Kathmandu: The Asian Development Bank (ADB) has announced that Nepal's economic outlook is set to improve next year. According to the recent Asian Development Outlook, Nepal's economy is projected to grow by 4.3 percent at market prices in the fiscal year 2024, a significant increase from the estimated growth of 1.9 percent in the fiscal year 2023. This outlook is presented in the ADB's flagship publication.

The report highlights that Nepal's economic improvement is driven by several factors. These include a moderation in inflation, comfortable foreign exchange reserves, and adjustments made by the Nepal Rastra Bank to its monetary policy, which involved lowering the policy rate by 50 basis points to 6.5 percent. This adjustment is expected to lead to lower commercial interest rates and stimulate economic activities. The services sector is expected to perform well, with expansions anticipated in real estate, wholesale and retail trade, accommodation, and food services.

However, the report also points out potential challenges in the agriculture sector, as growth may decelerate due to inadequate rainfall in June and erratic weather patterns, exacerbated by a lumpy skin outbreak in cattle.

In addition, the report forecasts a decrease in annual average inflation to 6.2 percent in the fiscal year 2024, down from 7.7 percent in the fiscal year 2023. This decline is attributed to subdued oil price increases and a decrease in inflation in India, which is Nepal's main source of imports.

While acknowledging some progress in restoring price and external sector stability, the report notes that fiscal challenges persist. Although the estimated fiscal deficit for the fiscal year 2024 is moderate at 2.4 percent of GDP, significantly lower than the deficit of 6.1 percent in the fiscal year 2023, the actual deficit could be substantially higher if the government fails to meet its ambitious revenue target for the fiscal year 2024, according to ADB Principal Economist for Nepal, Jan Hansen.

Despite these challenges, the report observes that external risks remain relatively well-contained. It highlights the central bank's prudent monetary policy stance and the achievable target of maintaining foreign exchange reserves sufficient to cover at least seven months of imports, given recent trends.