The World Bank has adjusted the estimates for Nepal’s growth in the Gross Domestic Product (GDP) to 4.1 per cent for the current Fiscal Year 2022/23 from its earlier projection of 4.5 per cent.
“Nepal’s growth in FY2022/23, undermined by import restrictions and cooled by the tighter monetary policy in the face of higher inflation, has been revised down to 4.1 per cent,” the World Bank said in its Global Economic Prospects report released on Wednesday,
Import restrictions imposed by several economies (Bangladesh, Nepal, Pakistan, Sri Lanka), which adversely affected economic activities, have been relaxed as external imbalances have improved and exchange rate pressures have eased, it said.
This growth projection is ‘significantly high’ against the government’s forecast of 1.6 per cent growth at consumer price. The National Statistics Office (NSO) had said a month ago that Nepal’s GDP would expand by 1.6 per cent at consumer price and 2.2 per cent at nominal price.
While the government’s forecast of economic expansion was ‘not so encouraging’ with a prediction of negative growth in three major sectors of the economy – manufacturing, construction, and wholesale and retail trade, the WB’s prediction has still indicated a ‘positive possibility’ in the national economy.
However, the government through its budget for the current fiscal year had projected a growth of 8 per cent.
Similarly, the World Bank had projected 4.9 per cent Nepal’s growth for the next FY 2023/24, and 5.5 per cent for 2024/25.
According to the multilateral donor, Nepal will have the third lowest growth among its South Asian peers except for Afghanistan. Sri Lanka is estimated to witness -4.3 per cent GDP growth and Pakistan 0.4 per cent. In the South Asian region, India is likely to have the highest growth of 7.2 per cent while the Maldives will follow with 6.6 per cent and Bangladesh with 5.2 per cent.
It said that the South Asia region endured significant negative spillovers from rapid monetary policy tightening in advanced economies, weak growth in China, and the Russian invasion of Ukraine. However, So far in 2023, the peak impact of these shocks appears to have passed, and regional economic conditions have improved.
The WB has noted that the terms of trade have become more favourable since the second half of 2022, and large trade deficits caused by high import commodity prices have partially receded. Despite this, the growth momentum continues to slow.
In India, which accounts for three-quarters of output in the region, growth in early 2023 remained below what it achieved in the decade before the pandemic. In Bangladesh, continued import suppression measures and energy shortages have weighed on both industrial production and the services sector.
“High government and external debt, low foreign exchange reserves, and socio-economic tensions heighten the risk of financial crises in several economies in the region. Such crises could significantly reduce potential as well as actual output growth. Significant adverse spillovers from further global monetary tightening or from banking sector stress could materialise,” read the report.
Likewise, economies in South Asia are among the most vulnerable to climate change with more than half of South Asians affected by one or more climate-related disasters over the past two decades. With climate change increasing risks to economic activity and development, there is an urgent need to increase resilience, said the WB.
