Nepal's economy is anticipated to grow by 4.1 per cent (at market prices) in fiscal year fiscal year 2021-22, up from an estimated growth of 2.3 per cent in fiscal 2020-21, says the latest Asian Development Outlook (ADO) 2021 Update, a flagship publication of the Asian Development Bank (ADB).

"Growth will largely be supported by the ongoing vaccination campaign against COVID-19 as the national immunization plan remains key to Nepal's economic recovery," said ADB Country Director for Nepal Arnaud Cauchois.

"Downside risks include the uncertain trajectory of COV- ID-19, a possible surge in COVID-19 cases, and subsequent strict containment measures, which could reverse the gradual economic recovery in fiscal 2020-21."

According to the report, growth in Nepal's agriculture will likely be boosted by increased paddy plantation amid abundant rainfall this monsoon season. Industry output is expected to grow, thanks to a large increase in export volume and stronger domestic demand, as rollout of the national vaccination plan will reduce infection rates over time.

The government's fiscal policy for 2021-22 largely focuses on strengthening the nation's health care system. Monetary policy will remain accommodative through a dedicated refinancing facility, concessional lending for priority projects and for affected businesses.

Growth in services will accelerate because of increased economic activities in the wholesale and retail trade, transport, and financial services along with the vaccine rollout nationwide.

International tourism arrivals, which declined by 80.8 per cent in 2020, may gradually recover, as trekking routes and expeditions resume. Hotels and restaurants, travel and tourism will likely take more time to recover to pre-pandemic level until the sustained containment of COVID-19.

The report says the country's inflation will rise modestly to 5.2 per cent in fiscal year 2021-22, up from the projected 3.6 per cent in fiscal 2020- 21, due to higher global oil prices and a gradual recovery in domestic demand.

Growth in non-oil imports will likely remain high in fiscal year 2021-22, as investments rise on the gradual revival of the economy. On the other hand, growth in oil imports may be slow, because an increase in hydroelectricity generation may partially offset a rise in fossil fuel consumption.

Even with continued strong growth in exports and remittances, the current account deficit will remain high, at an estimated five per cent of gross domestic product, though down from eight per cent a year earlier.

Other downside risks include natural hazards such as erratic monsoons and floods, which could reduce farm output and damage infrastructure.

Heavy rainfall since mid-June 2021 has triggered landslides and floods and led to the loss of lives and livelihoods in some mountainous districts of Nepal.

The report says fiscal spending by provincial and local governments can be improved if they address the persistent capacity deficiencies in investment planning, financial management, project readiness, procurement, and contract management.

Growth in Southeast Asia is forecast at 3.1 per cent this year, despite the rebound effect from a contraction in 2020. In 2022, the ADB expects the region's economy to expand at a five per cent pace.

In South Asia, where outbreaks flared in the spring, the ADB expects economic growth of 8.8 per cent this year and seven per cent next year.

The latest edition of ADB's flagship economic publication has urged governments to enact policies that integrate technology, infrastructure investments, innovation, and regulatory reforms to ensure food security and continued economic development.

According to the report, the COVID-19 pandemic has pushed an additional 75 million to 80 million people in developing Asia into extreme poverty. This in turn is causing greater food insecurity. Worldwide, hunger will surge by about a third this year, according to an assessment by the US Department of Agriculture. Of the 291 million additional people suffering from food insecurity globally, 72 per cent are in Asia - particularly in Bangladesh, India, Indonesia, and Pakistan.

Beyond the pandemic, climate change is the biggest challenge facing agriculture in Asia. Increases in extreme weather are threatening crop production and overall sustainability.

From 2008 to 2018, Asia suffered $207 billion in crop and livestock production losses to disasters, or 74 per cent of the global total, according to the Food and Agriculture Organisation of the United Nations. To address this, government policies can promote a range of solutions such as early warning systems for extreme weather, climate-resilient agricultural infrastructure and production practices, and affordable crop insurance.

Other challenges include the adverse effect of rapid urbanisation on farm labour productivity; changing food preferences, such as increasing demand for meat; outdated infrastructure, particularly in terms of water and irrigation management; and obsolete government support measures.

A version of this article appears in the print on September 23 2021, of The Himalayan Times.