Kathmandu, March 28

The Asian Development Bank (ADB) has projected that the Nepali economy will grow between 5.2 and 6.2 per cent in this fiscal as compared to a dismal 0.8 per cent in the last fiscal.

Unveiling its ‘Macroeconomic Update’ today, the Manila-based multilateral donor has said that the economy will rebound in this fiscal due to improved agriculture production, accelerated post-earthquake reconstruction works, and surge in imports along with normalisation in supply. The other contributing factors are the improvement in power supply and resumption of manufacturing activities. The projection made by ADB is close to the government’s growth forecast of 6.5 per cent. The country was able to achieve a recent high growth of 5.7 per cent in fiscal 2013-14.

The ADB Macroeconomic Update has underlined that the deceleration of the remittance inflows and a marginal effect of the demonetisation of the high denomination Indian banknotes will likely suppress the service activities from its potential level. On the brighter side, disbursement of housing grant to the quake-hit families and election-related expenditure may negate the headwinds from the demand dampening effect originating from deceleration of remittance inflows and demonetisation shock.

Overall macroeconomic indicators are encouraging in this fiscal with high economic growth and low inflation. The ADB Macroeconomic Update has made a forecast that the average annual inflation rate will hover around six to 6.5 per cent. The government’s target to keep inflation below 7.5 per cent will surely be met as inflation has been moderating over the months due to improved supply and decelerating inflation trend in India.

However, the country may face huge current account deficit by the end of this fiscal due to exponential surge in import against sluggish export growth. Balance of Payments (BoP) surplus has drastically decreased and the current account balance is already negative in the first half of this fiscal. The BoP surplus decreased to $419.6 million in the first half of this fiscal from $1.3 billion in the same period of the last fiscal.

The macroeconomic update has laid special focus on key operational and legal issues hindering foreign direct investment (FDI) in Nepal and suggested the government to implement transparent and predictable legal and operational frameworks to realise the FDI pledges. Share of FDI in the country’s gross domestic product is just around 2.8 per cent, compared to 8.8 per cent in Afghanistan, 6.6 per cent in Bangladesh and 12 per cent in India.

The multilateral development partner has hailed the government’s initiatives and the political consensus to attract foreign direct investment in Nepal. “The government must introspect on the huge gap between FDI commitment and its realisation and take action to resolve barriers that have been hindering foreign investors from coming to Nepal,” said Kenichi Yokoyama, country director of the Nepal Resident Mission of ADB.