KATHMANDU, AUGUST 16

Nepal's economy expanded 5.84% in the financial year through mid-July, helped partly by a pickup in tourist inflows, the central bank said on Tuesday, while cautioning over inflation and pressure on foreign exchange reserves.

GDP had grown 4.25% in the previous year, after contracting 2.37% a year before that.

The increased growth offers some relief to Prime Minister Sher Bahadur Deuba's government, which faces national elections in November amid concerns over higher inflation and rising food and energy prices. Read full story

Sky-high prices for crude oil, coal and edible oils in the wake of Russia's invasion of Ukraine have battered Nepal's economy, just as it gradually recovers from a downturn in tourism during the pandemic.

The central bank last month raised its key interest rate 1.5 percentage points to 8.5% to contain inflation.

The total number of tourist arrivals increased more than five-fold to 370,906 in 2021/22, from 70,123 in the previous year, while remittances from Nepali workers overseas rose 2.2% to $8.33 billion, data released by the Nepal Rastra Bank showed.

The industrial sector grew by 10.19% compared with 4.51% in the previous year, while services - which account for more than 60% of the economy - expanded 5.93%, compared with 4.19%.

However, growth of farm output, which contributes about one-fourth of GDP, slowed to 2.30% from 2.85%.

Annual retail inflation eased to 8.08% from 8.56% a month earlier, helped by lower increases in food and commodity prices.

Central bank governor Maha Prasad Adhikari told Reuters this month there was no need to approach the International Monetary Fund (IMF) for a fresh loan as pressure on foreign exchange reserves is easing.

Gross foreign exchange reserves decreased 18.9% to $9.54 billion in mid-July from $11.75 billion a year before, sufficient to cover imports for 6.9 months, bank data showed.

The central bank says the country must maintain enough reserves to support imports for seven months.