Economy to modestly grow to 4.1 per cent: ADB

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

The multilateral development partner has revised Nepal’s economic growth rate to downwards 4.1 per cent from an earlier projection of 5.1 per cent. However, the coalition government led by the Nepali Congress has targetted an ambitious 7 per cent economic growth for the current fiscal year, through budget substitution bill. Earlier government led by KP Sharma Oli had targetted to achieve 6.5 per cent economic growth.

In the fiscal year 2019-20, Nepal posted a negative economic growth of 2.1 per cent, which was lowest in nearly the past four decades. The ADB has also revised the projected economic growth rate of Nepal to 2.3 per cent in the last fiscal year 2020-21, down from its previous estimation of 3.1 per cent announced last April.

"Growth will largely be supported by the ongoing vaccination campaign against Covid-19 as the national immunisation plan remains key to Nepal’s economic recovery,” said ADB country director for Nepal Arnaud Cauchois. "Downside risks include the uncertain trajectory of Covid-19, a possible surge in Covid-19 cases, and subsequent strict containment measures, which could reverse the gradual economic recovery in the last fiscal year 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 the current fiscal year largely focuses on strengthening the nation’s health care system, the report reads, adding that 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, it adds. "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 the current fiscal year 2021-22, up from the projected 3.6 per cent, due to higher global oil prices and a gradual recovery in domestic demand.

Growth in non-oil imports will likely remain high in the current fiscal year, 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 5 per cent of GDP, though down from 8 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, the report reads, adding that 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 also says that 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.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members, 49 from the region.