Kathmandu: The World Bank (WB) has released its Nepal Development Update report, predicting an improvement in Nepal's economic growth in the coming years. The report anticipates a rebound in growth to 3.9 percent in 2024 and 5 percent in the subsequent year.

According to the report, this growth surge is attributed to the impact of lifting import restrictions and the gradual easing of monetary policy. However, inflation is expected to remain high, affecting real disposable incomes and private consumption.

The recent economic developments in Nepal, as highlighted by the WB, indicate a decrease in real GDP growth to an estimated 1.9 percent in 2023—the lowest rate since 2020. The slowdown is significantly below the 10-year average growth rate. Contributing factors include monetary tightening and the effects of import restrictions, particularly affecting the industry and services sectors. However, agricultural output has shown more resilience.

On the demand side, slow credit growth and import restrictions led to reduced private investment. Lower capital expenditure and revenue underperformance also contributed to a decline in public investment, resulting in a more than 10 percent reduction in total investment—a sharper decrease than in 2020. Private consumption, however, remained robust, supported by strong remittance inflows.

Inflation increased for the third consecutive year in 2023, with food prices rising due to supply-side shocks and domestic policy changes. Non-food prices were pushed higher by increased housing and utility costs. Persistent high inflation complicates the policy mix to stimulate growth while containing external imbalances.

The report notes a significant decrease in the current account deficit due to a contraction of goods imports. Remittance inflows increased in 2023, following high outward migration in the previous year. Exports stagnated below pre-pandemic levels, influenced by real appreciation due to Nepal's persistent high inflation.

Fiscal revenues declined sharply as imports contracted, leading to an increased fiscal deficit of 6.1 percent of GDP—a two-decade high. Public debt rose to 41.3 percent of GDP due to weaker fiscal performance.

Despite these challenges, the report acknowledges Nepal's commitment to operationalizing its green, resilient, and inclusive development vision for long-term economic recovery. Improved external competitiveness, emphasized by the WB, is crucial for driving recovery and enhancing Nepal's competitiveness in export markets. Key reforms are recommended to increase domestic productivity and reduce the inflation differential with trading partners.