KATHMANDU: Artificial intelligence (AI) is beginning to reshape labour markets across South Asia, slowing hiring in some sectors while creating new opportunities for workers and service exporters, according to a new report by the World Bank.
The World Bank’s South Asia Economic Update: Adopting AI for Growth, released on Tuesday, says AI adoption is increasing across the region, although it remains significantly lower than in advanced economies.
The report says the impact of AI is already visible in the business process outsourcing (BPO) and information and communications technology (ICT) sectors, which account for a significant share of South Asia’s service exports.
For years, companies in South Asia, including Nepal, have provided services to clients in the United States and Europe. These services include customer support, data processing, software development, accounting, web development and payroll processing.
However, the growing use of AI is creating a risk of “reshoring” some activities that were previously outsourced to South Asian countries. Foreign companies can increasingly use AI to perform certain business functions internally, potentially reducing demand for lower-value and highly automatable services.
The World Bank said exporters operating in sectors where AI can easily substitute for human labour could face declining demand if foreign buyers use AI to bring previously outsourced functions back in-house.
At the same time, the report highlights new opportunities for South Asian economies. AI is increasing demand for workers with specialised technology skills and could help local companies move towards higher-value services that complement AI rather than compete directly with it.
Jobs requiring AI-related skills currently command a wage premium of nearly 30 percent compared with other white-collar jobs, according to the report.
The World Bank also noted that exports from BPO and ICT sectors continue to grow despite a slowdown in hiring following the emergence of generative AI. Firms are increasingly reporting productivity gains while demand for AI-related skills is rising.
World Bank Group Chief Economist for Asia Franziska Ohnsorge said AI could significantly boost productivity and create new sources of economic growth across South Asia.
“The adoption of AI has the potential to transform South Asia’s development trajectory by boosting labour productivity, expanding export opportunities, and improving public service delivery,” she said. However, governments need to address foundational gaps to fully benefit from the technology.
According to the report, around 15 percent of workers in South Asia are in jobs where AI and human labour have strong complementarities, meaning AI could increase their productivity.
By comparison, around 7 percent of jobs are highly exposed to AI without strong complementarity and therefore face a greater risk of automation. The figure is lower than the 15 percent exposure rate recorded in other emerging-market and developing economies.
The relatively low exposure in South Asia is partly attributed to the region’s large share of agricultural, manual and low-skilled employment, which is less susceptible to AI-driven automation.
The report says moderately educated and younger workers could face greater displacement risks, while highly educated and experienced workers may have more opportunities to benefit from AI-driven productivity gains.
For Nepal’s technology sector, the changing labour market highlights the importance of developing skills that complement AI, said Gaurav Raj Pandey, former president of the Nepal Association for Software and IT Services Companies (NAS-IT).
According to Pandey, workers will increasingly need skills such as using AI tools, testing and validating AI-generated outputs, working with data and applying domain-specific knowledge to design practical solutions.
He said declining costs associated with developing digital systems and processing data were encouraging more companies to adopt AI and digital services. This could create new opportunities for countries such as Nepal to expand their IT and digital service exports.
Pandey also pointed to the rapidly expanding global technology market as a potential opportunity for Nepal.
“The global economy was worth around $118 trillion in 2025. It is projected to nearly double to more than $200 trillion over the next 15 years,” he said.
He added that global IT spending is estimated at around $6.3 trillion in 2026, including approximately $3.3 trillion on software and IT services. By 2040, technology spending could reach between $12 trillion and $15 trillion.
According to Pandey, the rapid expansion of AI and digital transformation is expected to drive significant increases in corporate technology spending.
For Nepal, he said, this could create an opportunity to expand IT service exports, generate foreign currency and develop new employment opportunities in higher-value digital services.
The World Bank report suggests that while AI will create challenges for some traditional jobs, countries that invest in digital infrastructure, skills development and AI-complementary capabilities could position themselves to benefit from the next phase of the global digital economy.
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