KATHMANDU, APRIL 6

Nepal's economy is anticipated to grow by 3.9 per cent (at market prices) in fiscal year 2021-22 from an estimated 2.3 per cent growth in fiscal 2020- 21, says the latest Asian Development Outlook (ADO) 2022, the flagship economic publication of the Asian Development Bank (ADB), and its Macroeconomic Update.

Growth is expected to rebound on the back of the ongoing vaccination campaign against the coronavirus disease (COVID-19) pandemic to control infections, fostering a gradual normalisation in economic activity and a steady path to higher growth supported by accommodative macroeconomic policies.

'However, slowing growth in advanced economies exacerbated by the Russian invasion of Ukraine, along with disrupted trade flows and higher oil and other commodity prices, is expected to push inflation and may exert further pressure on Nepal's balance of payments and foreign exchange reserves,' said ADB Country Director for Nepal Arnaud Cauchois.

Agriculture was previously expected to grow favourably as paddy plantation had been promising amid abundant rainfall during the 2021 summer monsoon. However, unexpected rains and floods in mid-October damaged readyto-harvest crops, which shrank paddy output by about nine per cent this fiscal year.

Industry growth is expected to edge up to 4.1 per cent in fiscal 2021-22 on increased consumer and investment demand.

Services will likely grow by 5.2 per cent as wholesale and retail trade, transport, and financial services have picked up. International tourism remained depressed in 2021 but will likely gradually recover if the COVID-19 situation remains under control.

Inflation in fiscal year 2021- 22 is forecast to average 6.5 per cent, up from 3.6 per cent in fiscal 2020-21, reflecting the transmission of higher global oil prices and subsequent higher transportation costs.

The recent uptick in petroleum and commodity prices, owing to the Russian invasion of Ukraine, has added further inflationary pressure.

The current account deficit is expected to further widen to 9.7 per cent in fiscal year 2021- 22 from eight per cent of gross domestic product (GDP) in fiscal 2020-21 due to increased import growth, a low export base, and subdued workers' remittances.

GDP growth at five per cent is envisaged for fiscal year 2022-23 on the expectation that vaccination against COV- ID-19 will continue to progress, enabling further revival of economic activities that have gradually picked up since fiscal 2020-21.

Inflation is forecast to marginally decline to 6.2 per cent in fiscal 2022-23, reflecting a better harvest, smoother supply chain distribution, relatively subdued oil prices, and a modest decline in India's inflation.

The current account deficit is expected to moderate to 6.1 per cent of GDP in fiscal year 2022-23 as monetary policy is likely to be less expansionary, COVID-19-related imports will have substantially decreased, and increased hydroelectricity generation eases fossil fuel consumption.

Downside risks to the outlook centre on exogenous shocks such as emergence of strong, new coronavirus variants, intensification of the current global turmoil, and recurrence of calamities like floods, landslides, and earthquakes, which have devastated lives and livelihoods in the past.

In terms of the South Asia region, the growth is projected to slow to seven per cent in 2022, before picking up to 7.4 per cent in 2023. The subregion's growth dynamics are largely driven by India and Pakistan, as per the ADO.

Growth in India is forecast at 7.5 per cent this year and eight per cent in 2023, driven by strong investment growth over the forecast horizon. Pakistan's growth is forecast moderating to four per cent in 2022 on weaker domestic demand from monetary tightening and fiscal consolidation before picking up to 4.5 per cent in 2023.

Other economies will see varying growth trajectories.

Bangladesh's rapid growth in 2021 will continue into 2022 and 2023, and growth will accelerate in Nepal and Bhutan.

After a vigorous rebound in 2021, growth in Maldives will slow but remain strong, supported by the recovery in global tourism.

Weaker growth is expected in Sri Lanka as consumption and investment remain muted due to monetary policy tightening, supply shortages, and inflationary pressures.

Moreover, the report has said varying growth outlooks among subregions will translate into differing recovery paths.

A version of this article appears in the print on April 7, 2022, of The Himalayan Times.