The Nepal Weekly 
May 7, 2024
Nepal’s economy demonstrates sign of resilience and optimism, underpinned by a resurgent service sector and improving agricultural productivity. According to the National Accounts report released by the National Statistics Office on April 30th, Nepal’s economy is projected to achieve a robust GDP growth rate of 3.87 percent at current prices for the fiscal year 2022/23. This marks a notable improvement from the revised growth rate of 2.31 percent in the previous fiscal year 2021/22.
The upward economic trajectory is propelled by a resurgent service sector, which is expected to expand at the rate of 4.5 percent, up from a modest 2.36 percent growth in the preceding year. Complementing this robust performance in the service industry, the estimates also indicate growth in both the agricultural and non-agricultural sectors. While the agricultural sector is projected to register a growth rate of 3.05 percent, up from 2.76 percent in the previous year, the non-agricultural sector is anticipated to achieve an even higher growth rate of 3.75 percent, surpassing the previous year’s figure of 2.13 percent.
The agricultural sector is also poised for a revival, with estimates suggesting a 3.05 percent growth in value addition from the agriculture, forestry, and fishing sectors, up from 2.76 percent the previous year. This growth is attributed to increased production of paddy, pulses, vegetables, and cash crops. Alongside the service and agricultural sectors, the non-agricultural sector is projected to achieve a 3.75 percent growth rate, surpassing the previous year’s 2.13 percent. Sectors such as mining, finance and insurance, communication and technology, and real estate have also contributed more to GDP compared to the previous fiscal year.
The surge in GDP is attributed to multiple factors; increase in vehicle imports, particularly electric vehicles (EVs), and a rise in tourist arrivals bolstered the transportation and storage sector. The sector’s value addition is expected to soar from 1.45 percent to 11.89 percent this fiscal year. Additionally, the accommodation and food services sector has witnessed a remarkable uptick, with its contribution to GDP increasing from 18.03 percent to 21.84 percent, reflecting the resurgence of Nepal’s tourism industry.
However, the report also highlights challenges facing specific sectors of the Nepali economy. The construction sector is estimated to contract by -2.06 percent, compared to -1.10 percent the previous year, due to a decline in the import of construction materials and a decrease in domestic production. This ripple effect has also impacted the manufacturing sector, which is projected to experience negative growth of -1.60 percent in gross value addition. Furthermore, the report indicates a decrease in imports of goods and services, from 34.68 percent of GDP last year to 33.70 percent this year, underscoring the need for measures to boost trade and economic activity.
On a positive note, the report highlights an increase in exports of goods and services, from 6.96 percent of GDP in the previous fiscal year to 7.94 percent this year. Remittance flow is slightly increased from 22.82 percent in 2079/80 to 22.96 percent in 2080/81. Additionally, Nepal’s per capita GDP has risen from $1,389 last year to $1,434 this year, indicating an overall improvement in living standards.
While these figures from the National Statistics Office paint a cautiously optimistic picture, the International Monetary Fund (IMF) has projected a slightly lower growth rate of 3.1 percent for Nepal in its April Edition of the Regional Economic Outlook. In contrast, Finance Minister Barshaman Pun remains bullish, expressing confidence that Nepal will achieve a growth rate of 4.5 percent this fiscal year, citing the government’s policy reforms as a driving force.
While the government projected a positive economic outlook at the summit, prominent economist Dr. Chandramani Adhikari expressed reservations about Nepal’s current growth trajectory. He asserted that for a developing nation like Nepal, the estimated growth rate of 3.87% falls short of the government’s own target of 6%, raising concerns about the pace of economic progress. He highlighted key challenges hindering robust growth, including the government’s inability to effectively execute capital expenditure, banks’ reluctance to invest in productive sectors despite excess liquidity – leading to a rise in non-performing loans, and the worrying trend of youth outmigration. He further pointed out that declining import rates, often indicative of weak domestic demand, do not bode well for the economy’s health.
Emphasizing the need for a more comprehensive approach, Dr. Adhikari underscored the importance of aligning Nepal’s development strategies with the Sustainable Development Goals (SDGs). He advocated for concerted efforts to address socio-economic disparities, promote inclusive growth, and foster an enabling environment that encourages productive investments and job creation within the country.
As Nepal navigates economic challenges and opportunities, the divergent projections underscore the complexity of accurately forecasting growth in a dynamic global environment. Nonetheless, the data from the National Statistics Office and IMF provides a valuable snapshot of Nepal’s economic resilience and potential, highlighting areas of strength and areas requiring further attention and policy interventions.
Looking ahead, sustained efforts to address structural challenges, foster an enabling environment for businesses, and promote inclusive growth will be crucial for Nepal to build upon its economic momentum and unlock its full potential. Collaboration between policymakers, the private sector, and international organizations will be key to ensuring a balanced and sustainable economic trajectory for the nation.
