September 21: The Asian Development Bank (ADB) has released its latest economic outlook for Nepal, projecting a significant improvement in the country's economic growth.

According to the ADB's September 2023 report, Nepal's economy is expected to grow by 4.3 percent at market prices in the fiscal year 2023/2024. This marks a substantial increase from the estimated growth of 1.9 percent in the previous fiscal year, 2022/2023.

The report attributes this optimistic outlook to several key factors. First, there has been a moderation in inflation, and Nepal's foreign exchange reserves are at a comfortable level.

In response to these favorable conditions, the Nepal Rastra Bank has adjusted its monetary policy stance by reducing the policy rate by 50 basis points to 6.5 percent. This move is anticipated to lead to lower commercial interest rates and stimulate economic activities.

In terms of sectors, the report anticipates strong performance in the services sector, particularly in real estate, wholesale and retail trade, as well as accommodation and food services.

However, the growth in the agricultural sector may decelerate due to factors such as deficient rainfall in June and erratic weather patterns, compounded by a lumpy skin outbreak in cattle.

The report also addresses inflation, predicting a decline in annual average inflation to 6.2 percent in the current fiscal year, compared to 7.7 percent in the previous fiscal year. This decline is attributed to subdued increases in oil prices and a decrease in inflation in India, which is Nepal's primary source of imports.

While progress has been made in stabilizing prices and the external sector, fiscal challenges persist. The estimated fiscal deficit for FY2024 is projected to be 2.4 percent of GDP, significantly lower than the 6.1 percent deficit in FY2023.

 However, the actual deficit could be higher if the government fails to meet its ambitious revenue target for FY2024, warns ADB Principal Economist for Nepal, Jan Hansen.

External risks to Nepal's economic outlook are considered manageable, with foreign exchange reserves maintained at a level sufficient to cover at least seven months of imports.

Due to stable remittances and increased imports, the current account deficit is expected to widen to 1.8 percent of GDP as economic growth picks up in the current fiscal year.

However, there are potential downside risks to the economic outlook, particularly related to the possibility of more contractionary economic policies being implemented by authorities to combat rising prices, given the uncertainties stemming from geopolitical tensions.

Such policies could dampen consumption, domestic production, and overall economic growth, according to the monthly report. (RSS)