KATHMANDU: Nepal’s economy is anticipated to grow by 5.3 percent (at market prices) in fiscal year (FY) 2020, down from 7.1 percent a year earlier, according to the Asian Development Outlook (ADO) 2020, the Asian Development Bank’s (ADB) annual flagship economic publication.
“The global outbreak of the COVID-19 pandemic and subsequent nationwide lockdown that is necessary to contain the contagion will adversely affect the economy,” said ADB Country Director for Nepal Mukhtor Khamudkhanov. “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.”
According to the Nepal Macroeconomic Update, which was also released today, average annual inflation will inch up to 6.0 percent in FY2020, up from 4.6 percent a year earlier, reflecting lower production and supply chain disruptions due to the COVID-19 pandemic. Headline inflation has averaged 6.5 percent in the first seven months of FY2020, significantly higher than 4.2 percent a year earlier. Food inflation increased by 9.8 percent 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 FY2020 could be higher than anticipated if the situation further worsens due to the COVID-19 pandemic, says the report.
Merchandise trade deficit narrowed by 4.9 percent year-on-year in the first seven months of FY2020 after widening by 15 percent in the year-earlier period. The deficit contracted on higher export growth, particularly of palm oil and cardamom to India and reduced import of construction materials, vehicles, and petroleum products. The improved trade balance has 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 percent of gross domestic product (GDP) in FY2019 to 5.4 percent on shrinking imports of petroleum