Digital Nepal Framework 2.0 Research & Analysis: Nepal’s Digital Future

Executive Summary

The transition from the initial Digital Nepal Framework (DNF 1.0), promulgated in 2019, to the draft Digital Nepal Framework 2.0 (DNF 2.0) in 2025 marks a pivotal evolution in the governance and economic strategy of the Federal Democratic Republic of Nepal. This report provides an exhaustive analysis of DNF 2.0, situating it not merely as an IT policy but as a macro-economic necessity designed to transition Nepal from a remittance-dependent economy to a digital services hub.

Driven by the Ministry of Communication and Information Technology (MoCIT), DNF 2.0 is characterized by the “FAST” strategic approach—focusing on Foundational architecture, Access to digital services, Skills development, and Transformation of the digital economy. This recalibration arises from a rigorous audit of DNF 1.0’s implementation failures, which were plagued by siloed ministerial operations, lack of ownership, and chronic under-spending of capital budgets.

This analysis dissects the new framework’s expanded scope—now encompassing social security, disaster management, and climate resilience—and evaluates the feasibility of its ambitious targets, such as the “IT Decade” goal of exporting NPR 30 billion in services annually. Critically, the report examines the severe financial headwinds facing the framework, most notably the catastrophic cancellation of the $140 million World Bank Digital Nepal Acceleration (DNA) Project in mid-2024, which has left a significant funding vacuum.

By synthesizing data from government drafts, donor reports, private sector feedback, and civil society critiques, this document offers a comprehensive roadmap of the opportunities and systemic risks defining Nepal’s digital future.

The Strategic Imperative: Contextualizing Nepal’s Digital Pivot

The Geopolitical and Economic Necessity

Nepal’s unique geography as a landlocked nation sandwiched between two digital superpowers, India and China, has historically constrained its physical trade and logistics. However, the digital domain offers a mechanism to transcend these physical barriers. The government’s pivot to DNF 2.0 is driven by the recognition that while physical connectivity (roads, rail) is capital-intensive and slow, digital connectivity offers a faster route to global economic integration.

The urgency is compounded by Nepal’s macroeconomic fragility. With a heavy reliance on remittances—which are vulnerable to global geopolitical shifts—the state is desperate to diversify its foreign currency sources. The “IT Decade” (2024–2034) declaration is a direct response to this, aiming to utilize Nepal’s demographic dividend (a young, increasingly connected population) to generate service exports.

The Legacy of DNF 1.0: An Autopsy of Failure

To understand DNF 2.0, one must analyze the structural collapse of its predecessor. Launched in 2019 by Prime Prime Minister K.P. Sharma Oli, DNF 1.0 was visionary but operationally flawed. It identified 80 initiatives across eight sectors but failed to provide the “connective tissue” to make them work.

The primary failure modes identified in retrospective government audits include:

• The Silo Effect: Initiatives were parked under specific ministries (e.g., Smart Agriculture under the Ministry of Agriculture) without a centralized mandate. Bureaucratic turf wars meant that data sharing—essential for digital governance—was non-existent. The Ministry of Health’s databases could not talk to the National ID system, rendering digitization cosmetic rather than structural.
• Infrastructure Illusion: The framework presumed a level of connectivity that did not exist. While mobile penetration was statistically high (over 100% due to multiple SIM ownership), effective broadband penetration in rural areas was low (17%), and digital literacy was abysmal (31%). This “digital divide” meant that e-services were accessible only to the urban elite in Kathmandu and Pokhara.
• The “Paper-Digital” Hybrid: Without legal reform, civil servants continued to demand physical copies of documents even for “digital” services. The lack of a legally binding “digital-first” administrative procedure act meant that digitization added a layer of work rather than reducing it.

The Architecture of DNF 2.0: The FAST Framework

DNF 2.0 abandons the “shopping list of projects” approach in favor of an ecosystem-building strategy. This is codified in the FAST framework, which prioritizes the underlying enablers required for any sectoral initiative to succeed.

Future-Ready Digital Foundations (F)

This pillar represents the invisible infrastructure of the state—the “backend” systems that citizens rarely see but on which all services depend.

The Trinity of Digital Identity

The cornerstone of DNF 2.0 is the National Identity Card (NID). Unlike DNF 1.0, which viewed the NID as just another ID card, DNF 2.0 positions it as the “Single Source of Truth” for all government transactions. The strategy involves:

• Biometric Integration: Linking the NID biometric database with the Nagarik App, creating a unified digital wallet. This allows citizens to authenticate themselves remotely for banking, voting, and social security without physical presence.
• Service Gateway: The Nagarik App has evolved from an informational tool to a transactional gateway. Recent updates in 2025 allow for the “Nagarik Pahichan Dwar” (Citizen Identity Gate), enabling users to open bank accounts via QR code scanning, effectively bypassing physical KYC (Know Your Customer) requirements.
• Cross-Ministerial Mandate: The new framework mandates that all other functional IDs (Driving License, Poor ID, Health Insurance Card) must derive their validation from the NID, eliminating the “multiple card” syndrome that plagues Nepali bureaucracy.

Data Sovereignty and Government Cloud

A critical strategic shift in DNF 2.0 is the emphasis on Data Sovereignty. Currently, a significant portion of Nepal’s digital traffic and data hosting occurs in India or Singapore, leading to capital flight (estimated at NPR 4.7 billion annually for bandwidth/hosting) and jurisdiction risks. DNF 2.0 proposes:

• Government Integrated Data Centre (GIDC) Expansion: Upgrading the GIDC and establishing a disaster recovery site in Hetauda to ensure resilience.
• Private Sector Partnership: For the first time, the government is explicitly seeking public-private partnerships (PPP) to build hyperscale data centers. The 2025/26 budget includes feasibility studies for a data center in the Mid-Hill region, leveraging the cooler climate for natural cooling efficiency.

Access to Digital Services (A)

This pillar addresses the physical layer of the internet. The government recognizes that digital services are useless if the “pipe” is broken.

The “Last Mile” Fiber Imperative

While the “Middle Mile” (district-to-district connectivity) has improved, the “Last Mile” (connection to individual households) remains expensive and sporadic in mountain districts.

• Universal Service Obligation: The framework leverages the Rural Telecommunication Development Fund (RTDF) to subsidize ISPs expanding into commercially unviable areas.
• IFC and WorldLink Partnership: A landmark $29 million investment by the IFC and Standard Chartered into WorldLink Communications aims to expand fiber networks to these underserved regions. This private-sector-led expansion is a key pillar of the “Access” strategy, reducing reliance on the state-owned Nepal Telecom.

5G: The Industrial Enabler

The transition to 5G is framed not as a consumer luxury but as an industrial necessity. DNF 2.0 outlines 5G as the backbone for:

• Smart Cities: Real-time traffic management and pollution monitoring in the Kathmandu Valley.
• Agri-Tech: IoT sensors for soil moisture and precision farming in the Terai belt.
• Rollout Status: While trials have begun in Kathmandu and Pokhara, the full commercial rollout is hampered by the high cost of handsets and the delayed spectrum auction.

Skills and Digital Literacy (S)

The most severe bottleneck identified in DNF 2.0 is “Humanware.” Nepal suffers from a dual crisis: a lack of basic digital literacy among the general population and a severe “brain drain” of advanced IT professionals.

The “Digital Divide” and Community Inclusion

The framework adopts a “leave no one behind” approach, heavily influenced by UN Sustainable Development Goals (SDGs).

• Community Learning Centres (CLCs): Partnering with UNESCO and the Center for Education and Human Resource Development (CEHRD), the government is retraining facilitators in over 2,000 CLCs. These centers serve as digital hubs for rural women and marginalized communities, teaching them to use the Nagarik App and access e-banking.
• Disability Inclusion: Responding to critique from disability rights organizations, DNF 2.0 explicitly incorporates “Digital Accessibility” standards.

This ensures that government websites and apps are navigable by the visually impaired, a massive oversight in DNF 1.0.

2.3.2 Building the “IT Decade” Workforce

To support the export target of NPR 30 billion, the education system is being re-engineered.

• Curriculum Overhaul: Integrating coding and AI literacy into the secondary school curriculum.
• Government Upskilling: The MoCIT has launched mandatory digital fluency training for civil servants to ensure they are not the bottleneck in the digital workflow.

2.4 Transformation of the Digital Economy (T)

This pillar focuses on monetization—turning digital activity into GDP.

2.4.1 The Export Strategy

The government has declared 2024–2034 the “IT Decade.” The strategy is to position Nepal as a high-quality, low-cost destination for software development and Business Process Outsourcing (BPO), similar to the early stages of the Indian IT boom but with a focus on niche high-value skills like AI labeling and specialized coding.

• Incentives: The framework proposes tax holidays and simplified foreign exchange regulations for IT export companies, allowing them to retain earnings in foreign currency accounts—a major demand of the private sector.

2.4.2 The Fintech Revolution

Moving beyond simple wallets, DNF 2.0 envisions a “Cashless Nepal.”

• Interoperability: The Nepal Rastra Bank (NRB) is enforcing full interoperability between payment providers (eSewa, Khalti, IME Pay) and the banking system through the National Payment Switch.
• CBDC Exploration: The NRB has announced plans to introduce a Central Bank Digital Currency (CBDC) by 2026, aiming to reduce the cost of physical currency management and improve monetary policy transmission.

3. Sectoral Deep Dives: Operationalizing the Framework

DNF 2.0 expands the sectoral scope to include resilience and social safety nets, reflecting a maturation of the government’s understanding of digital utility.

3.1 Agriculture: From Subsistence to Smart Farming

Agriculture employs 66% of the population but contributes only one-third of GDP. DNF 2.0 aims to close this productivity gap.

• Data-Driven Farming: The framework proposes a “National Agricultural Market Information System” (NAMIS). This centralized database will provide real-time pricing, reducing the information asymmetry that allows middlemen to exploit farmers.
• AI Pilot Projects: In collaboration with international partners, pilot projects are using AI and computer vision to detect crop diseases via smartphone photos. This “lab in a pocket” approach is crucial for extension services in remote areas.
• Land Records: Digitizing the “Lalpurja” (land ownership certificate) remains a priority to reduce land fraud and enable farmers to use land as collateral for loans more easily.

3.2 Health: The Telemedicine Imperative

The COVID-19 pandemic acted as a stress test that the Nepali health system failed. DNF 2.0 attempts to build resilience.

• Telemedicine Grid: The “Healthy Nepal, Disease-Free Nepali” program (budget: NPR 95.81 billion) includes specific allocations for expanding telemedicine centers in rural municipalities. These centers connect local health posts with specialists in Kathmandu via high-speed video links.
• Electronic Health Records (EHR): The goal is a unified patient history accessible by any government hospital. This data will be anonymized to create an “Open Data Framework” for public health research, allowing for better tracking of disease outbreaks like Dengue or Cholera.

3.3 Tourism: The Digital Nomad Economy

Nepal’s tourism strategy is pivoting from “volume” to “value.”

• Digital Nomad Visas: DNF 2.0 supports the creation of policy frameworks (visa, internet infrastructure) to attract long-term remote workers. The focus is on upgrading connectivity in trekking hubs like the Annapurna Circuit and Everest Base Camp.
• AI-Driven Promotion: Utilizing AI to analyze global travel trends and target niche markets (e.g., wellness tourism, spiritual retreats) with precision marketing campaigns, moving away from generic “Visit Nepal” slogans.

3.4 Governance: The E-Governance Commission

The E-Governance Commission, established under the Prime Minister’s Office, is the “architect” of this transition. Its mandate is to “Re-engineer, then Digitize.”

• Top 10 Services: The commission has prioritized the end-to-end digitization of the top 10 most frequented public services (Passport, License, National ID, Land Tax, Company Registration, etc.) within 1-3 years.
• Paperless Government: A shift toward “born-digital” documents, where the digital record is the primary legal record, and the paper is merely a copy.

3.5 New Sectors: Disaster, Climate, and Social Security

The addition of these sectors acknowledges Nepal’s vulnerability.

• Early Warning Systems: Using IoT sensors on glacial lakes and river basins to provide real-time flood warnings to downstream communities via SMS and app notifications.
• Social Security Digitization: The distribution of social security allowances (for the elderly, widows, etc.) is being migrated to digital banking channels linked to the NID. This aims to eliminate “ghost beneficiaries,” a massive source of leakage in the current cash-based system.

4. The Financial Reality: Budget, Investment, and the World Bank Crisis

The ambition of DNF 2.0 is undeniable; however, its financial viability is its Achilles’ heel. The fiscal year 2025/26 budget and recent international aid developments paint a complex picture of funding constraints.

4.1 The World Bank DNA Project Cancellation: A Catastrophic Failure

The most significant blow to DNF 2.0 was the cancellation of the Digital Nepal Acceleration (DNA) Project in mid-2024.

• The Project: A $140 million concessionary loan (IDA Credit) designed to fund the backbone of the Digital Nepal initiative, approved in June 2022.
• The Collapse: By May 31, 2024, the project was cancelled with “zero disbursement.” World Bank documents cite “unsatisfactory implementation” and “no progress” across all components. Specifically, the government failed to hire key environmental and social safeguard specialists and could not operationalize the Project Management Unit (PMU).
• The Implication: This cancellation is not just a loss of money; it is a loss of credibility. It signals to other donors (ADB, USAID) that Nepal’s “absorptive capacity”—the ability to effectively spend development funds—is critically low. The government is now forced to fund these initiatives from its own treasury, which is already under strain.

4.2 Government Budget Allocations (2025/26)

In the wake of the DNA project collapse, the government’s 2025/26 budget reflects a “damage control” approach.

• Total Allocation: The Ministry of Communication and Information Technology (MoCIT) received NPR 7.72 billion.
• Infrastructure Specifics: NPR 740 million is specifically allocated for “digital infrastructure and ecosystem development”. This amount is paltry compared to the lost $140 million (approx. NPR 18 billion) from the World Bank.
• Strategic Projects: Funding is earmarked for an IT Park in Kathmandu and a feasibility study for a Data Center in the Mid-Hills. However, without external financing, the pace of these projects will inevitably slow.

4.3 Private Sector and FDI

To fill the gap, DNF 2.0 relies heavily on the private sector.

• FDI Interest: Despite the challenges, foreign investors are showing interest, particularly in the ISP sector (e.g., the IFC deal with WorldLink).
• IT Export Revenue: The government is banking on the “IT Decade” export target of NPR 30 billion to generate foreign currency reserves, effectively hoping the sector can self-fund its growth.

5. Governance and Implementation: The New Command Structure

5.1 The Digital Transformation Council

A high-level Digital Transformation Council has been proposed, likely chaired by the Prime Minister or the Minister of Communication. This council aims to have the political authority to override inter-ministerial disputes. Its role is to set priorities, monitor progress, and ensure that the Ministry of Agriculture actively cooperates with the Ministry of Communication on ag-tech projects, breaking the traditional silos.

5.2 The Role of the Private Sector (CAN Federation)

The Computer Association of Nepal (CAN) Federation acts as the primary voice of the private sector. Their involvement in drafting DNF 2.0 has been substantial.

• Demands: They have successfully lobbied for “startup-friendly” policies, including tax holidays and the removal of the minimum foreign investment threshold (NPR 20 million) which stifles small tech FDI.
• Reaction: The private sector is cautiously optimistic but remains skeptical about implementation, citing the frequent government changes and policy instability as major risks.

6. Emerging Technologies: AI and the Future

DNF 2.0 is future-proofed through the integration of emerging tech policies.

6.1 National AI Policy 2025

Endorsed in August 2025, this policy governs the use of Artificial Intelligence.

• Sovereign AI: There is a strategic push to develop “Nepali AI”—Large Language Models (LLMs) trained on Nepali text. This is crucial for preserving the language and ensuring that AI-driven government services are accessible to non-English speakers.
• Banking Regulation: The Nepal Rastra Bank is drafting specific regulations for AI in banking to prevent algorithmic bias in lending and ensure financial stability.

6.2 Cybersecurity and Data Privacy

With increased digitization comes increased vulnerability.

• Cybersecurity Centre: The establishment of a National Cyber Security Centre is underway to monitor threats.
• Legal Gaps: A major criticism from civil society is the lack of a comprehensive Data Protection Act.

The “Open Data” initiatives and the massive collection of biometric data for the NID are proceeding in a legal grey zone regarding privacy rights. Activists fear this data could be misused for surveillance, especially given provisions allowing intelligence agencies to monitor communications without court orders.

Strategic Recommendations

Based on the analysis of DNF 2.0’s potential and the failures of DNF 1.0, the following strategic imperatives emerge:

• Resolve the Absorptive Capacity Crisis: The government must radically reform its procurement acts to allow for faster decision-making. The failure of the World Bank DNA project proves that money is not the problem; the mechanism to spend it is.
• Enact the Data Protection Act: To attract high-quality BPO work and gain citizen trust, Nepal must pass a GDPR-aligned data privacy law immediately. The current vacuum is a liability.
• Empower the Digital Transformation Council: This body must have statutory power, not just advisory power. It needs the authority to freeze the budgets of ministries that fail to digitize their services according to the roadmap.
• Focus on the “Last Mile”: 5G in Kathmandu is vanity if rural municipalities are offline. The Universal Service Obligation funds must be deployed aggressively to subsidize rural fiber access.

Conclusion

Digital Nepal Framework 2.0 is a comprehensive, sophisticated document that correctly identifies the structural flaws of the past. By shifting focus from “projects” to “ecosystems” (the FAST approach), it offers a viable path for Nepal to leapfrog into the digital age. The vision of an “IT Decade” exporting billions in services is ambitious but plausible given Nepal’s talent pool.

However, the shadow of the World Bank DNA project cancellation looms large. It is a stark reminder that in Nepal, policy excellence is often undone by implementation paralysis. For DNF 2.0 to succeed where DNF 1.0 failed, the government must demonstrate a new level of administrative discipline, proving that it can build the digital rails for a prosperous future.

Annex: Comparative Analysis of Key Metrics

Metric	Digital Nepal Framework 1.0	Digital Nepal Framework 2.0
Core Philosophy	Project-based (80 Initiatives)	Ecosystem-based (FAST Pillars)
Key New Sectors	N/A	Social Security, Disaster Mgmt, Climate Change
Governance Body	Decentralized (Ministry-led)	Digital Transformation Council (Centralized)
IT Export Target	N/A	NPR 30 Billion / Year
Job Creation	General economic growth	500,000 Direct IT Jobs
Key Funding Failure	Under-utilization of budget	Cancellation of WB DNA Project ($140M)
Flagship App	Nagarik App (Beta)	Nagarik App (Transactional Gateway)