KATHMANDU: The Asian Development Bank has estimated that Nepal’s economy will grow modestly by 4.7 percent in fiscal year 2023, down from an estimated growth of 5.8 percent in FY2022. Releasing an update of the Asian Development Outlook (ADO) 2022, the flagship economic publication of the ADB, on Wednesday, the Gross domestic product (GDP) growth is forecast to moderate largely reflecting the tight monetary policy for fiscal year 2023, necessary to stem the rise in imports, a marked decline in foreign exchange reserves, and inflationary pressure.
“Downside risks to growth may arise from further stringent measures by the authorities that may be necessary to curb import, which will depress domestic production and consumption, adversely affecting growth,” said Arnaud Cauchois, ADB Country Director for Nepal. “A resurgence of COVID-19 infections leading to lockdown measures, intensification of dengue fever straining the fragile health system, disasters triggered by natural hazards, and geopolitical turmoil may further dampen growth prospects.”
The update highlights that agriculture growth will likely be boosted owing to normal monsoon, but the ongoing fertilizer shortages may adversely affect paddy production. The industry is expected to grow on increased generation of hydroelectricity and capacity utilization of industries. The report also notes that services growth will likely moderate owing to a slowdown in real estate, wholesale, and retail trade activities, induced by credit control measures and hike in interest rates. But provincial and federal level elections scheduled in November 2022 will stimulate spending supporting GDP growth.
Inflation in Nepal will likely marginally decline to 6.1percent in fiscal year 2023 from 6.3 percent in 2022, restrained by tight monetary policy, a normal harvest, somewhat subdued oil prices, and a modest inflation decline in India.
The current account deficit is estimated to narrow to 8.1 percent of GDP in fiscal year 2023 owing to a moderation in merchandise imports amidst stable remittance inflows. Out-migration for foreign employment has picked up, exceeding the pre-pandemic level of FY2019. Imports related to COVID-19 will have substantially decreased and falling oil prices will help lower import bill for Nepal.