It is predicted that Nepal’s economy will grow by 4.1 percent (at current market prices) in fiscal year (FY) 2022, up from an estimated growth rate of 2.3 percent in FY2021, according to the most recent Asian Development Outlook (ADO) 2021 Update, which is the flagship publication of the Asian Development Bank (ADB).
“The current vaccination campaign against COVID-19 will be a major contributor to growth, as the national immunisation plan continues to be critical to Nepal’s economic recovery,” said Arnaud Cauchois, Country Director of the Asian Development Bank in Nepal. According to the report, “Downside risks include an unknown trajectory for COVID-19, a likely rise in COVID-19 cases, and following severe containment measures, which might reverse the modest economic recovery in fiscal year 2021.”
According to the report, more paddy planted is expected to spur growth in Nepal’s agriculture this monsoon season, which would coincide with sufficient rainfall. The output of the industry is predicted to increase as a result of a significant increase in export volume and better domestic demand, as the rollout of the national immunisation programme will result in a gradual reduction in infection rates.
The federal government’s fiscal policy for fiscal year 2022 is primarily focused on upgrading the nation’s health-care infrastructure. The Federal Reserve will maintain its accommodative monetary policy through the establishment of a specialised refinancing facility, concessional loans for key projects, and assistance to affected enterprises. The expansion of services will be accelerated as a result of increased economic activity in the wholesale and retail trade, transportation, and financial services, as well as the nationwide implementation of the immunisation programme.
It is possible that international tourism arrivals, which fell by 80.8 percent in 2020, may begin to recover gradually as trekking routes and expeditions are reopened. Hotels and restaurants, travel, and tourism will most certainly take longer to recover to their pre-pandemic levels until COVID-19 has been successfully contained.
According to the report, due to increasing global oil prices and a gradual recovery in domestic demand, the country’s inflation will grow gradually to 5.2 percent in fiscal year 2022, up from the forecast 3.6 percent in fiscal year 2021.
The rate of growth in non-oil imports is expected to continue strong in fiscal year 2022, as investments increase as the economy gradually recovers.
On the other side, the rate of expansion in oil imports may be moderate, as an increase in hydroelectricity output may partially balance an increase in fossil fuel use, according to the World Bank. Even if exports and remittances continue to increase at their current rates, the current account deficit will remain significant, at an estimated 5.0 percent of GDP, down from 8.0 percent a year previously.
Natural disasters such as irregular monsoons and floods, which can diminish farm productivity and cause infrastructure damage, are among the other potential downside risks. Heavy rainfall in Nepal’s high regions since mid-June 2021 has created landslides and floods, resulting in the loss of life and livelihoods in several Himalayan districts.
It is suggested in the research that fiscal spending by province and local governments can be improved if they address recurring capacity deficits in investment planning, financial management, project preparedness and procurement, as well as contract management and administration.