KATHMANDU, SEPTEMBER 22

The Asian Development Bank (ADB) has stated that Nepal is poised to experience economic improvement next year.

According to the recent Asian Development Outlook, Nepal's economy is expected to grow by 4.3 percent at market prices in fiscal year 2024, which is an increase from the estimated growth of 1.9 percent in fiscal year 2023. The Asian Development Outlook is ADB's flagship publication.

The press statement issued by ADB on September 20 highlighted that, 'With a 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. This move is expected to help reduce commercial interest rates and stimulate economic activities. Services sectors are expected to perform well, with expansions anticipated in real estate, wholesale and retail trade, and accommodation and food services.'

However, the report mentioned that agriculture growth may decline due to inadequate rainfall in June and erratic weather patterns, which have been further exacerbated by a lumpy skin outbreak in cattle.

Additionally, the report projects that annual average inflation is expected to decrease to 6.2 percent in fiscal year 2024, down from 7.7 percent in fiscal year 2023. This is attributed to subdued oil price increases and a decline in inflation in India, which is Nepal's primary source of imports.

The report also highlighted fiscal challenges that persist, noting that while the estimated fiscal deficit for fiscal year 2024 is moderate at 2.4 percent of GDP (significantly lower than the deficit of 6.1 percent in fiscal year 2023), the actual deficit could be substantially higher if the government does not meet its ambitious revenue target for fiscal year 2024. ADB's Principal Economist for Nepal, Jan Hansen, emphasized this point.

Furthermore, the report observed that external risks remain relatively well contained. Given 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 appears achievable.