Kathmandu, April 10 – According to the Asian Development Outlook report released on Wednesday, Nepal’s economy is expected to expand by 4.4% in the present fiscal year, which concludes in mid-July. This forecast marks an increase from the previously estimated growth rate of 3.9% for the last fiscal year.
The main journal published by the Asian Development Bank (ADB) stated that Nepal’s enhanced economic outlook can be attributed to a steady rebound in internal demand, advancements in private-sector reforms, as well as an increased revival in tourism and associated service industries.
ADB Country Director for Nepal Arnaud Cauchois stated, “The key economic sectors like manufacturing and construction, which experienced contraction during the previous fiscal period, are expected to grow this fiscal year due to steady oil and raw material costs, higher liquidity, and decreasing interest rates. These factors have facilitated an increase in lending across various productive sectors.”
According to the report, major production areas are anticipated to grow. The Ministry of Agriculture forecasts a 4% rise in rice production for this financial year, largely due to favorable monsoons, prompt provision of fertilizers, and the use of high-yield seed varieties.
Nevertheless, the limited winter precipitation could adversely affect winter crop yields, potentially lowering agricultural growth from 3% in the previous fiscal year to 2.8% in the current one.
Major economic areas such as manufacturing and construction, which experienced shrinkage during the 2023-24 period, are anticipated to grow this financial year due to steady oil and basic material costs, enhanced liquidity, and falling interest rates. These factors have facilitated greater access to credit across various productive industries.
As the government seeks to accelerate capital spending with an aim for an 85 percent completion rate, the halted construction sector is expected to expand, according to the report.
In general, industrial expansion is anticipated to increase to 3.9 percent, with much of this growth coming from the electricity segment. This sector saw an impressive yearly growth rate of 21.4 percent during the initial quarter of the present fiscal period and is forecasted to continue growing as hydropower initiatives come online.
Backed by greater availability of credit, enhanced dedication from foreign investors, and a recovery in global tourism numbers, the expansion of the services industry is anticipated to climb to 4.8 percent.
Higher home market demand during the latter part of this financial year will bolster both the wholesale and retail industries.
The transport and logistics sector will gain advantages from enhanced roadway systems and an increase in tourism.
The sector for information and communications services is set to grow stronger, showing a rise in exports by 29 percent during the initial half-year period of this fiscal year, up from just 4.9 percent growth in the corresponding timeframe last year.
The recent modifications to the Foreign Investment and Technology Transfer Act along with the Company Act, which permit foreign direct investment in Nepal’s information technology industry, are expected to enhance economic development, according to the report.
According to the report, total investments are expected to contribute an additional 6.6 percentage points to GDP growth. The private sector’s worries regarding investment and governmental support have been acknowledged, thus promoting increased involvement from this area.
Service-based sectors are now permitted to invest in special economic zones, which were formerly accessible exclusively to manufacturing industries.
The reforms were designed to streamline the procedures for registering and dissolving businesses. These new regulations help Nepalese firms operate abroad by allowing them to establish branches, engage in commerce, and transfer earnings back to Nepal.
Foreign investment returns and profits have been made easier to transfer back as well. To address worries from businesses regarding potential delays, the new regulations require deciding bodies to take action within a maximum of seven days whenever legal time limits apply.
It is anticipated that public spending will increase by 18.6 percent during this fiscal year, with projects set to advance more rapidly following the commitment enhancements detailed in the midterm budget assessment.
Any projects that haven’t entered the implementation stage will be delayed until the end of this fiscal year.
Approximately 80 percent of the nation’s GDP, derived from private spending, is forecasted to grow by 2 percent, contributing 1.6 percentage points to overall economic expansion as a result of robust incoming remittances.
According to the report, fiscal policy will bolster growth due to increased public spending from greater allocations towards employee compensation along with heightened expenditures on products, services, transfers, and social security within the present fiscal year’s budget.
As Nepal enhances its electricity production and infrastructure for power distribution, exports are expected to rise, making it a steady net exporter of electricity.
Imports, particularly those of capital equipment, are expected to increase with greater government spending on infrastructure. Additionally, net service imports will grow as a result of increased travel expenses for Nepalese citizens traveling overseas.
In summary, the report indicates that net exports of goods and services will detract from economic growth because of the significant level of imports.
The gross domestic product (GDP) is projected to grow by 5.1% in the upcoming fiscal year of 2025-26, driven by governmental changes aimed at enhancing the implementation of capital budgets, as well as progress in the tourism sector and associated service industries.
Likewise, improved farming efficiency via mechanization and superior irrigation systems, dependent on a good monsoon, might also boost economic growth.
The Asian Development Bank stated that Nepal’s economy is anticipated to experience modest expansion during the present fiscal year as well as the upcoming one.
It is anticipated that the inflation projection will stay below the upper limit set by the central bank, provided there is an average yield from the harvest and a slight reduction in inflation in India, which is the primary contributor to import levels.
In the past fiscal year, Nepal achieved greater stability in its external sector due to increased foreign exchange reserves and a cautious approach to monetary policy.
Even with increased imports during the second half of this fiscal year, substantial flows from remittances are anticipated to maintain the current account surplus at 0.1% of GDP.
For the fiscal year 2025-26, projections indicate a deficit amounting to 2.4 percent of GDP due to an increase in goods and services imports.
Additionally, there are possible threats to economic stability.
Continuing increases in tariffs might lead to a worldwide economic slowdown, which could affect Nepal’s tourism income and remittance flows. Additionally, reduced international assistance may hamper progress since Nepal depends on external support to meet its developmental requirements.
Failing to implement the capital budget fully could also undermine growth potential.
The ADB mentioned that Nepal’s growth projections were established before the US administration announced new tariffs on April 2.
As per ADB, the baseline projections solely encompass tariffs that were implemented earlier. Nevertheless, the forecast includes an evaluation of how increased tariffs might impact growth in Asia and the Pacific.
