ADB projects Nepal’s growth at 5.3%

Kathmandu, Apr 3

The Asian Development Bank (ADB) had projected that Nepal’s economy will grow by 5.3 per cent in the current fiscal year 2019/20.

“Nepal’s economy is anticipated to grow by 5.3 per cent (at market prices) this year, down from 7.1 per cent a year earlier,” said the ADB in its flagship economic publication Asian Development Outlook 2020.

It said that the global outbreak of the Covid-19 pandemic and subsequent nationwide lockdown that was necessary to contain the contagion would adversely affect the economy.

“Industry and services face supply disruptions. Remittances will likely decline during the last quarter of this fiscal year, dampening domestic demand. Growth will also be slower as a result of lower rice production. If the situation due to the COVID-19 pandemic further worsens, growth in FY2020 could be lower than currently anticipated,” ADB Country Director for Nepal Mukhtor Khamudkhanov said.

According to the Nepal Macroeconomic Update, which was also released on Friday, average annual inflation will inch up to 6 per cent in the current fiscal up from 4.6% a year earlier, reflecting lower production and supply chain disruptions due to the coronavirus pandemic.

Headline inflation has averaged 6.5 per cent in the first seven months of 2019/20, significantly higher than 4.2 per cent in last year.

Food inflation increased by 9.8 per cent as of mid-February 2020 compared to a year earlier, with significant increase in the prices of vegetables, spices, and alcoholic beverages.

The temporary closure of international borders over COVID-19 concern has nudged up food prices. “The average annual inflation for this year could be higher than anticipated if the situation further worsens due to the COVID-19 pandemic,” read the report.

It noted that the improved trade balance had helped contain current account deficit to $1 billion in the fiscal year through mid-February 2020 from $1.5 billion in the corresponding period a year earlier.

The deficit is forecast to narrow from 7.7 per cent of gross domestic product (GDP) in FY 2018/19 to 5.4 per cent on shrinking imports of petroleum products, capital, and consumer goods. However, it could be higher if remittances fell substantially in the last quarter of the current fiscal.

The ADB projects Nepal’s GDP to recover at 6.4 per cent for the next FY 2020/21, assuming a quick end to the coronavirus pandemic, a return to pre-COVID-19 economic activities, and a normal monsoon.

Meanwhile, Nepal expects a couple of large infrastructure projects, namely the 456-megawatt Upper Tamakoshi Hydroelectric Plant and Gautam Buddha International Airport, to be commercially operational by the end of this fiscal. Expectation of higher subnational level spending will also stimulate the growth.

Published in The Rising Nepal daily on 4 April 2020.