AfDB Lowers Nepal Economic Growth Forecast for 2021-2022 to 4.1%


The Asian Development Bank cut its forecast for Nepal’s economic growth for the current fiscal year 2021-2022 to 4.1%, from 5.1% earlier, largely due to infection and high risks of Covid-19, although now reduced, and the slowdown in the growth of tourism and services.

The Nepalese Congress-led coalition government has set an ambitious 7% economic growth target for this fiscal year, ending in mid-July 2022, even as experts warned of the possible third wave of Covid- 19. The growth target is slightly higher, by 0.5 percentage point, compared to that set by the administration of the time KP Sharma Oli.

The multilateral funding agency said several risks cloud the development prospects of Asia, including Nepal. The main threats come from the Covid-19 pandemic, including the emergence of new variants, the deployment of vaccines slower than expected and the decline in vaccine effectiveness.

In Nepal, increased public precautions and the government’s plan to immunize 72 percent of the population are expected to suppress infection rates over time, the bank said.

As of Tuesday, 19 percent or 5.62 million of the 30 million people were fully immunized.

The Nepalese economy is recovering from the 2.1% contraction induced by the Covid-19 pandemic in 2019-2020, despite an upsurge in infections which led to strict containment measures in May and June 2021 in most of the districts, including the Kathmandu Valley.

According to the Asian Development Bank, Nepal’s growth was estimated at 2.3% in the last fiscal year 2020-2021, ending July 15, 2021, below previous forecast estimated at 3.1%.

The bank said that in the last fiscal year agriculture grew by 2.4%, up from 2.2% a year earlier, due to a good monsoon and an increase in cultivated area. . The manufacturing sector advanced 1.7%, after contracting 3.7%, on stronger domestic demand and a sharp increase in exports.

Services, which had contracted by 4%, mainly due to tourism, which directly and indirectly accounts for around 8% of GDP, and which saw an 80.8% collapse in tourist arrivals, saw modest growth 2.5%.

On the demand side, private consumption dominated spending due to strong growth in remittances. Fixed investment grew modestly by 4%, following a sharp contraction of 12.4%, as public and private activity increased.

The bank said fiscal policy for the current fiscal year remains expansionary, focused on strengthening health care, creating jobs, expanding social protection for the poor and vulnerable, and promoting social protection. agricultural productivity.

Monetary policy will continue to be accommodative thanks to a large dedicated refinancing facility, concessional loans for priority projects and facilities for the companies concerned.

Average inflation fell to 3.6% in the last fiscal year, from 6.2% a year earlier. Food inflation slowed to 5 percent, while non-food inflation fell sharply to 2.5 percent following a rebound in imports and very small price increases for most goods and services .

As growth for the current year accelerates less than expected, projected inflation is revised to 5.2%, slightly below the 2021 forecast.

Nepalese imports jumped 25.7% in the last fiscal year after contracting 19.3% a year earlier as the economy began to normalize. Despite a 30 percent increase in exports and 8.2 percent in remittances, the current account deficit increased sharply to 8 percent of GDP, well above the expected 2.5 percent deficit. in 2021, according to the report.

Funding, however, was sufficient to meet the large deficit, and gross foreign exchange reserves edged up to $ 11.7 billion, covering 10.2 months of imports of goods and services.

Import growth will remain high in the current fiscal year as investment activity intensifies on the basis of a sustained recovery in economic activity.

Even with continued strong export growth and favorable remittances, the current account deficit will remain high, estimated at 5% of GDP, beating the 2021 forecast.

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