ADB estimates economic growth by 4.3%

The Asian Development Bank has projected Nepal’s economy to grow by 4.3 percent, at market prices, in fiscal year 2023/2024.

This is up from an estimated growth of 1.9 percent in FY 2022/2023, says the Asian Development Outlook (ADO) September 2023, the latest edition of the ADB's flagship publication.

With moderation in inflation and comfortable foreign exchange reserves, the Nepal Rastra Bank adjusted its monetary policy stance by lowering the policy rate by 50 basis points to 6.5 percent, which is expected to help lower commercial interest rates and stimulate economic activities, states the report while adding that services are expected to perform well with expansions coming from real estate, wholesale and retail trade and accommodation and food services. Agriculture growth may however decelerate owing to deficient rainfall in June and erratic weather patterns, further aggravated by lumpy skin outbreak in cattle.

The report also projects annual average inflation to fall to 6.2 percent in the current FY from 7.7 percent in the previous fiscal year on subdued oil price increases and a decline in inflation in India, Nepal’s main source of import.

“Despite some progress in restoring price and external sector stability, fiscal challenges persist. While the estimated fiscal deficit for FY2024 is moderate at 2.4% of GDP, much lower than the deficit of 6.1% in FY2023, the actual deficit could be substantially higher if the government does not meet its ambitious revenue target for FY2024,” said ADB Principal Economist for Nepal Jan Hansen.

External risks remain relatively well contained. Considering the recent trends and the central bank’s prudent monetary policy stance, the target of maintaining foreign exchange reserves sufficient to sustain at least seven months of imports seems achievable. Amid stable remittances and higher imports, the current account deficit is expected to widen to 1.8 per cent of GDP as growth revives in current FY.

Downside risks to the economic outlook in the FY may arise from more contractionary economic policy by the authorities to stem price rises given the uncertainties centered around geopolitical tensions. This may dampen consumption and domestic production and adversely affect growth, adds the monthly report.