KATHMANDU, APRIL 9

Nepal's economy is expected to grow by 4.4 percent in fiscal year (FY) 2025, up from an estimated 3.9 percent in FY2024, according to the Asian Development Outlook (ADO) April 2025, released by the Asian Development Bank (ADB).

"Nepal's improved growth forecast is being spurred by a gradual recovery of domestic demand, addressing of reforms in the private sector, and further revitalization of tourism and related services," said ADB Country Director for Nepal Arnaud Cauchois.

Key economic sectors such as manufacturing and construction, which contracted in FY2024, are projected to rebound due to stable oil and raw material prices, improved liquidity, and declining interest rates, enabling greater credit access to production sectors, he added.

The ADB projects GDP growth to reach 5.1% in FY2026, supported by government efforts to improve capital budget execution, boost tourism, and enhance agricultural productivity through mechanization and improved irrigation, assuming a favorable monsoon.

Inflation is expected to moderate in both FY2025 and FY2026 and is likely to remain within the Nepal Rastra Bank's ceiling, assuming a normal harvest and modest inflation trends in India, Nepal's major trade partner, the ADO noted.

The ADO further states that Nepal's external sector gained stability in FY2024 with higher foreign exchange reserves and a prudent monetary stance. "Despite higher imports in the latter half of FY2025, strong remittance inflows are expected to keep the current account surplus at 0.1% of GDP. In FY2026, a deficit equal to 2.4% of GDP is projected as goods and service imports accelerate," it forecasted.

In FY2026, however, a current account deficit of 2.4% of GDP is projected due to a rise in goods and service imports.

The ADB warns that risks to Nepal's economic outlook are tilted to the downside. Potential global economic slowdowns caused by rising tariffs may reduce tourism revenue and remittance inflows, while a decline in foreign aid and under-execution of capital budgets could further hinder growth.

The growth projections were finalized prior to the April 2 announcement of new tariffs by the U.S. administration, and therefore reflect only previously existing trade policies. However, the ADO April 2025 includes an analysis of how higher tariffs may affect economies across Asia and the Pacific.