KATHMANDU, SEPTEMBER 20

The Asian Development Bank (ADB) has revised down its projection for Nepal's economic growth for the current fiscal year.

Unveiling its Asian Development Outlook (ADO) report today, ADB has forecast Nepal's economy will grow by 4.3 per cent in this fiscal year 2023-24, a downward revision from five per cent projection made in its April edition of ADO.

'This reflects weaker projected growth in the major advanced economies than in April baseline forecasts and the need to continue guarded macroeconomic policies and strengthen structural reform,' the report states.

The revised projection for the current fiscal is, nevertheless, a significant improvement from the estimated 1.9 per cent growth in fiscal 2022-23, which was also a sharp mark down from 4.1 per cent growth estimate for the last fiscal year made in April.

According to the ADO report, the Nepal Rastra Bank, the central bank of Nepal, has proactively adjusted its monetary policy to stimulate economic activities. This includes a 50 basis point reduction in the policy rate, now at 6.5 per cent. This move is expected to lower commercial interest rates, ultimately boosting economic growth.

Additionally, the report anticipates a moderation in inflation, with an annual average inflation rate of 6.2 per cent in fiscal year 2023-24, down from 7.7 per cent in fiscal year 2022-23.

This decline can be attributed to the factors such as subdued oil prices and reduced inflation in India, which is Nepal's primary source of imports.

The report says the services sector is expected to perform well, driven by expansions in real estate, wholesale and retail trade, accommodation, and food services.

However, it warned that agriculture growth may face challenges due to deficient rainfall in June and erratic weather patterns, compounded by a lumpy skin outbreak in cattle.

'Despite some progress in restoring the price and external sector stability, fiscal challenges persist. While the estimated fiscal deficit for fiscal year 2023-24 is moderate at 2.4 per cent of GDP, much lower than the deficit of 6.1 per cent in the fiscal year 2022- 23, the actual deficit could be substantially higher if the government is unable to meet its ambitious revenue target for the fiscal year 2023-24,' cautioned ADB's Principal Economist for Nepal, Jan Hansen.

As per the report, external risks are relatively contained due to recent trends and the central bank's prudent monetary policy.

It further says that the goal of maintaining foreign exchange reserves equivalent to at least seven months of imports appears achievable, supported by stable remittances and increased imports. Likewise, as growth revives in fiscal year 2023-24, the current account deficit is expected to widen to 1.8 per cent of GDP.

The latest edition of ADB's flagship report has, however, cautioned about potential economic risks in fiscal year 2023-24, stemming from authorities' adoption of contractionary policies to combat rising prices, amid geopolitical tensions that could hinder consumption, domestic production, and overall economic growth.

A version of this article appears in the print on September 21, 2023, of The Himalayan Times.