Kathmandu, September 27

Asian Development Bank (ADB) has forecast Nepal’s economy will grow at 6.3 per cent in the ongoing fiscal year.

ADB’s Nepal Macroeconomic Update released today states the country’s economy can expand further if the execution of public capital expenditures, including at sub-national levels, improves substantially and private investment remains strong.

“Near normal monsoon this fiscal year, efforts to accelerate the implementation of large infrastructure projects, and increase in tourist arrivals will support high growth,” said ADB’s Country Director for Nepal Mukhtor Khamudkhanov.

The floods in early July damaged paddy saplings in many parts of Nepal, which could lower agriculture growth compared with previous fiscal, as per the report. However, ADB says industry sector is expected to expand by 7.9 per cent in 2019-20, with improved electricity supply and efforts to improve investment, including in major infrastructure.

Similarly, the services sector has been projected to grow by 6.9 per cent in the current fiscal year with the expansion of wholesale and retail trade, financial intermediation, and travel and tourism sub-sectors.

Meanwhile, the ADB report has projected inflation to jump to 5.5 per cent in 2019-20 from 4.6 per cent in the last fiscal year, assuming a somewhat smaller harvest, a marked pickup in government expenditures, and a moderate rise in inflation in India, the country’s main supplier of goods and services.

Nepal’s fiscal deficit moderated to 5.1 per cent of gross domestic product in 2018-19, down from 6.7 per cent in 2017-18, on lower-than-planned capital expenditures. Execution of capital expenditures at 75.9 per cent in 2018-19 was less than that of 2017-18 at 81 per cent. Bunching of capital expenditure continued in 2018-19, undermining the quality of investment.

As per ADB, Nepal increasingly faces the risk of external sector instability due to large trade and current account deficits. The current account deficit moderated to 7.7 per cent of gross domestic product, down from 8.2 per cent in 2017-18, on implementation delays of large national pride projects and markedly curbed import growth. Merchandise export growth exceeded expectations, but with low export base, earnings remained small, widening the merchandise trade deficit by 4.4 per cent.

Downside risks to outlook in 2019-20 centre on challenges to the smooth implementation of federalism. Adequate human resources, mainly technical staff, and capacity in the relatively new sub-national governments coupled with necessary legislative frameworks are required for the smooth implementation of federalism, states the report.