June 8: The World Bank has projected Nepal’s economic growth to drop to 4.1 percent in 2023.

Unveiling the June issue of the Global Economic Prospects 2023 on Wednesday, the World Bank said that growth in Nepal in FY 2022/23, undermined by import restrictions and cooled by tighter monetary policy in the face of higher inflation, has been revised down to 4.1 percent.

The National Statistics Office, however, had earlier projected Nepal’s growth to drop to 2.16 percent in the current fiscal year, which is four times less than the target set by the government.

Meanwhile, the World Bank said that the outlook for the economies in crisis remains dire, with minimal expectation of reversing the recent declines in per capita income.

Economies in South Asia are among the most vulnerable to climate change, said the report adding that more than half of South Asians have been affected by one or more climate-related disasters over the past two decades.

“The region has been facing intensifying heatwaves, cyclones, droughts, and floods. With climate change increasing risks to economic activity and development, there is an urgent need to increase resilience. Failure to act could see climate change-related events imposing rising costs. In Nepal, for example, the economic impact from flooding could triple and the number of people affected more than double by 2030,” reads the report.

Meanwhile, the World Bank report has projected global growth to slow significantly to 2.1 percent amid high inflation, tight monetary policy, and more restrictive credit conditions.

According to the report, the global economy remains in a precarious state amid the protracted effects of the overlapping negative shocks of the pandemic, the Russian Federation’s invasion of Ukraine, and the sharp tightening of monetary policy to contain high inflation.

“After growing 3.1 percent last year, the global economy is set to slow substantially in 2023, to 2.1 percent, amid continued monetary policy tightening to rein in high inflation, before a tepid recovery in 2024, to 2.4 percent.”

The report states that inflation pressures persist, and tight monetary policy is expected to weigh substantially on activity. Recent banking sector stress in advanced economies will also likely dampen activity through more restrictive credit conditions, said the report, adding, “The possibility of more widespread bank turmoil and tighter monetary policy could result in even weaker global growth and lead to financial dislocations in the most vulnerable emerging market and developing economies (EMDEs).”

The report suggested that comprehensive policy action is needed to foster macroeconomic and financial stability.

“Among many EMDEs, and especially in low-income countries, bolstering fiscal sustainability will require generating higher revenues, making spending more efficient, and improving debt management practices. Continued international cooperation is also necessary to tackle climate change, support populations affected by crises and hunger, and provide debt relief where needed.”

In the longer term, the report says reversing a projected decline in EMDE potential growth will require reforms to bolster physical and human capital and labor-supply growth.