Nepal’s economy set to grow by 3.6% in FY2024, ADB report indicates

KATHMANDU: The latest Asian Development Outlook (ADO) for April 2024, published by the Asian Development Bank (ADB), forecasts Nepal’s economy to expand by 3.6% in the fiscal year 2024, marking a significant uptick from the estimated growth of 1.9% in FY2023.

Arnaud Cauchois, the ADB Country Director for Nepal, attributes this growth to the gradual relaxation of monetary policy and an improvement in consumer and investor confidence.

He highlights increased government capital spending and the addition of hydroelectricity power as key drivers for the projected economic activity surge.

The service sector is also anticipated to experience accelerated growth as credit controls ease, interest rates decline, and tourism revenues expand. However, agriculture growth might only marginally increase from 2.7% to 2.8% due to a shortfall in winter crops and other agricultural production caused by deficient rainfall.

The report predicts a decrease in annual average inflation to 6.5% in FY2024 from 7.7% in FY2023, attributed to subdued oil prices and a decline in inflation in India, Nepal’s main import source.

Despite the positive outlook, external risks persist. The current account, which registered a surplus in the first half of FY2024, may fall back into deficit due to higher imports and stable remittance inflows. Risks from a global economic downturn affecting Nepal’s tourism and remittance receipts are also highlighted.

Jan Hansen, ADB Principal Economist for Nepal, cautions against intensified geopolitical turmoil disrupting supply chains, potentially leading to global inflation and tighter financial conditions. Such developments could prompt a tightening of domestic monetary policy, impacting investment and consumption, and subsequently dragging down growth.

The ADB reaffirms its commitment to fostering a prosperous, inclusive, resilient, and sustainable Asia and the Pacific region. Established in 1966, the ADB is owned by 68 members, 49 of which are from the region, and continues its efforts to eradicate extreme poverty.