September 22: Nepal’s economy is estimated to expand modestly by 4.7 percent (at market prices) in the current fiscal year (FY 2022/23), down from an estimated growth of 5.8 percent in FY 2021/22, says the latest report of the Asian Development Bank (ADB).

According to the Asian Development Outlook (ADO) 2022, the flagship economic publication of the ADB, the country’s gross domestic product (GDP) growth is forecast to moderate largely reflecting the tight monetary policy adopted by the government for the current fiscal year amid rise in imports, a marked decline in foreign exchange reserves, and inflationary pressure.

ADB’s Country Director for Nepal Arnaud Cauchois said in a statement that the 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.

“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,” added Cauchois.

The update highlights that agriculture growth will likely be boosted owing to a normal monsoon, but the ongoing fertilizer shortages may adversely affect paddy production.

According to the report, industrial production is expected to grow on increased generation of hydroelectricity and capacity utilization of the 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 resulting in GDP growth.

The government’s fiscal policy reflected in the budget speech for 2023 is somewhat expansionary, focused on strengthening agriculture, industry, infrastructure, and social protection, added the report. Monetary policy is contractionary, aimed at curbing high credit growth to contain domestic demand, escalating prices, and rising imports.

The country’s inflation will likely marginally decline to 6.1 percent in FY 2022/23 from 6.3 percent in FY 2021/22, 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 FY 2022/23 owing to a moderation in merchandise imports amidst stable remittance inflow, states the report. Out-migration for foreign employment has picked up, exceeding the pre-pandemic level of FY 2018/19. Imports related to COVID-19 will have substantially decreased and falling oil prices will help lower import bill for Nepal, says the ADB report.