World Bank projects Nepal’s economy to grow by 3.7 percent

“Amid global challenges, Nepal is on a path to slower albeit continued gradual recovery.”

NL Today

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Kathmandu: Nepal’s economy is projected to grow by 3.7 percent in the current fiscal year and 4.1 percent in the Fiscal Year 2022/23. The World Bank in a report stated that the growth is expected following the recovery of the services sector amid high Covid-19 vaccination rates.

However, growth is projected to be slower than previously projected, mostly due to the impacts of the war in Ukraine, said the World Bank in its regional update. The war in Ukraine will amplify these challenges, impacting Nepal’s growth, inflation, and current account balances, according to the report ‘South Asia Economic Focus Reshaping Norms: A New Way Forward.’

Earlier, the Asian Development Bank (ADB) had projected Nepal’s economy to grow by 3.9 percent.

Another report, ‘Nepal Development Update Global Challenges and Domestic Revival’ has underscored the growing momentum of the economy, while identifying potential downside risks to growth.

In Nepal, higher commodity prices, recently spurred by the war in Ukraine, 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 FY 22 and FY 23 as compared to previous projections, according to the report.

Inflation is expected to average around six percent annually in the medium term, the World Bank said.

“Amid global challenges, Nepal is on a path to slower albeit continued gradual recovery,” stated Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, 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 stabilize as a share of GDP and exports are expected to grow in FY22 as Nepal continues to take advantage of tariff exemptions to India under the South Asian Free Trade Area agreement, reads the report.

Together with an increase in electricity exports and an expected robust recovery in tourism, the economy is expected to grow by 5.8 percent in FY24, close to its estimated long-term potential growth rate, the World Bank projected.