Kathmandu, April 4
In their separate growth forecast reports published by the World Bank (WB) and the Asian Development Bank (ADB) today, the multilateral development partners of the country have trimmed their economic growth forecast for Nepal to 4.1 per cent this fiscal year amidst domestic and external challenges.
The new projection is significantly lower than the estimated GDP growth of 5.1 per cent estimated by the WB in October and 4.7 per cent economic growth predicted by the ADB in September.
While the latest edition of Asian Development Outlook (ADO) of ADB had cited 'tight monetary policy, slackened domestic demand, the unwinding of COVID-19 stimu-lus, and persistent global headwinds' for the downward revision, the WB's twice-a-year country update has also listed 'impacts of import restrictions, higher inflation, and shrinking government expenditure reflecting lower government revenue' for the same.
"There are downside risks to the outlook such as a global downturn hitting Nepal's tourism and remittance receipts," said ADB Country Director for Nepal Arnaud Cauchois. "Accelerating capital budget spending through focused investment planning, financial management, and project readiness will help spur Nepal's economic growth over the years."
Meanwhile, Faris Hadad-Zervos, World Bank country director for Maldives, Nepal, and Sri Lanka, said that amid measures taken to address pressures on the external sector, the Nepali economy has faced the unintended consequences of a slowdown in economic growth and lower fiscal revenue. "This makes the government's Green, Resilient, and Inclusive Development (GRID) agenda even more pressing. These reforms will yield optimal results as the government communicates its intended policy changes with the public in advance, takes timely action, and finetunes policies during implementation," he added As per the WB's report, Nepal's growth is expected to accelerate to 4.9 per cent in fiscal year 2023-24, supported by the resumption of tourism, growth in remittances, and the gradual easing of monetary policy. However, risks to the outlook are tilted downside and include higher-than-expected inflation, which will dampen consumption and growth due to likely rotations in government officials, and rising inequality from reduced investments in human capital, especially amongst those yet to recover from unemployment following the pandemic.
According to the ADO, agriculture growth will likely moderate to two per cent in fiscal year 2022-23, down from 2.3 per cent in fiscal year 2021-22.
Services growth will also moderate to 4.4 per cent this fiscal from 5.9 per cent in fiscal year 2021-22.
The country's inflation will edge up to 7.4 per cent in fiscal year 2022-23 from 6.3 per cent in fiscal 2021-22, despite the tight monetary policy reigning in demand. The current account deficit is estimated to narrow to four per cent of GDP in fiscal year 2022-23 on the back of declining trade deficit amidst buoyant remittance inflows, as per the ADO.
On a positive note, inflation is expected to decelerate to 6.2 per cent in fiscal year 2023-24 assuming a normal harvest, subdued oil prices, and a decline in inflation in India. The current account deficit is expected to further moderate to 3.9 per cent of GDP in fiscal year 2023-24 as global commodity prices normalise and fossil fuel imports are partially replaced with increased domestic hydroelectricity output, according to the latest ADO.
The WB's country update report is a companion piece to the latest 'South Asia Economic Focus, Expanding Opportunities: Toward Inclusive Growth', which projects regional growth to average 5.6 per cent in 2023, a slight downward revision from the October 2022 forecast. Regional growth is expected to remain moderate to 5.9 per cent in 2024, following an initial post-pandemic recovery of 8.2 per cent in 2021.
Inflation in South Asia is set to fall to 8.9 per cent this year, and to below seven per cent in 2024, as per the WB report.
"However, weaker currencies and delayed domestic price adjustments are contributing to a slower than anticipated decline in inflation. Elevated global and domestic food prices are contributing to greater food insecurity for South Asia's poor who spend a larger share of income on food."
To move from recovery to sustained growth, South Asia needs to ensure economic development is inclusive, as per the WB.
A version of this article appears in the print on April 5, 2023, of The Himalayan Times.
