Nepal’s economy, led by recovery of the services sector amid high COVID vaccination rates, is expected to grow by 3.7 per cent in the current fiscal year and 4.1 per cent in the year 2023. However, growth is projected to be slower than earlier projected, mainly due to the impacts of the war in Ukraine, informed the World Bank in its regional update.
Released Sunday, the latest ‘South Asia Economic Focus Reshaping Norms: A New Way Forward’ projects the region to grow by 6.6 per cent in 2022 and by 6.3 per cent in 2023. The 2022 forecast has been revised downward by one percentage point compared to the January projection.
Countries in South Asia are already grappling with rising commodity prices, supply bottlenecks, and vulnerabilities in financial sectors. The war in Ukraine will amplify these challenges, impacting Nepal’s growth, inflation, and current account balances, according to the World Bank update.
Also released on the same day as a companion piece, the latest ‘Nepal Development Update Global Challenges and Domestic Revival’ underscores the growing momentum of the economy, while identifying potential downside risks to growth.
In Nepal, higher commodity prices, recently spurred by the Russia- Ukraine war, are expected to increase construction costs as well as consumer prices, dampening overall demand and in turn reducing growth by an estimated 0.2 and 0.6 percentage points in fiscal year 2021-22 and fiscal year 2022-23 as compared to previous projections. Inflation is expected to average around 6 per cent annually in the medium term.
“Amid global challenges, Nepal is on a path to slower albeit continued gradual recovery,” remarked Faris Hadad-Zervos, World Bank country director for Nepal, Maldives and Sri Lanka. “Leveraging Nepal’s massive hydropower production potential, and a revival of tourism are key elements that support our optimistic outlook as we continue to support Nepal’s long-term development storyline by pivoting to a green, resilient, and inclusive development path.” Remittances are expected to stabilise as a share of GDP and exports are expected to grow in fiscal year 2021-22 as Nepal continues to take advantage of tariff exemptions to India under the South Asian Free Trade Area agreement. Together with an increase in electricity exports and an expected robust recovery in tourism, the economy is expected to grow by 5.8 per cent in fiscal year 2023-24, close to its estimated longterm potential growth rate.