Kathmandu: The Asian Development Bank (ADB) has projected Nepal's economy to experience robust growth, estimated at 4.3% at market prices, in fiscal year 2023/2024. This marks a significant increase from the estimated growth rate of 1.9% in the previous fiscal year, FY 2022/2023, as outlined in the Asian Development Outlook (ADO) September 2023 report, the latest edition of ADB's flagship publication.

The report notes that Nepal's monetary policy stance has adjusted to the changing economic landscape. The Nepal Rastra Bank lowered the policy rate by 50 basis points to 6.5%, a move expected to reduce commercial interest rates and stimulate economic activities. It predicts that the services sector will perform well, with expansions anticipated in real estate, wholesale and retail trade, and accommodation and food services. However, agriculture growth may decelerate due to factors such as deficient rainfall in June and erratic weather patterns, compounded by a lumpy skin outbreak in cattle.

Furthermore, the report projects a decline in annual average inflation, expecting it to fall to 6.2% in the current fiscal year from 7.7% in the previous fiscal year. This decline is attributed to subdued oil price increases and a decrease in inflation in India, Nepal's primary source of imports.

ADB Principal Economist for Nepal, Jan Hansen, acknowledged some progress in restoring price and external sector stability but noted that fiscal challenges persist. While the estimated fiscal deficit for FY 2024 stands at a moderate 2.4% of GDP, significantly lower than the 6.1% deficit in FY 2023, Hansen cautioned that the actual deficit could be substantially higher if the government fails to meet its ambitious revenue target for FY 2024.

The report mentions that external risks to Nepal's economic outlook remain relatively well-contained. Considering recent trends and the central bank's prudent monetary policy stance, the goal of maintaining foreign exchange reserves sufficient to sustain at least seven months of imports appears achievable. The current account deficit is expected to widen to 1.8% of GDP due to stable remittances and increased imports as economic growth resumes in the current fiscal year.

However, the report also cautions about potential downside risks to the economic outlook. These could arise from more contractionary economic policies implemented by authorities to combat rising prices amid uncertainties related to geopolitical tensions. Such measures could dampen consumption and domestic production, negatively impacting economic growth.