Renowned for its majestic Himalayas, Nepal is rich in its geographic, natural, and cultural diversity. Nepal is divided into three broad geographic areas: the mountain region, the hill region, and the Terai region. Moving from east to west, the three regions lie parallel as continuous ecological belts, and are bisected by the country’s river system. Nepal is a relatively small country, measuring roughly 650 kilometers long by 200 kilometers wide, with a total land mass of 147,181 square kilometers. Situated between two Asian giants – China and India – Nepal has been characterized as a “yam caught between two rocks”. Since it is a landlocked country, Nepal is heavily dependent on India for transit facilities and access to the sea (Bay of Bengal) for delivery of its goods, even those coming from China.

1.2 Nepal has a population of 25 million, with approximately 85% of its population living in rural areas. The population is growing at a rate of 2.3% per year, and the ratio of population to arable land is one of the highest in the world. Poverty is worst in the remote mid-western and far-western districts of the country, where the population has limited access to basic amenities such as paved roads, market centers, and health facilities. Life expectancy has increased to 60 years, but is still lower than in neighboring South Asian countries. Life expectancy for women is lower than for men due to high maternal mortality. Infant mortality rates are among the highest in the region.

1.3 For the past decade, Nepal's development has been seriously constrained by political instability and violent insurgency. As a result of political and security problems, there has been a major disruption of livelihoods for millions of rural households, a significant increase in population migration to urban areas, and a steady loss of economic productivity. During the 1990s the gross domestic product (GDP) growth rate averaged around 5%. However, since 2001, with the intensification of the conflict and slowed momentum in exports, the growth rate has been averaging only around 3%.

1.4 Much of Nepal’s growth has been historically dependent on the direct and indirect use of its rich and diverse natural resource base – agriculture, forestry, fisheries, and tourism. While still relatively small, the emerging drivers of growth are coming from the service sector and small and medium-sized enterprises in urban and peri-urban areas. It has been estimated that the key drivers of growth over the last year were construction, trade, restaurants, and hotels. In this context of resurgent growth, the policy and institutional framework for environmental governance will play.