infrastructure in rural areas Working on perceived 69 70 71

benefits and challenges is important as institutions that strategically incorporate AI in Nepal can make improved, efficient, and data-driven decisions.

Healthcare

AI adoption is also growing in healthcare in the diagnosis and treatment of contagious and non-contagious diseases. It has become a widely adopted tool, particularly for disease diagnosis. However, its use is also expanding into disease prevention, training, prognosis, and treatment. 72 73

On the policy front, despite Nepal’s limited policies concerning AI, the nation has established a National Tuberculosis (TB) Preventive Treatment Protocol 2024 The protocol incorporates a National Guide, endorsed by the National Tuberculosis Center, for the use of AI with digital X-rays. This guide provides a step-by-step process to healthcare workers and others involved in active case finding activities for TB screening in health camps across Nepal. AI has thus paved a path to screen TB among the vulnerable populations susceptible to the disease in remote and congregate settings with poor access to healthcare, ensuring effective disease control efforts. 75 76 77 78

AI has also made its way into the remote areas of Baitadi and Bajhang districts Recent innovations integrating AI with portable chest X-ray devices have enabled local healthcare professionals to screen potential TB cases in 79

Figure 1: AI Adoption in Healthcare

Source: Emerging Trends of using Digital Tools including Artificial Intelligence in Health sector in Nepal: What Next?[i]

geographically inconvenient locations. The AI analyzes radiographic images and identifies potential TB cases, enhancing diagnostic capabilities in these underserved areas. A test on AI for TB screening was also conducted in extreme geographical and remote conditions in the Everest Base Camp region. This initiative by the World Health Organization (WHO) developed results in seconds, filling the void of radiologists in the location

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Additionally, the Hospital for Children, Eye, ENT and Rehabilitation Services (CHEERS) is implementing AI with

telemedicine for predicting eye-related diseases like diabetic retinopathy and glaucoma that could potentially cause vision loss The AI model was tested with 90% accuracy in screening both diseases and is now used at other CHEERS health camps and outreach clinics NAAMII, the non-profit AI developer that developed this model, is also working on other projects for screening cervical cancer and an AIassisted smartphone tool that detects fecal parasites.

Innovation and implementation of AI in healthcare services are increasing

in Nepal However, realizing its full potential requires overcoming significant challenges, including the need for careful implementation and regulatory oversight to ensure safety and effectiveness Currently, AI applications in healthcare are visible only in select locations. Greater emphasis must be placed on leveraging AI's capacity to address the persistent inequities in healthcare access across the nation

RegulatoryLandscape

Nepal’s Artificial Intelligence (AI) sector is in a developmental phase, offering a fresh opportunity to shape its future trajectory. While the field is only recently emerging, the country has already laid groundwork with focused efforts on enhancing technology infrastructure, expanding AI education and training, and refining governance frameworks Building on this strong foundation, the nation can establish itself as a regional leader in responsible and innovative AI development

2.1. Current Regulatory Framework

Nepal’s regulatory landscape for AI has begun to take shape in response to the global rise of AI technologies. Acknowledging the growing importance of AI and the need for appropriate regulatory frameworks, the Government of Nepal introduced an AI Policy Concept Paper in July 2024 This was followed by the release of a draft National Artificial Intelligence Policy in February 2025 and the formal approval of the National AI Policy in August, building on the foundation laid by the concept paper. Together, these documents represent a significant move by the government toward harnessing AI for economic and social development, with the broader goal of establishing a functional and sustainable AI ecosystem in the country.

However, political unrest and instability remain major constraints, with

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widespread protests across the country Notably, the September 8 protest led to the fall of the existing government and resulted in the formation of an interim government, which is currently preparing for national elections scheduled for March 2026 Despite this change in government, artificial intelligence continues to be a priority sector, with the current interim government making major advancements in AI and continuing the work previously planned by the former government

2.1.1. Regulatory Agencies Relevant to AI

In Nepal, while the Ministry of Communication and Information Technology (MoCIT) is the central authority overseeing digital transformation and policy formulation, including the National AI Policy 2025 AD (2082 BS), several other regulatory mechanisms and agencies also govern AI and related technologies, as reflected in the figure below. These include the Nepal Telecommunications Authority (NTA); which oversees networks and Internet Service Providers (ISPs); the Department of Information Technology and the National IT Center which work on implementing e-governance and managing data centers; the National Cyber Security Center and Controller of Certification, which handle cyber defense and secure e-transactions; as well as the e-Governance Board and Nepal Rastra Bank (NRB) which regulate

public-sector digital services and fintech.

Moreover, a key stakeholder is the Education, Health, and Information Technology Committee, one of the various thematic committees under the Federal Parliament, i.e. the House of Representatives (HoR) The committee gives necessary directions and suggestions after monitoring and evaluating the activities carried out by the government It also reviews the policies, programs, resource allocation, and operations of the MoCIT, along with its subordinate bodies, and issues of directives to the relevant agencies as needed.

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development. This foundational document underscored the urgency of crafting a comprehensive National AI strategy and highlights critical concerns, including cybersecurity, data protection, and alignment of standards with global norms It advocated for the creation of a unified AI portal; prioritization of research and human capital development; and the deployment of AI across multiple sectors to drive socio-economic progress Moreover, the paper stressed principles of privacy, transparency, and accountability, and recommended establishing legal frameworks and AI centers of excellence to oversee and coordinate these efforts

2.1.2. Key Regulatory Policies

A. AI Concept Note89

In mid-2024, MoCIT published Nepal’s first AI Concept Paper to guide policy

The 2024 Nepal AI Concept Paper also provided a broad overview of AI fundamentals, current applications, and strategic considerations for Nepal’s AI trajectory Its key goals for the nation were to:

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Foster a sustainable AI ecosystem

Develop human capital through education, research, and entrepreneurship

Leverage AI to enhance sectoral productivity and public services

Establish regulatory, institutional, and coordination mechanisms to ensure responsible AI deployment

Reflecting global regulatory developments, the concept paper called for comprehensive legislation, data protection laws, and sector-specific guidelines, alongside the formation of dedicated agencies and standards bodies. The paper also detailed the need for upgraded digital infrastructure such as 5G networks, high-performance computing, and a national AI portal, as well as education and literacy initiatives, incubation hubs, grants, and tax incentives to catalyze innovation. Sectoral applications, from precision agriculture and smart cities to diagnostic healthcare and tourism, were also mapped out to illustrate AI’s transformative potential

B. National AI Policy90

MoCIT’s National AI Policy 2025 (officially titled ‘National Artificial Intelligence Policy 2082’) builds on the earlier AI Concept Paper and was officially approved in August 2025. This policy document marks the country’s first major effort to establish a structured framework for AI development, governance, and ethical use. As a foundational policy document, it puts

forward ambitious goals to harness AI for economic growth, public service delivery, and social inclusion while addressing Nepal’s unique digital landscape. It outlines four principal objectives:

Establishing a durable AI ecosystem

Leveraging AI to its maximum potential to drive and accelerate national economic development

Integrating AI to optimize and increase the effectiveness of public service delivery

Ensuring effective AI governance

To achieve these, the policy adopts a two-tier approach to broad, foundational policies covering legal, institutional, infrastructural, and regulatory measures, followed by specific strategies and action items.

Key Pillars of the National AI Policy

a) Strategic Vision for Digital Transformation: The policy establishes a clear roadmap for AI-driven innovation, emphasizing economic growth and public service improvements.

b) Sector-Specific Focus: It prioritizes AI applications in critical sectors, including healthcare (telemedicine), agriculture (precision farming), education (adaptive learning), and disaster management (early warning systems)

c) Ethical Governance Framework: The policy incorporates principles of fairness, accountability, and transparency in AI

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development, aligning with international standards like UNESCO's AI Ethics recommendations

d) Public-Private Collaboration: It encourages investment through PublicPrivate-Partnership (PPP) models and academic-industry partnerships, particularly in AI research and development.

e) Inclusive Development Approach: The policy explicitly addresses AI applications for marginalized communities and e-governance solutions, supporting digital inclusion objectives.

f) Creation of Core Institutions to Oversee AI Governance and Deployment: The policy proposes establishing key institutional bodies to support the implementation of the National AI Policy. This includes an AI Regulatory Council to set ethical and technical standards aligned with international norms, a National AI Centre to lead implementation efforts, and AI Excellence Centres in collaboration with global institutions

In line with this, the government established the National AI Centre. Inaugurated on November 10, 2025, under the Ministry of Communication and Information Technology (MoCIT), it serves as the central coordinating body for AI initiatives nationwide Aligned with policy goals, the center is already operational, focusing on AI policy

execution, professional training programs (targeting 5,000 participants over five years), and regulatory sandboxes to enable safe testing of innovations.

Collectively, these measures form Nepal’s first comprehensive AI policy framework. The National AI Policy 2025 represents an important milestone in integrating AI into the country’s development agenda. It is Nepal’s first substantial attempt to define a structured approach for AI deployment, regulation, and ethical oversight. As a foundational policy instrument, it sets ambitious objectives to leverage AI for economic transformation, improved public services, and greater social inclusion, while responding to the country’s specific digital context However, while forward-looking and aspirational, its success depends on phased implementation, sustained political commitment, and flexible governance mechanisms capable of translating policy goals into tangible results. January 2026

Nepal’s National AI Policy’s strengths lie in its comprehensive scope as it pledges to strengthen digital infrastructure, enhance data management, and foster AI applications across fields such as education, healthcare, transport, agriculture, finance, disaster response, and tourism.

However, despite its progressive vision, the policy faces significant regulatory and implementation challenges Key among these is institutional fragmentation, weak legal enforceability, infrastructural deficits (e.g. cloud capacity, GPU clusters), and overlapping governance structures, all of which hinder effective AI governance The rapid evolution of AI technologies demands a robust, rights-based regulatory approach that balances innovation with accountability and sustainability For instance, the government will need to significantly expand data center infrastructure to achieve Nepal’s AI growth targets. This expansion will place substantial additional pressure on the national energy grid and is expected to drive a sharp increase in electricity demand, requiring planning and investment to ensure grid readiness and sustainability. However, the policy fails to address these concerns. Additionally, the absence of a clear lead agency for AI governance and weak data protection laws further complicate enforcement, leaving gaps in digital sovereignty and user protection Heavy reliance on foreign AI platforms, driven by limited domestic human and capital resources, results in a lack of indigenously trained models, while the policy also fails to align with sectoral strategies such as health, education, and

agriculture Nepal’s policy, while commendable as a first step, lacks detailed implementation mechanisms, binding legal provisions, and sufficient human resources, raising concerns about its practical impact

Despite these challenges, the new AI policy also presents significant opportunities to advance digital transformation. With targeted investments in infrastructure and human capital, Nepal could position itself as a regional center for AI innovations. Given that AI is a predominantly footloose industry with relatively low spatial dependence, Nepal may attract investment and talent through competitive cost advantages and an enabling innovation ecosystem. In addition, Nepal could derive greater value by investing in domestic data center infrastructure and offering cloud storage and computing services rather than exporting electricity in raw form, particularly to regional markets such as China and India. Strategic partnerships with academia, industry, and international stakeholders could further support capital mobilization, knowledge transfer, and the development of domestic capabilities. Furthermore, systematic alignment of AI initiatives with national development priorities may improve public service delivery and increase efficiency, thereby enabling Nepal to overcome structural limitations and achieve its economic growth target through targeted, high-impact AI applications.

C. Artificial Intelligence Guidelines (2025)91

On December 7, 2025, The NRBintroduced Artificial Intelligence Guidelines to guide the safe, transparent, and responsible integration of AI in BFIs. Applicable to all NRB-regulated entities, including commercial banks, development banks, finance companies, microfinance institutions, Nepal Infrastructure Bank, and payment system operators, the guidelines aim to boost operational efficiency, innovation, and customer experience while upholding financial stability, integrity, and resilience By promoting AI in areas like credit scoring, fraud detection, risk management, and compliance monitoring, the framework seeks to

foster a competitive, inclusive sector that delivers accessible services to diverse populations.

The guidelines mandate robust governance, requiring boards to define AI risk tolerance and approve integrated strategies with policies for secure AI development, deployment, and monitoring, supported by crossdisciplinary steering committees comprising senior management members with adequate expertise in technology and AI-related risks. Institutions must mitigate operational, ethical, systemic, model, and cyber risks through assessments, unbiased algorithms, data quality controls, and cybersecurity audits, while ensuring

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transparency via explainable decisions, customer notifications, and bias testing. The guideline also mentions that licensed institutions utilizing third-party AI tools internally for low-stakes everyday tasks, like drafting emails and basic data analysis, is not classified as outsourcing. This new specification enhances operational efficiency without imposing undue regulatory barriers. However, this provision is applied only under the condition that the institution’s internal governance and risk policies strictly align with national regulations. Conversely, if the listed institute appoints a third-party AI tool for core services, this constitutes formal outsourcing, necessitating thorough risk management, stringent contract clauses, and mandatory approval from the Board of Directors and notification to the NRB supervision department This classification ensures that the use of AI in outsourced core services is subject to stricter regulatory oversight. The guideline further requires annual reporting on AI activities, risks, impacts, and incident disclosures, alongside business continuity measures and adherence to laws like the Privacy Act, 2075, to protect data privacy and prevent discrimination. Together, these regulatory steps encourage seamless integration of AI in the financial sector, while also safeguarding the financial system against the heightened risks, including data breaches and operational errors, associated with AI deployment.

D. Economic Reform Implementation Action Plan 2082 BS (2025/26 AD)92

Besides the concept paper and the National AI policy, Nepal is advancing its digital transformation through the Economic Reform Implementation Action Plan 2082 BS (2025/26 AD), approved by the Council of Ministers on May 20, 2025. The action plan emphasizes the development of the Information and Communication Technology (ICT) sector and the integration of emerging technologies like AI This initiative aims to enhance economic growth, public service delivery, and innovation

Some key IT and AI Policy Initiatives are:

Digital Ecosystem Development: The government plans to revise the Digital Nepal Framework into version 2.0 within two years, adopting a comprehensive strategy for digital transformation.

Policy and Legal Framework: The plan included the introduction of a National IT policy, encompassing AI, robotics, and the Internet of Things (IoT). This was fulfilled by August 2025 Besides this, legal provisions for green hydrogen development are slated for enactment within a year

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Infrastructure Enhancement: Efforts include establishing minimum standards for IT infrastructure, ensuring consistent electricity supply to government data centers, and relocating these centers to naturally air-conditioned locations suitable for Nepal's climate within two years.

Capacity Building and Digital Literacy: A nationwide digital literacy campaign will be launched to empower citizens to effectively utilize IT services.

Cybersecurity and Data Management: The plan emphasizes strengthening cybersecurity measures, conducting risk analyses, and ensuring that government data remains under the ownership and control of respective agencies

Innovation and Research: The plan also includes the establishment of the National Digital Innovation Center within a year. The National Digital Innovation Center, envisioned as a hub for research, incubation, and commercialization of digital technologies, has been successfully realized as the National AI Centre Furthermore, the plan includes IT and innovation centers for each province in partnership with the private sector.

Public Services and Governance: The government aims to enhance public service delivery through technology by ensuring interoperability among

various IT systems across ministries and agencies.

Boosting Domestic IT and Infrastructure Investment: Other provisions in the plan include a mandate for government agencies to procure all software exclusively from Nepali IT companies, within two years. Additionally, it proposes allocating a minimum of 10% of the total capital budget over the next five years to develop IT physical infrastructure, such as workstations and IT parks.

The implementation of the Economic Reform Implementation Action Plan 2082 BS as of December 2025 has yielded mixed results. While there have been notable fiscal and monetary gains, progress has been significantly hampered by weak execution, political turbulence, and bureaucratic delays. Following the political unrest in September 2025, the plan adopted an austere stance, halting low-priority projects and redirecting the focus toward reconstruction efforts Future delays or further revisions to the plan remain at risk, largely stemming from ongoing bureaucratic processes and political instability Nevertheless, the government stands to gain by keeping artificial intelligence as a key priority

E. Digital Nepal Framework (2019) and DNF 2.093

The 2019 Digital Nepal Framework (DNF 1.0) initially provided a broad roadmap for national digital transformation, structured around the “1-8-80” strategy (1 vision, 8 sectors, 80 initiatives) It targeted key sectors, including digital foundations, agriculture, health, education, energy, tourism, finance, and urban infrastructure, with the aim of leveraging ICT for economic growth and social challenges However, its implementation faced challenges due to limited coordination and resources

Building on this, the Digital Nepal Framework 2.0 (DNF 2.0), the draft of which was released in March 2025, represents an evolved roadmap to integrate Digital Public Infrastructure (DPI) and Industry 4.0 technologies like AI, 5G, robotics, and Internet of Things (IoT) into national development. DNF 2.0 reiterates the vision of DNF 1.0 while focusing on stronger digital foundations and improved governance through the introduction of the FAST pillars: FutureReady Digital Foundations, Access to Digital Services, Skills and Digital Literacy, and Transformation of Digital Economy. It aims to address previous gaps in coordination, funding, and inclusivity. The updated framework, which estimates an NPR 107.5 billion domestic budget, prioritizes DPI development (like national ID and payment systems), cybersecurity, and digital literacy to achieve 99% internet penetration. It also integrates the Nagarik App for streamlined public

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services, addressing previous coordination lapses. Though announced by then Communications Minister Prithvi Subba Gurung on August 12, 2025, as finalized and slated for Cabinet submission, the DNF 2.0 remains in the formulation phase with no confirmed implementation following the dissolution of the HoR and the change in government after the September unrest.94

2.2. Technological Legislations Affecting AI

Nepal’s digital landscape is shaped by overlapping ICT, commercial, and cybercrime laws that protect electronic communications, regulate content, and safeguard data. A range of general ICT and business laws that shape AI in Nepal are listed below.

Electronic Transactions Act (2008) : Nepal's Electronic Transactions Act 2063 BS (2008 AD) serves as the cornerstone legislation for cybercrime and e-commerce in the country, granting legal recognition to electronic records, e-signatures, and online contracts The Act ensures the right of every user to authenticate any electronic record through their personal digital signature, thereby upholding the validity, integrity, and reliability of electronic communications. It also designates a governmental Controller of Certifying Authorities to oversee the issuance and management of digital signatures. Furthermore, the Act outlines key offenses, including 95

unauthorized system access, hacking, and the online dissemination of prohibited materials Notably, it imposes penalties, including fines and imprisonment, for sharing defamatory, hate-driven, or pornographic content via social media platforms. While not AIspecific, it lays out groundwork for ecommerce and digital agreements.

National Broadband Policy (2016) : The National Broadband Policy 2071 BS (2016 AD) provides a comprehensive framework for nationwide internet expansion, aiming to extend broadband infrastructure across all districts while increasing user penetration, ensuring minimum speeds, and lowering costs. A core focus is bridging the digital divide through affordable connectivity in rural regions, positioning the internet as an essential service to support equitable development The policy also mandates an optical fiber backbone to enhance coverage, improve spectrum management, and accelerate 5G deployment Specific targets include a baseline speed of 512 kbps for all connections, ondemand 10 Mbps download speeds in urban areas and capping entry-level costs at a fraction of per-capita income Ultimately, this infrastructure underpins critical digital ecosystems, including AI applications and social media platforms, enabling broader technological integration

Intellectual Property (IP) Laws: Nepal's IP laws currently lack specific provisions for artificial intelligence (AI). However, existing frameworks provide a foundational structure for safeguarding innovations and facilitating technology licensing and franchising. The Copyright Act 2059 (2002) protects literary and artistic works, including data, such as text, images, and music, which are used to train AI models, though the policy does not automatically extend protection to AI-generated content itself. Similarly, the Patent, Design and Trademark Act 2022 BS (1965 AD) could apply to AI-related inventions, such as algorithms and software, thereby safeguarding inventions, creative works, trademarks, and copyrighted materials arising from AI-generated outputs or patented AI innovations. However, the limited intellectual property laws continue to be a key challenge in AI development and regulation, as existing regulatory grey areas create space for extensive legal interpretation and litigation. Recognizing this gap, the Ministry of Industry, Commerce and Supplies (MoICS) introduced the Industrial Property Bill 2082 BS (2025 AD) intending to address some of these issues. The bill was registered with the House of Representatives in June 2025 and had progressed through distribution to members, presentation, and discussions in the committee by late August Unlike

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the narrower 1965 Patent, Design and Trademark Act, this comprehensive legislation aims to fully align Nepal with the World Trade Organization’s (WTO’s) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement standards by incorporating protections for patents, trademarks, geographical indications, trade secrets, industrial designs, and layout designs of integrated circuits. Upon enactment, it would also establish a dedicated Industrial Property Office to streamline the administration of these matters However, the bill currently remains inactive following the dissolution of the House of Representatives 100 Telecommunications Act (1997) : The Telecommunications Act 2053 BS (1997 AD) and its policy and regulations created the Nepal Telecommunications Authority (NTA) and regulated all telecom services It governs licensing of network operators, spectrum allocation, and other requirements. A new Telecommunication Bill 2080 BS (2024 AD) was under discussion to amend and consolidate the laws relating to telecommunications and make telecommunication services competitive, reliable, secure, and customer-friendly, and to regulate such services effectively. Among its major reforms, the draft would allow telecom providers to renew licenses with up to 49% foreign ownership and would reduce license fees. These changes signal a friendlier stance to foreign tech investment and are relevant to platform compliance.

Data Protection and Privacy: Nepal currently has no comprehensive privacy law akin to the General Data Protection Regulation (GDPR). However, the key statutes regulating data processing and storage are:

The Privacy Act (2018) and its 2020 regulation : Nepal's Privacy Act 2075 BS (2018 AD) safeguards individuals' privacy in areas like property, documents, data, correspondence, character, and electronic personal information, with a focus on protecting sensitive data. It mandates authorized public bodies to collect, store, process, and use personal information, including caste, education, biometrics, and criminal records. However, the data is only to be collected with consent, clear disclosure of purpose, and robust security measures. Additionally, disclosure of the data collected is restricted, except with consent or public interest However, there is no dedicated data protection authority in Nepal and complaints go to district courts within three months, with penalties up to three years imprisonment or a NPR 30,000 fine

The Statistics Act (2022) : The Statistics Act 2079 BS (2022 AD) broadly regulates data and seeks to make data handling more systematic The act replaced the 105

Statistics Act of 2015 BS (1958 AD), transforming the Central Bureau of Statistics (CBS) into the National Statistics Office (NSO). The Act establishes broad regulations for systematic data handling in statistical contexts, focusing on modernization, privacy protection, coordination, federal alignment, and Sustainable Development Goal (SDG) support. It also mandates data confidentiality, limits use to statistical purposes, and strengthens data governance for more reliable and accessible national data. However, the law focuses more on government data management and does not impose clear obligations on private companies for user data

E-Commerce Act (2025) : The Ecommerce Act, 2081 BS (2025 AD) enacted on March 16, 2025, takes effect amid a previously unregulated online sector It defines e-commerce as buying/selling goods/services via electronic platforms and establishes the framework for applying to entities operating in Nepal, including foreign ones. Key provisions mandate platform registration with the Department of Commerce, clear disclosure of business/product details (e.g., prices, warranties, returns), valid electronic contracts, and data privacy. Duties for sellers, intermediaries, and buyers emphasize fair practices, timely delivery, and grievance redressal within 15 days. Failure to comply with the requirements will result in the 106

imposition of corresponding monetary penalties or terms of confinement. The act also aligns with consumer protection laws, fostering trust and efficiency.

Foreign Investment and Technology Transfer Act (FITTA, 2019) : Nepal's Foreign Investment and Technology Transfer Act (FITTA), enacted in 1992 AD (2049 BS) and revised in 2019 AD (2075 BS), serves as the primary framework to attract FDI and technology transfers for economic growth. Under FITTA, foreign and Non-Resident Nepali (NRN) investors may invest by purchasing shares in Nepali companies in foreign currency, reinvesting earnings, leasing equipment, and investing through venture capital or foreign stock offerings. The act also explicitly includes technology transfer activities such as IP licensing, franchising, tech services, and knowhow sharing within its scope. It allows the IT sector 100% foreign ownership in many areas like software, app development, IT consulting, cloud, data centers, and BPO/KPO, with streamlined processes through a One-Stop Service mechanism to boost tech transfer and business growth in Nepal. Furthermore, FITTA lays out requirements for approvals, minimum investment thresholds, profit repatriation, visa facilitation, and sectoral restrictions. Overall, the act encourages transferring knowhow in many sectors, including IT, simplifying establishment of IT

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ventures and attracting capital into Nepal's growing digital economy.

The Advertisement (Regulation) Act, 2019 : The Advertisement (Regulation) Act 2076 BS (2019 AD) governs the promotion of goods and services across all media, including online and social media platforms. The legislation explicitly defines electronic and social media advertising as within its scope. Advertisers are required to avoid prohibited content such as false claims, obscenity, and materials that undermine national sovereignty or defame national symbols. Advertising agencies and platforms are held accountable to ensure the authenticity of advertisements. Electronic marketing, including SMS and email advertisements, is permitted only with the recipient's consent Unsolicited mass messaging is generally prohibited, with exceptions made only for official government notices. The Act also prohibits advertisements for banned goods, such as gambling, narcotics, firearms, and indecent material An eight-member Advertisement Board is responsible for overseeing enforcement, while local governments have the authority to declare certain areas, such as religious or historical sites, as advertising-free zones. This regulatory framework applies to all platforms, including digital platforms that host or serve ads within Nepal In

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2024, the government introduced a “one-door” policy for digital advertising to centralize and streamline regulations. As part of this initiative, the Advertising Board issued new directives targeting social media platforms such as Facebook, Instagram, TikTok, and X. While detailed guidelines are still evolving, the aim is to extend existing advertising standards to the digital space.

Cybersecurity and IT Laws: Nepal’s cybersecurity framework is evolving, although the country has not yet enacted a dedicated Cybersecurity Act. Current governance is driven by policy instruments and sectorspecific regulations that seek to strengthen national cyber resilience. The National Cyber Security Policy 2080 BS (2023 AD) outlines the government’s strategy for securing electronic transactions, protecting critical information infrastructure, and enhancing national cybersecurity capabilities Complementing this, the Cyber Security Byelaw, 2077 BS (2020 AD) issued by the NTA sets mandatory cybersecurity standards for telecommunications and internet service providers to safeguard data and network systems Institutional capacity has been strengthened through the establishment of the National Cyber Security Centre (NCSC) in 2024, which is tasked with coordination, critical infrastructure protection, and incident response Despite these measures, policy proposals such as data localization, a

national internet gateway, and a government-controlled intranet have raised concerns regarding privacy, surveillance, and digital rights. Furthermore, the government introduced a Draft Information Technology and Cyber Security Bill in March 2024, which proposed regulatory frameworks for emerging technologies, including AI, machine learning, blockchain, and IoT. The bill also sought to establish a center of excellence for research and development, strengthen data protection provisions, and expand penalties for cybercrime. The bill remained under parliamentary review following the dissolution of the House of Representatives after the September protests as legislative progress has been suspended 113

Social Network Bill 2081 BS (2025 AD) : Nepal’s proposed Social Network Bill 2081 BS (2025 AD) aims to establish a regulatory framework requiring all social media platforms operating in the country to register and obtain a license Under the bill, platforms would be mandated to remove content deemed harmful, maintain grievance-redress mechanisms, and appoint local representatives. It further imposes strict penalties on both users and platforms for content that threatens national unity, spreads misinformation, or promotes prohibited material While the bill is intended to curb social media misuse and cybercrimes, it has attracted

criticism for its vague definitions, potential threats to freedom of expression, and absence of independent oversight. The bill had progressed to the National Assembly, however, following nationwide protests and the subsequent dissolution of the House of Representatives, the legislative process was halted.

Information Technology Policy

2023 : The Information Technology Policy of NTA, 2080 BS (2023 AD) provides guidelines, rules, and responsibilities for the use and management of technology resources and information systems within the organization The IT Policy 2080 refers specifically to the internal IT-governance framework of NTA. It governs how NTA uses and protects its own information systems, data, and technology resources. It sets rules for user access, software/hardware management, authentication, vendor management, and other internal security and operational practices, ensuring the confidentiality, integrity, and availability of data and information assets. The policy applies to all members, employees, contractors, vendors, consultants, and authorized users, setting clear expectations for compliance and safeguarding organizational resources

National Information and Communication Technology (ICT) Policy 2015 : The National ICT Policy 116

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2072 BS (2015 AD) presents Nepal's overarching strategy for national digitalization Issued by the MoCIT, the policy prioritizes expanding ICT infrastructure, improving internet access, and enabling a transition toward eadministration and e-economy. It recognizes cybersecurity, data protection, and cybercrime prevention as essential elements for building trust in digital systems and encourages widespread ICT adoption among citizens and businesses. To achieve these objectives, the policy commits to strengthening legislation on cybercrime and cybersecurity and upgrading the capacity of law enforcement agencies. It outlines the establishment of dedicated units within existing institutions, including the Computer Crimes Investigation Unit, the National Electronic Communication Security Centre, and the National Information Security Response Team (NPCERT), to support incident response and policy enforcement. Overall, the ICT Policy 2072 provides a foundational framework for Nepal’s digital transformation, linking infrastructure development with institutional reform and security measures to support an inclusive, technology-driven economy.

IT Decade Policies and Programs (2024 - 2034 AD) : The Government of Nepal has declared the years following the fiscal year 2024/25 AD (2081/82 BS) as the “Information Technology Decade,” positioning IT as a central driver of economic growth, governance reform, and service

modernization The government set the target to create employment for 1.5 million citizens and stimulate the economy through IT-enabled exports of NPR 3 trillion for the IT decade The initiative also focuses on expanding broadband and high-speed internet access via high-capacity optical fiber across the country. Another major objective for the decade is to build the nation's own satellite, set data center standards, develop interoperable internet and data exchange platforms, and advance the Information Technology National Knowledge Park. Additionally, the government aims to use information technology to transform public services through e-governance and reduce reliance on traditional paper-based systems The feasibility of utilizing national artificial intelligence policies to support public service infrastructure and information technology operations will also be studied Overall, this strategy reflects a broader ambition to shift Nepal toward a technology-driven service economy. January 2026

ExistingBarrierstoAIInnovationin Nepal

3.1 Regulatory Barriers

3.1.1. Key Regulatory Barriers in AI Governance Framework

Nepal’s AI regulatory framework is still in its formative stages, characterized by ambitious policy vision but also regulatory gaps like institutional, legal, and infrastructural constraints that need attention. The recent release of the AI Concept Paper (2024) and the National AI Policy (2025) represent Nepal’s intent to engage with emerging technologies. However, as with many developing digital economies, regulatory challenges persist, presenting both obstacles and opportunities.

Lack of a Clear and Enforceable Implementation Framework

While the AI policy outlines strategic priorities, it lacks a concrete implementation roadmap There are no defined timelines, pilot programs, budget allocations, or designated responsibilities to translate the policy into action. Moreover, the policy remains nonbinding, meaning its provisions are advisory rather than enforceable by law Key issues include:

Absence of specific AI legislation addressing algorithmic transparency, liability, or misuse.

No measurable KPIs or monitoring

mechanisms to track progress.

Limited regulatory capacity due to a shortage of skilled personnel and digital infrastructure within regulatory bodies

This omission creates ambiguity in execution and accountability, potentially leading to delays and inefficiency in adoption of AI.

Institutional Fragmentation

The oversight responsibilities are currently dispersed across multiple institutions, including the Ministry of Communication and Information Technology (MoCIT), the National Information Technology Centre, and the Nepal Academy of Science and Technology. While the establishment of the National AI Centre and the proposed AI Regulation Council are encouraging developments, their mandates and lines of authority also remain insufficiently clarified Moreover, this institutional fragmentation is further exacerbated by Nepal’s broader political context, which remains in a period of transition marked by ongoing political realignments and administrative restructuring. As a result, policy priorities may shift and further weaken coordination across agencies. Together, these factors hinder effective policy implementation by creating regulatory overlaps, accountability gaps,

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and delays in decision-making This will ultimately limit the state’s ability to translate AI policy objectives into coherent, enforceable actions.

Incomplete Data Governance and Cybersecurity

Current frameworks, such as the Privacy Act (2018) and Statistics Act (2022), do not fully address AI-specific concerns such as algorithmic accountability, data minimization, or cross-border data flows. Furthermore, there is no clear regulatory guidance on consent mechanisms tailored for AI data processing, data sovereignty, and international data transfers Existing laws like the Electronic Transactions Act (2006) focus on cybercrimes and electronic transactions, without addressing AIrelated issues such as algorithmic decision-making or accountability. Similarly, the upcoming E-Commerce Act (2025) requires digital platforms to register and comply with broad obligations. However, it lacks clarity on enforcement and imposes unclear compliance burdens, particularly on platforms operating via social media

Non-Binding Ethical Guidelines and Jurisdictional Challenges with Global AI Platforms

While the policy outlines ethical principles, such as fairness and bias mitigation, these remain aspirational and are not binding. The framework does not establish binding codes of conduct,

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impose penalties for non-compliance, or provide formal enforcement mechanisms to address ethical violations by either domestic or foreign AI developers. Moreover, the policy offers limited guidance on the regulation of transnational AI platforms. In the absence of extraterritorial provisions or mutual legal assistance frameworks, Nepal faces significant challenges in enforcing domestic data protection and accountability standards on foreign entities. These gaps are further compounded by Nepal’s evolving and fragmented social media regulatory landscape, which adds uncertainty and weakens the overall effectiveness of AI governance 119

Limited Stakeholder Engagement

The formulation of the AI policy involved limited consultation with civil society, marginalized communities, and local technology innovators, creating a barrier to inclusive and context-sensitive governance. This lack of broad stakeholder engagement risks undermining policy legitimacy and may result in AI frameworks that insufficiently reflect local realities, including considerations of equity, gender, and regional diversity.

3.2 Economic Challenges

3.2.1. Limited Market Size and Purchasing Power

Nepal's economic metrics indicate a relatively small consumer market with limited purchasing power With a Gross Domestic Product (GDP) per capita of USD 1,390 (NPR 190,013) in 2024, Nepal represents only 10% of the world average. This economic reality limits the potential market for AI products and services, particularly those requiring significant investment. In 2011/23, In 2022/23, households in the bottom 80% of the population allocated more than 40% of their total consumption expenditure to food. This leaves small disposable income for expenditure on digital services or AI-related products. Additionally, budget allocation to ICT remains below 1% of GDP Other developing countries allocate a significantly large amount of their annual budgets to ICT development. Consistently low public investments in ICT have resulted in an underdeveloped digital infrastructure, posing significant challenges for the widespread awareness, adoption, and scalability of AI solutions in Nepal.

3.2.2. Ease of Doing Business Challenges

Doing business in Nepal can present significant hurdles for new market entrants operating in the digital technology space. According to the

World Bank’s Ease of Doing Business report, Nepal stands 94 out of 190 economies, reflecting some issues with company registration, licensing, and contract enforcement Foreign investors often encounter opaque approval processes, and obtaining permits can take several months. Coupled with strict foreign-exchange controls, requiring multiple layers of central bank and commercial bank approvals for currency conversions, the effort to set up operations in Nepal is higher than in more liberalized markets like India and Bhutan. Additionally, analysts note that the overall investment climate is impacted by political instability, limited laws, and red tape, which have resulted in large gaps between the committed and actual FDI mobilization. Historically, only about 35% of committed FDI is actually mobilized th

3.2.3.

Tax Structure Considerations

Nepal imposes a 2% Digital Service Tax (DST) on non-resident entities that provide electronic services to Nepali consumers, once their annual transaction value exceeds NPR 3 million (USD 22,000). This places Nepal among the relatively few countries in Asia that levy DST, increasing the overall tax burden for digital service providers operating in the country. Additionally, Nepal has a competitive corporate income tax of 25%. Industries with special status attract a lower tax rate of 20%, but AI and technology do not qualify for this reduced tax rate in the current tax

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regime A 25% corporate tax rate is relatively high compared to some regional peers, increasing the effective tax burden on profits generated in Nepal. Further, ambiguities on tax rights between the three levels of government increase compliance challenges. This complicates business operations and reduces the attractiveness of Nepal as an investment destination for AI initiatives.

3.2.4. Startup Ecosystem Underdevelopment

Nepal’s entrepreneurial ecosystem is in a budding stage, with an increasing number of startups However, capital scarcity is among the major problems faced by startups Surveys find that around 58% of Nepali startups fail to secure an adequate amount of capital, with 42% of founders citing accessing capital as “very hard” Commercial banks typically demand collateral, so most startups rely on a handful of angel investors or sporadic grants. Furthermore, Banks typically require collaterals (often tangible assets or personal guarantees), which many tech entrepreneurs cannot readily provide. As a result, banks tend to be risk-averse towards startups and seldom offer loan products tailored to early-stage ventures. Many founders rely on personal savings or informal networks to fund their operations. Moreover, alternative investors are also few with private equity and venture capital still nascent, and only a handful of local funds and modest

investment volumes Another constraining factor is inadequate support structures, as incubators and research labs are just emerging, with large-scale mentorship or Research and Development (R&D) partnerships limited. Together, these challenges have limited the growth of Nepali techstartups.

3.3 Technology Constraints

While there is a growing interest in AI adoption, there are some technological constraints for the large-scale development of AI in the country Below are some of these challenges that must be addressed to unlock the full potential of AI in Nepal.

3.3.1. Costly Compute Resources

While smaller scale AI can rely on Central Processing Units (CPUs), modern AI requires advanced hardware including costly Graphics Processing Units (GPUs) and Tensor Processing Units that excel in handling complex neural network computations. For better GPUs with more computing power, such as the RTX 5090, these prices rise to almost NPR 365,000 per GPU While these prices may be prohibitive to early-stage startups, the cost barrier is not unique to Nepal and can be addressed through shared infrastructure, public-private investment, and cloud-based solutions.

3.3.2. Dependency on Foreign AI Technologies and Cloud Services

Nepal currently has limited domestic availability of GPUs and servers as AI is still in the nascent stages of development, with most AI operations dependent on costly global cloud platforms such as RunPod, Lambda, and Amazon EC2. Even a modest use case involving 10 hours of compute time daily at an average rate of USD 3.6 (NPR 493) would cause monthly costs exceeding USD 1080 (NPR 147,870). While Nepal has some data centers such as one by WorldLink, these centers are not hyperscale or high-performance computing data centers suitable for advanced AI workloads. However, efforts like the 2024 partnership between India’s Yotta Data Services and Nepal’s Chaudhary Group to build the K1 supercloud data center in Ramkot mark important progress toward strengthening national AI infrastructure.

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3.3.3. Evolving Digital Infrastructure

Nepal boasts a high broadband penetration rate of 149 23%, and existing internet services are generally of good quality However, the country has faced various challenges due to ISPs’ reliance on and non-payment to Indian upstream service providers, primarily Tata and Airtel Moreover, while Nepal’s dependence on India, with 90% of internet services routed through India, could potentially create barriers, the government has shown some receptivity

to satellite-based services like Starlink, thereby paving the way for diversification Nepal has also taken a lead in 5G adoption in South Asia with its Digital Nepal Framework 2019, though implementation has been delayed due to certain geopolitical and organizational hurdles.

3.3.4 Power Supply Considerations

Nepal is well-positioned in terms of energy capacity for AI, with an installed hydropower capacity of 3329.54 MW and an economically feasible potential of 43,000 MW. However, currently, while 94% of the population has access to electricity, power supply can face multiple hurdles due to dependence on India during the dry season, and also due to natural disasters, such as the floods in 2024 that majorly impacted hydropower infrastructure. Nonetheless, with targeted investments in grid stability and disaster resilience, Nepal could emerge as a green energy hub for data-driven industries, including AI.

3.4 Human Capital Challenges

3.4.1. Brain Drain and Talent Exodus

There is a growing number of young professionals in Nepal that are interested in ICT and AI. In the fiscal year 2022/23 alone, 9,468 students were pursuing ITrelated programs and 2,734 were pursuing computer science degrees abroad. A persistent outflow of skilled early-career and mid-career workers has

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been a significant hurdle to realize Nepal’s ambition to build a robust economy Each year, approximately 17,000 graduates enter the ICT sector, with 85% employed in private institutions. Largely the private sector, particularly tech firms employing young talent, have borne the cost of retraining entry-level professionals. With targeted interventions such as improving domestic compensation frameworks, expanding leadership development programs, and incentivizing local career pathways, Nepal presents an opportunity for " reverse brain drain" and diaspora engagement. Retaining talent and providing the guidance of experienced mentors, project managers, and R&D leaders can continue the growth of AI projects that stall in early stages or fail to align with broader business strategies.

3.4.2. Education-Industry Skills Mismatch

Though around 7,500 students enroll in, and 5,500 students graduate from ITrelated courses annually in Nepal, only 20% enter Nepal’s tech sector. The rest pursue other careers or move abroad, and few who stay choose to join startups or local firms This is attributed to a persistent skills mismatch between education and industry High school and university curricula emphasize theory over practice, leaving many ICT graduates underprepared for industry demands and forcing employers to spend 6–9 months on upskilling, an investment often lost when trained staff

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emigrate Reforms like modernizing curricula and fostering industryacademia collaboration have been pursued by a select few institutions, but broader changes are not yet implemented. Incentivizing domestic career paths through career growth opportunities is essential to convert Nepal’s emerging talent pool into a longterm economic asset.

3.4.3. Digital Divide

Nepal has 14.3 million social media users, and mobile penetration exceeds 131% due to multi-SIM use. Further, over 44% of the population are also active social media users Nepal’s booming mobile market contrasts with low digital literacy and limited access to digital services, as high infrastructure costs keep broadband and smartphone use urbancentric and significant gender gaps persist in technology access According to the Nepal Living Standards Survey 2022/23 AD conducted by the National Statistics Office (NSO), internet connectivity reveals stark urban-rural, regional, and socioeconomic divides. 79 3% of households in the Kathmandu Valley enjoy access to the internet, compared to 43 2% in other urban areas and a mere 17.4% in rural areas. Nationally, the internet penetration rate stood at 55.8% in early 2025. This indicates that nearly half of the population remains offline, with the amenities concentrated in urban areas This exacerbates unequal access to AIdriven opportunities, further

compounded by widespread gaps in public awareness and adoption.

3.4.4. Labor Productivity Challenges

Nepal’s labor productivity presents both a challenge and an opportunity for its high-tech ambitions. In 2023, GDP per worker saw a slight decline of 1.46%, following a 1.98% increase in 2022. With 80% of the workforce lacking secondary education, boosting efficiency, especially in skill-intensive sectors, remains a priority. In the IT sector, the limited pool of trained professionals has contributed to higher project costs and extended timelines. Additionally, with 87 public holidays in 2023/24, the highest among 48 surveyed countries, efficiency across industries can be affected

While labor productivity remains a challenge, it also represents an area of untapped potential A growing number of grassroots initiatives are investing in digital skills training, and ongoing policy reforms aim to enhance workforce productivity Increased awareness and adoption of digital tools and AI can drive productivity gains in key sectors

3.4.5. Low level of AI awareness

A major barrier to AI adoption in Nepal is low public awareness, with only 12% of users recognizing their engagement with AI despite widespread use of AI-enabled tools However, growing digital access and youth interest suggest strong potential for targeted AI education to

3.4.6. Insufficient Technical Educational Programs and Research Opportunities for Students

Nepal’s AI workforce development is constrained by a lack of educational reforms to include such courses as well as a lack of collaborative research centers to connect academia with industry. As of 2024, few colleges offer an undergraduate AI program, and most universities lack structured curricula or faculty capacity. While the government’s 2025 AI concept paper identified goals for human capital, research, and academic-industry ties, implementation has lagged, and financial support is minimal Unlike regional peers, Nepal lacks targeted grants, scholarships, or R&D funding for student-led AI work In the absence of state support, NGOs and private actors have stepped in but these fragmented efforts are not scalable. With growing youth interest and global engagement, government-backed AI hubs and co-designed academic programs could catalyze long-term, inclusive innovation

EmergingRisksandSystemic ChallengesofAIIntegrationinNepal

4.1. Cybersecurity Risks

The Individual Privacy Act 2075 BS (2018 AD) currently governs the data protection laws in Nepal. However, the existing policy is inadequate as it lacks provisions to address AI-specific risks, such as deepfakes or algorithmic bias. According to Nepal's Cyber Bureau, reported cybercrime cases more than doubled from 9,013 in the FY 2022/23 AD (2079/80 BS) to 19,730 in FY 2023/24 AD (2080/81 BS). Online fraud cases also rose sharply, from 1,835 to 4,112 during the same period. While Nepal lacks specific data on AI-powered phishing attacks, global trends indicate a significant shift in the threat landscape, driven by sophisticated AI-powered deception techniques and innovative evasion methods. For instance, Kaspersky detected and blocked over 142 million phishing link clicks in the second quarter of 2025 alone Cybercriminals are now exploiting tools like deepfakes, voice cloning, and platforms such as Telegram and Google Translate to steal sensitive data, including biometrics, electronic signatures, and handwritten signatures. This is often achieved through AI-driven bots that impersonate real users, engaging victims in prolonged conversations to build trust According to the World Economic Forum, 66% of organizations anticipate

AI will exert significant influence on cybersecurity over the coming year, yet just 37% have established procedures to assess the security of AI tools before deployment. Moreover, around 47% of these organizations cite adversarial advances powered by Generative AI as their primary concern, since they facilitate more advanced and scalable cyber threats. These findings highlight a striking paradox in AI adoption. Organizations are deploying AI technologies at an unprecedented pace, even as AI-driven cybersecurity threats intensify dramatically Yet, few have implemented the essential safeguards required to bolster defenses and ensure long-term cyber resilience.

The figure below illustrates suspicious transaction reports (STRs) and suspicious activity reports (SARs) in Nepal based on the data from FY 2023/24 AD (2080/81 BS). January 2026

Figure 4. Number of SAR/STRs Reported indicating different CEF typologies

Source: Strategic Analysis Report 2024, Nepal2024, Nepal Rastra Bank161

4.2 Workforce Disruptions

As AI integration accelerates across industries and enterprises, apprehensions about job losses and disruptions in traditional employment sectors are mounting This trend is already apparent in India's banking industry, where automation has reshaped customer support, loan evaluations, and fraud prevention The International Labor Organization (ILO) identifies clerical work as particularly vulnerable to automation, whereas occupations like managers, professionals, and technicians face only minimal high-exposure tasks, with about a quarter exhibiting moderate vulnerability.162

A collaborative study by the ILO and Poland's National Research Institute (NASK) indicates that Generative AI could affect 25% (or one in four) jobs globally. In high-income nations, 34% of roles in exposed occupations are at stake, 11% in low-income countries, and middle-income areas like Latin America and certain Asian regions falling in between. For low-income economies such as Nepal, the overall risk remains limited, largely because of the predominance of informal and manual labor sectors 163 164 165

Overall, the ILO report emphasizes that Generative AI is likely to reshape rather than eliminate the jobs, though gender

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disparities heighten concerns In affluent countries, high-risk AI-automatable tasks comprise 9 6% of women ' s employment, almost triple the share for men. Globally, 4 7% of women ' s jobs are in the highestrisk bracket, compared to 2.4% for men, primarily owing to women ' s concentration in administrative and clerical functions. To facilitate a supportive shift to Generative AI that benefits workers instead of displacing them, the ILO calls on governments, businesses, and labor groups to intervene promptly, placing digital literacy and upskilling opportunities at the heart of its strategy, with targeted emphasis on women and those in administrative or clerical positions

4.3 Environmental Footprint and Energy Usage

AI infrastructure is highly energy intensive. Training and operating advanced AI models require substantial computing power, which leads to high electricity consumption. The rapid expansion of AI is increasing demand for energy-intensive data centers and large amounts of water, both during construction and for cooling servers. This places additional pressure on local and regional power grids. Beyond energy and water use, AI infrastructure also has significant material and environmental costs Most data centers rely heavily on electricity generated from fossil fuels, contributing to greenhouse gas emissions. Moreover, they also generate substantial electronic waste, which

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frequently contains hazardous substances such as mercury and lead. Additionally, the electronics housed in data centers rely on large volumes of raw materials, with a single 2 kg computer requiring up to 800 kg of raw material inputs. This adds pressure on the carrying capacity of the earth. The microchips that power AI systems also depend on rare earth elements, which are often extracted through environmentally destructive mining practices.

167

However, the number of data centers worldwide continues to rise, from around 500,000 in 2012 to nearly 8 million today Globally, the construction of data centers accelerated around 2017, and by 2023 their electricity consumption had doubled. At the global level, data centers are estimated to consume around 415 terawatt hours (TWh) of electricity in 2024, or roughly 1.5% of total global electricity demand, growing at an annual rate of about 12% over the past five years. The global AI data center power demand could surpass 327 GW by 2030. The global consumption of water is expected to reach 4.2 to 6.6 billion cubic meters per year by 2027, exceeding the total annual water withdrawal of countries such as Denmark This large-scale energy consumption to support the burgeoning AI infrastructure has become a serious environmental concern. 168 169

While AI and digital transformation offer opportunities for social and economic

progress, their environmental effects are complex, impacting environmental sustainability and human well-being As AI use expands, it is essential to put strong safeguards and risk-mitigation mechanisms in place, rather than increasing AI deployment in an unchecked or unplanned manner.

In comparison, Nepal’s ICT infrastructure is still at a developing stage, although developments are underway. Nepal is well-positioned in this regard, with economically feasible potential of 43,000 MW electricity. This presents a clear opportunity for Nepal to support AI-related infrastructure through renewable hydropower rather than fossil-fuel-based energy. 173

However, despite this potential, there has been limited discussion and policy planning in Nepal specifically addressing the environmental by-products of AI expansion, including rising electricity demand, water use for cooling, electronic waste management, and the lifecycle impacts of digital infrastructure. Without proactive planning, rapid AI adoption could place new pressures on Nepal’s power systems, water resources, and waste management capacity. Sustainable use strategies, including energy-efficient and renewable-powered data centers and environmental planning, must be carefully considered and addressed alongside the increasing adoption of AI across various sectors

AI Investment Boom and Bubble Concerns

In recent years, investors have increasingly questioned whether a bubble is forming in the AI sector. A market bubble occurs when asset prices rise far above their true value, driven by high publicity, speculation, and herd behavior. AI has become the center of this attention, attracting large amounts of capital and pushing company valuations to record levels. In 2025, global technology firms invested around USD 1 trillion (NPR 141.3 trillion) in AI, showing how quickly the sector is expanding. Most of this investment is going toward building large data centers, developing AI models, and securing resources such as advanced chips and computing power. One of the largest commitments came from the Stargate Project, a partnership between OpenAI, Oracle, and SoftBank, which pledged USD 500 billion (NPR 70.7 trillion) to build AI data centers in the United States. This amount is far greater than the spending on major historical projects such as the Manhattan Project. At the same time, Meta invested USD 14.3 billion (NPR 2.02 trillion) in Scale AI, while Amazon and OpenAI signed a USD 38 billion (NPR 5 37 trillion) partnership Microsoft also committed USD 30 billion (NPR 4.24 trillion) and USD 10 billion (NPR 1.41 trillion) for AI infrastructure in the United Kingdom and Portugal, respectively 174 175

176 177

Despite this strong investment activity, concerns are growing that expectations around AI may be outpacing reality The International Monetary Fund has warned that the current surge in AI investment could develop into a bubble, similar to the dot-com crash of the early 2000s These concerns have increased as market concentration has risen. In October 2025, NVIDIA, a major supplier of AI chips, became the first U S company to reach a market value of USD 5 trillion (NPR 706 7 trillion), which is larger than the entire stock market of most countries, except for the United States, China, Japan, and India Along with Microsoft, Alphabet, Apple, and Amazon, it accounts for about 30% of the S&P 500’s entire value. Overall, technology stocks now make up around 35% of the U S stock market, which is unusually higher than the past trends.

The bubble bursts when overestimated companies are unable to return or grow into their speculated valuations According to an MIT study from July 2025, despite USD 30–40 billion in investment on GenAI, 95% of organizations are seeing zero return. While many firms have launched pilot projects, only a small number have moved beyond testing to achieve meaningful business impact. Just 5% of AI pilots are generating significant value, while most show no clear effect on profits. However, the risk of a broader financial shock appears to be limited for now. The largest AI companies hold strong cash reserves and have low debt levels, which helps them absorb potential market stress. Recent analysis from Deutsche Bank also suggests that many leading firms have strong revenue growth and stable cash flows In retrospect, the size and pace of AI investment justify the market concern regarding a potential AI bubble Similar investment booms in the past have sometimes led to overcapacity and weaker returns. However, while the current evidence does not clearly indicate that an AI bubble has already formed, several factors warrant close monitoring.

PolicyRecommendations

Nepal’s AI journey is at an important juncture The country has taken a forward-looking vision regarding the topic with the declaration of the IT Decade, as well as the release of the National AI Policy (2025) However, certain gaps remain in terms of the implementation, enforceability, and comprehensiveness of various policies, as covered in the section on existing barriers. Furthermore, to ensure the rapid progress does not face sluggishness like the Digital Nepal Framework (DNF), certain steps must be taken to ride on the created momentum towards a better future Thus, the following recommendations outline a multifaceted approach spanning legislation, governance, infrastructure, education, and international collaboration to unlock AI’s transformative potential.

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Enact AI-Specific Legislation

Why?: While Nepal has introduced the National AI Policy (2025), it needs to expeditiously move from a policy framework to binding legislation that governs AI use to enforce a robust, rights-based regulatory approach that balances innovation with accountability.

How?: While building on the existing knowledge and documents, this legislation should be all-encompassing by clearly defining AI; setting out ethical guidelines; mandating algorithmic transparency and accountability;

44

defining legal liabilities for AI misuse, bias, and harm; and establishing sectorspecific AI regulations.

For Example: An example to follow can be the European Union’s (EU’s) AI Act (2024) that categorizes AI according to its risk and accordingly sets legal boundaries and enforcement mechanisms Similarly, Canada’s Artificial Intelligence and Data Act encourages AI innovation in a safe manner.

186 187

Develop a Detailed AI Implementation Roadmap

Why?: The National AI Policy (2025) is a great first step toward AI development. However, it lacks timelines, monitoring mechanisms to track progress, and funding mechanisms

How?: To truly move towards an environment of AI innovation, development, and adoption, the policy must be translated into a time-bound roadmap with short, medium, and longterm goals. Furthermore, Key Performance Indicators (KPIs) and monitoring frameworks should be established within the roadmap to ensure implementation. Lastly, clear budget allocations and institutional responsibilities should be delineated to enhance clarity.

For Example: Singapore’s National AI

January 2026

Strategy clearly spells out their plans to develop AI with the identification of priority sectors and clear milestones. Similarly, Brazil and Kenya have also created roadmaps with clear timelines regarding AI development. 188 189

Consolidate AI Governance Structures

Why?: Currently, there are various fragmented policies and documents regarding AI regulation which divide responsibility among agencies such as the Ministry of Communication and Information Technology (MoCIT), the National Information Technology Center (NITC), and the Nepal Academy of Science and Technology (NAST) Thus, there is a need to streamline such fragmented oversight and ensure coordination.

How?: The government should operationalize the proposed AI Regulatory Council and National AI Centre with clear mandates and resources. There must be inter-agency coordination within this to avoid duplication and accelerate policy delivery Furthermore, to improve effectiveness, representatives from government, academia, private sector, and civil society.

For Example: The EU’s AI Act (2024) has created a centralized European AI Office to oversee compliance, coordinate enforcement across member states, and harmonize standards. Similarly, the United Kingdom (UK) has an Office for AI 190

that coordinates cross-government AI policy.191

Modernize Data Protection and Cybersecurity Laws

Why?: Nepal’s current data laws do not fully address AI-specific risks such as algorithmic bias, adversarial attacks, and privacy.

How?: To create comprehensive laws regarding data protection and cybersecurity, Nepal’s current Privacy Act (2018), Data Act (2022), and draft IT and Cybersecurity Bill need to be combined to enact a comprehensive Data Protect Act that aligns with international standards such as the EU’s General Data Protection Regulation (GDPR). This act needs to have clearly defined rules regarding consent, anonymization, and cross-border data flows Further, the use of synthetic data for training should be encouraged to ensure data protection

For Example: India’s Digital Personal Data Protection Act (2023) sets standards for data processing, consent, and crossborder transfers.192

Facilitate Access to Banking and Finance for AI Startups

Why?: Currently, limited access to foreign payment systems and rigid banking rules are restricting startup scalability. For example, it is difficult for startups to buy into international AI GPU January 2026 45

How?: The central bank and government can explore methods to allow tech startups to access foreign payment gateways and raise foreign card limits. Additionally, to tackle the problem of financing, low-interest credit lines for AI infrastructure and cloud services can be established and collateral-free loan schemes can be explored. Lastly, venture capital and angel networks can be established to help cover the large costs associated with AI scalability.

For Example: India amended the Foreign Exchange Management (FEM) Regulations to simplify the process for recognized startups to open foreign currency bank accounts 193

Offer AI-Specific Tax Incentives and Avoid Double Taxation

Why?: Nepal currently imposes a 2% digital service tax and a 25% corporate income tax on AI firms which is among the highest in the region This makes a field that is already expensive even more expensive to work in

How?: The government can introduce targeted tax exemptions for AI-related Research and Development (R&D), hardware imports, and early-stage innovation Additionally, provisions must be introduced to prevent double taxation and to simplify compliance

For Example: Ireland’s tax incentives for

technology firms and R&D have led it to be a major hub for technology development 194

Encourage AI Infrastructure Development

Why?: Intensive AI development in Nepal is currently constrained by costly hardware, limited access to GPU servers, and weak data center capacities.

How?: A basic avenue that can be explored by the government would be to provide subsidies or shared access to GPU servers for startups and researchers. Beyond this, however, it would be highly beneficial if foreign tech firms could be incentivized and encouraged to build cloud infrastructure and high-performance data centers in Nepal by utilizing hydropower for energy efficiency. This would also counter the backlash that most AI firms have been facing regarding their increasing carbon footprint

For Example: Vietnam’s National Digital Transformation Programme incentivizes 5G, cloud computing, and AI infrastructure expansion through government-private collaboration 195

Improve Digital Connectivity for Inclusive AI Adoption

Why?: AI requires robust and affordable internet access — that too 5G connectivity. Currently, despite the advanced introduction of the Digital

January 2026

Nepal Framework, 5G rollout has been stalled due to various geopolitical and technological challenges Additionally, Nepal also faces structural challenges, such as reliance on Indian upstream providers.

How?: Policy bottlenecks must be resolved to accelerate 5G deployment throughout the country in an equitable manner, as outlined in the National Broadband Policy and Digital Nepal Framework. Further, to reduce dependence on Indian ISPs, the government can explore alternatives such as satellite-based internet like that provided by Starlink.

For Example: Rwanda’s National Broadband Policy emphasized universal broadband access through fiber-optic expansion and rural mobile coverage, setting a precedent for inclusive digital growth in a low-income country context. In terms of the 5G rollout, Nepal can take notes from Thailand which was one of the first Southeast Asian nations to launch commercial 5G services. 196 197

Revamp AI Education and Close the Skills Gap

Why?: While Nepal has introduced various education programs regarding AI, it faces a shortage of skilled AI professionals who can apply what they’ve learned to their work Additionally, curriculum gaps and high brain drain are currently affecting AI

January 2026

development

How?: AI and computer science curricula at all levels need to align with global standards and stay up-to-date through updates every 6-12 months with industry input. Additionally, internships or bootcamps can be mandated as part of university degrees to ensure the applicability of what is taught. Moreover, partnerships with international organizations can be used to encourage AI literacy campaigns and build public awareness and demand.

For Example: Sri Lanka’s National Future Talent Initiative promotes ICT and AI education through public-private partnerships.198

Enhance Public-Private Collaboration and Diaspora Engagement

Why?: Nepal’s current policy supports public-private partnerships (PPPs) but lacks structured implementation Further, the Nepali diaspora’s progress in the field has not been tapped into

How?: The public and private sectors can co-invest in infrastructure, data labs, and research centers; lead digital literacy and cybersecurity initiatives; and support local AI innovations through challenge grants and sandboxes. Besides this, it is imperative to engage diaspora professionals through mentorships and co-investment platforms, considering various examples of trained AI diaspora individuals and companies

For Example: Vietnam’s Ministry of Education partnered with Microsoft to develop an ICT curriculum and digital inclusion strategies for underserved communities 199

Launch a National Data Strategy for AI Innovation

Why?: The building block of AI is data. Currently, Nepal does not have a strong framework to digitize, standardize, and access public data.

How?: There needs to be a National Data Portal with anonymized, labeled datasets for public use. In order to do this, public records need to be digitized and systematically organized. Further, the government can encourage ethical data sharing agreements between private firms, academia, and the public sector

For Example: The UK’s Office for National Statistics Data Science Campus provides publicly accessible datasets for research and AI training.200

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4.“Telecommunication Indicators Mangsir, 2082,” Nepal Telecommunications Authority, Accessed on January 6, 2025, https://www nta gov np/uploads/contents/NTA MIS %202082Mangsir pdf

5.Ibid.

6.“NT all set to distribute 3G postpaid,” myRepublica, February 10, 2010, https://myrepublica nagariknetwork com/news/nt-all-set-to-distribute-3gpostpaid

7.Krishana Prasain, “After 3 years, Nepal dusts off plan to launch 5G,” The Kathmandu Post, June 9, 2024, https://kathmandupost com/money/2024/06/09/after-3-years-nepal-dusts-offplan-to-launch-5g

8.“Government AI Readiness Index 2025,” Oxford Insights, Accessed on January 6, 2026, https://oxfordinsights com/wp-content/uploads/2025/12/2025Government-AI-Readiness-Index-2 pdf

9.Ibid.

10.“National Artificial Intelligence Policy 2025,” Ministry of Communication and Information Technology, 2025, https://mocit gov np/content/13077/nationalartifacial-intelligence%E2%80%93aci%E2%80%93policy%E2%80%932082/

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13 “Bachelor of Data Science (BDSc),” Kathmandu University, Accessed on January 6, 2026, https://ku edu np/program/bachelor-of-data-science

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20 “MPhil in Information and Communication Technology,” Edusanjal, Accessed on January 6, 2026, https://edusanjal.com/course/mphil-ict-nepal-open-university/

21.“Sixth Annual Nepal AI School,” Nepal Applied Mathematics and Informatics Institute for Research, Accessed on January 6, 2026, https://anais naamii org np/

22.“Microdegree™ in Artificial Intelligence,” Fusemachines Inc., Accessed on January 6, 2026, https://fuse.ai/ai-programs/microdegree-in-artificial-intelligence/

23 “ई-परामश (Digital Nepal Framework),” Ministry of Communication and Information Technology, April 14, 2019, https://mocit.gov.np/content/268/268-econsultations-digital-nepal/

24.“

” Ministry of Communication and Information Technology, August 19, 2025, https://mocit.gov.np/content/13077/national-artifacial-intelligence--aci--policy-2082/

25 Ibid

26.“South Asia Development Update, October 2025: Jobs, AI, and Trade,” World Bank, October 7, 2025, https://openknowledge worldbank org/entities/publication/94725cf6-f681-42c9acc7-63a076e0fc2b

27.Nirod Chandra Dahal & Yamnath Baral, “Reimagining Higher Education in Nepal: Challenges and Opportunities,” December 31, 2024, https://www nepjol info/index php/ej/article/view/83375/63708

28.“Code For Impact U.S.–Nepal Tech Innovation Hackathon Series,” Aadyanta Advisory, Accessed on January 6, 2026, https://aadyantaadvisory com/projects/code-for-impact

29 Ibid

30.“GEN AI Hackathon Calls for Innovators to Shape Nepal’s Future,” ICT Frame, May 6, 2024, https://ictframe.com/gen-ai-hackathon-calls/

31 “HACKDAY-Gen-AI Hackathon Finale,” Institute for Integrated Development Studies, Accessed on January 6, 2026, https://iids.org.np/events/hackday-gen-aihackathon-finale-2/

32 “Global IME Bank Concludes Nepal's First AI/ML Hackathon with Nationwide Participation,” ShareSansar, May 5, 2025, https://www.sharesansar.com/newsdetail/global-ime-bank-concludes-nepalsfirst-aiml-hackathon-with-nationwide-participation-2025-05-05

33 “Nepal Hacks @ SecurityPal: AI & Cybersecurity Challenge | March 2025,” ICT Frame, March 23, 2025, https://ictframe.com/nepal-hacks-securitypal/ January 2026

34.Outside and Ai4Growth Host Impact Hackathon with Rs. 25,000 Prize,” Edusanjal, Accessed on January 6, 2026, https://edusanjal com/event/outside-andai4growth-host-impact-hackathon/

35.“Hackathon,” Nepal Applied Mathematics and Informatics Institute for Research, Accessed on January 6, 2026, https://www naamii org/hackathon/

36.“NCIT Hackfest 2024,” Devpost, Inc., Accessed on January 6, 2026, https://ncithackfest-2024.devpost.com/

37 “National Idea Hunt,” Idea Studio Nepal, Accessed on January 6, 2026, https://ideastudio org np/national-idea-hunt/

38.“Idea Studio Nepal opens applications for Season 8,” Business 360°, November 17, 2024, https://www.b360nepal.com/detail/23829/idea-studio-nepal-opensapplications-for-season-8

39.“Seeding Innovations,” Aadyanta Advisory, Accessed on January 6, 2025, https://aadyantaadvisory.com/projects/seeding-innovations

40 Ibid

41.“Centers-Laboratories,” School of Engineering, Kathmandu University, Accessed on January 6, 2026, https://soe.ku.edu.np/centers-laboratories

42.“Boosting high-performance computing in Nepal,” CERN Courier, August 31, 2018, https://cerncourier com/a/boosting-high-performance-computing-in-nepal/

43.“Artificial Intelligence and Machine Learning Lab Cluster,” Pulchowk Campus, Institute of Engineering, Tribhuvan University, Accessed on January 6, 2026, https://doece pcampus edu np/virtual-lab/

44.Deepa Woli, “Driving innovation through digital agriculture: Digital Ag Nepal, 2024,” CIMMYT, August 30, 2024, https://www.cimmyt.org/news/driving-innovationthrough-digital-agriculture-digital-ag-nepal-2024/

45 “AI Association Nepal established to promote artificial intelligence: Stakeholders discuss AI policy,” Technology Khabar, February 10, 2025, https://www.technologykhabar.com/2025/02/10/192046/

46 Ibid

47.“Omdena and National Innovation Center Partner to Advance AI Education in Nepal,” Omdena, June 7, 2024, https://www.omdena.com/blog/omdena-andnational-innovation-center-partner-to-advance-ai-education-in-nepal

48 Krishana Prasain, “Nepal rolls out ambitious AI policy,” The Kathmandu Post, August 16, 2025, https://kathmandupost.com/money/2025/08/16/nepal-rolls-outambitious-ai-policy

49 “National Artificial Intelligence (AI) Policy,” Ministry of Communication and Information Technology, November 27, 2025, https://mocit.gov.np/content/13111/nationalai---policy---/

50 Sabita Karki and Rajeep Bahadur Karki, “Implicit AI Adoption: Descriptive Insights into How Nepalese Use AI without Awareness,” Elsevier Inc., March 6, 2025, https://papers.ssrn.com/sol3/papers.cfm?abstract id=5159486

51.Ibid.

52 Ibid

53.Sabita Karki and Rajeep Bahadur Karki, “Implicit AI Adoption: Descriptive Insights into How Nepalese Use AI without Awareness,” Elsevier Inc , March 6, 2025, https://papers.ssrn.com/sol3/papers.cfm?abstract id=5159486

54.Ibid.

55 Ibid

56.Alisha Sijapati, “Valley cafes go digital-first with ‘Made in Nepal’ technology,” The Kathmandu Post, August 14, 2018, https://kathmandupost com/valley/2018/08/14/valley-cafes-go-digital-first-withmade-in-nepal-technology

57.“SecurityPal Featured in Forbes: How AI and Human Expertise Are Redefining Security Reviews,” SecurityPal, Accessed on January 6, 2025, https://www securitypalhq com/blog/how-ai-and-human-expertise-areredefining-security-reviews

58.“Homepage,” Fusemachines Inc., Accessed on January 6, 2026, https://fusemachines com/

59.“AI/ML Opportunities in Nepal III,” Business 360°, December 16, 2020, https://www.b360nepal.com/detail/9588/ai-ml-opportunities-in-nepal-iii

60.“Diyo's Milestones at a Glance,” DIYO.AI, Accessed on January 6, 2026, https://diyo ai/#milestones

61.“Homepage,” Smart Karobaar, Accessed on January 6, 2026, https://smartkarobaar.com/

62 “Human in the Loop: Accelerating the AI Lifecycle,” CloudFactory, Accessed on January 6, 2026, https://www.cloudfactory.com/human-in-the-loop

63.Amrit Chimariya, “Nepal’s first ‘Intelligent Traffic Lights’ operational from Kupondole to Jawalakhel,” OnlineKhabar, December 17, 2024, https://english onlinekhabar com/nepals-first-intelligent-traffic-lightsoperational-from-kupondole-to-jawalakhel.html

64.Ibid.

65 “Smart traffic lights at seven places in capital,” Setopati, March 27, 2018, https://en.setopati.com/social/119627

66.Suman Pokharel, “Development in Digital Capitalism: Challenges and Prospects of Nepal,” KMC Research Journal, December 31, 2023, https://www nepjol info/index php/kmcrj/article/view/65080

67.“Government releases full version of Nagarik App,” The Himalayan Times, May 3, 2021, https://thehimalayantimes.com/business/government-releases-full-versionof-nagarik-app

68.“Homepage,” Nagarik App, Accessed on January 6, 2026, https://nagarikapp.gov.np/

69 “Govt enforcing single digital platform to minimize hassles faced by export and import traders,” myRepublica, January 20, 2021, https://myrepublica.nagariknetwork.com/news/govt-enforcing-single-digitalplatform-to-minimize-hassles-faced-by-export-and-import-traders

70.Tara Prasad Bhusal, “The Use of Artificial Intelligence and Machine Learning in the Nepalese Financial Sector,” Nepal Bank Employees’ Union, September 16, 2025, https://nebeu.org.np/use-of-artificial-intelligence-and-machine-learning-innepalese-financial-sector/

71 Ibid

72.Ibid.

73.Ibid.

74 Ibid

75 “Artificial Intelligence Guidelines,” Nepal Rastra Bank, December 7, 2025, https://www.nrb.org.np/contents/uploads/2025/12/AI-Guidelines.pdf

76.Tara Prasad Bhusal, “The Use of Artificial Intelligence and Machine Learning in the Nepalese Financial Sector,” Nepal Bank Employees’ Union, September 16, 2025, https://nebeu.org.np/use-of-artificial-intelligence-and-machine-learning-innepalese-financial-sector/

77 Ibid

78.Lal Mani Adhikari, “Emerging Trends of using Digital Tools including Artificial Intelligence in Health sector in Nepal: What Next?” NPRC Journal of Multidisciplinary Research, January 30, 2025, https://www nepjol info/index php/nprcjmr/article/view/74654

79.Ibid.

80.Ibid.

81 “National Guide for Use of Digital X-Ray with AI in Camp Settings,” National TB Control Center, Accessed on January 6, 2025, https://nepalntp.gov.np/? publications=national-guide-for-use-of-digital-x-ray-with-ai-in-camp-settings

82 Ibid

83 Ibid

84.Ibid.

85.Gokarna Dayal, “AI technology applies to TB screening in Baitadi for first time,” The Rising Nepal, April 12, 2025, https://risingnepaldaily com/news/60250

86.Ibid.

87.Ibid.

88 “Qure ai’s AI-Powered X-ray Solution in Nepal Seen as Crucial Tool in Global Fight Against TB,” Qure ai, Accessed on January 6, 2026, https://www.qure.ai/news press coverages/qure.ai-ai-powered-x-ray-solutionin-nepal-seen-as-crucial-tool-in-global-fight-against-tb

89 Ibid

90.Yugeshwor Koirala, “Artificially intelligent medicine,” Nepali Times, July 9, 2023, https://nepalitimes.com/here-now/artificially-intelligent-medicine 91 Ibid

92.Ibid.

93.“Education, Health and Information Technology Committee,” House of Representatives, Accessed on December 20, 2025, https://hr parliament gov np/en/committees/Education-Health-and-InformationTechnology-Committee/work-duty-authority

94.“Nepal Artificial Intelligence Concept Note,” Ministry of Communication and Information Technology, 2024, https://giwmscdntwo.gov.np/media/app/public/22/posts/1720155765 7.pdf

95.“National Artificial Intelligence Policy 2025,” Ministry of Communication and Information Technology, 2025, https://mocit gov np/content/13077/nationalartifacial-intelligence%E2%80%93aci%E2%80%93policy%E2%80%932082/

96.“Digital Nepal Framework,” Government of Nepal, Ministry of Communication and Information Technology, 2019, https://mocit gov np/content/968/digital-nepalframework/

97.Ibid.

98.“National ICT Policy,” Government of Nepal, Ministry of Communication and Information Technology, 2015, https://mocit gov np/content/984/national-ictpolicy-2015/ 99.Ibid.

100“Electronic Transactions Act, 2063 (2006),” Government of Nepal, Ministry of Law, Justice and Parliamentary Affairs, https://www.lawcommission.gov.np/en/wpcontent/uploads/2018/10/Electronic-Transactions-Act-2063-2006.pdf

101.“National Cyber Security Policy,” Government of Nepal, Ministry of Communication and Information Technology, 2023, https://mocit gov np/content/12768/nationalcyber-security-policy/

102.Ibid.

103“Right to Information Act, 2064 (2007),” Government of Nepal, Ministry of Law, Justice and Parliamentary Affairs, https://www.lawcommission.gov.np/en/wpcontent/uploads/2018/10/Right-to-Information-Act-2064-2007.pdf

104“Privacy Act, 2075 (2018),” Government of Nepal, Ministry of Law, Justice and Parliamentary Affairs, https://www lawcommission gov np/en/wpcontent/uploads/2019/07/Privacy-Act-2075-2018.pdf

105.“National Strategy for Artificial Intelligence,” National Planning Commission, Draft Version, 2024

106.UNESCO, “Artificial Intelligence and Education: Guidance for Policymakers,” UNESCO Publishing, 2021, https://unesdoc.unesco.org/ark:/48223/pf0000376709

107 UNESCO, “Ethical Implications of Artificial Intelligence,” UNESCO, 2022, https://www unesco org/en/artificial-intelligence/recommendation-ethics

108.World Economic Forum, “Global AI Action Alliance,” World Economic Forum, 2023, https://www.weforum.org/initiatives/global-ai-action-alliance

109OECD, “Artificial Intelligence in Society,” OECD Publishing, 2019, https://www.oecd.org/going-digital/ai/

110.OECD, “Recommendation of the Council on Artificial Intelligence,” OECD, 2019, https://legalinstruments oecd org/en/instruments/OECD-LEGAL-0449

111.United Nations, “Roadmap for Digital Cooperation,” United Nations SecretaryGeneral, 2020, https://www.un.org/en/content/digital-cooperation-roadmap/

112.World Bank, “Artificial Intelligence and Development,” World Bank Group, 2021, https://www worldbank org/en/topic/digitaldevelopment/brief/artificialintelligence January 2026

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