Kathmandu: The Asian Development Bank (ADB) has released its latest economic outlook for Nepal, forecasting steady growth over the coming years.
According to the report, Nepal’s Gross Domestic Product (GDP) grew by 2.0% in FY2023, reflecting a sluggish economic pace. However, the ADB projects a significant rebound for FY2024, with GDP expected to rise to 3.9%, followed by further acceleration to 4.9% in FY2025. The recovery is attributed to increasing domestic demand and substantial infrastructure investments.
Inflation Eases, But Still Above Pre-Pandemic Levels
In FY2023, inflation stood at 7.7%, indicating strong price pressures. The ADB expects inflation to moderate in FY2024, falling to 5.4%, and remain relatively stable at 5.5% in FY2025. Despite these improvements, inflationary pressures are projected to stay above pre-pandemic levels, continuing to affect purchasing power.
Current Account Balance Sees Temporary Recovery
The current account balance in FY2023 was negative, standing at -1.4% of GDP, signaling a trade deficit. However, a positive turnaround is expected in FY2024, with the current account balance projected to rise to 3.9% of GDP. This improvement indicates a better external balance, but it is expected to narrow again in FY2025 to -0.4%, highlighting ongoing external vulnerabilities.
Sector-Wise Growth: Services Lead the Way
The ADB’s analysis reveals that the services sector will remain the primary driver of economic growth in Nepal. After a sharp recovery following the COVID-19 pandemic, with growth rebounding to 4.8% in FY2021 and 5.6% in FY2022, the service sector continues to lead GDP expansion. Industry and agriculture are contributing consistently, though to a lesser extent. Indirect taxes, net of subsidies, also play a minor role in overall GDP growth.
Risks to the Economic Outlook
While the outlook is generally positive, the ADB has outlined several risks that could hinder Nepal’s growth prospects. Key risks include:
- A possible slowdown in the global economy
- Intensified geopolitical tensions, particularly in the Middle East
- Delays in implementing public projects
- Political instability
- Natural disasters and climate-related catastrophes
Regional Context: Asia’s Growth Remains Robust
On a broader regional scale, growth in developing Asia remained strong in early 2024, driven by solid domestic demand and export growth. Inflation in the region continues to ease, with forecasts suggesting further moderation in the coming years.
Despite solid growth projections, the ADB cautions about potential risks, including rising protectionism linked to the U.S. presidential election, geopolitical tensions, and property market fragility in the People’s Republic of China (PRC). Additionally, adverse weather conditions, including the impending La Niña, could negatively impact food supply and commodity prices.
Overall, the ADB report suggests a cautiously optimistic economic outlook for Nepal, with steady growth and recovery in external balances. However, inflationary pressures and external risks will require careful monitoring.
