KATHMANDU, Oct 5: In its recent South Asia Development Update and Nepal Development Update, the World Bank (WB) has projected that Nepal's gross domestic product (GDP) growth rate will contract to 1.9 percent in 2023. However, there is optimism for the future, as the World Bank anticipates an upturn in economic growth next year, with a projected rate of 3.9 percent in 2024 and 5 percent in 2025.
The challenges faced this year include the low economic growth rate of 1.9 percent, an increasing current account deficit, and inflation. High inflation is expected to persist for the next two years, with projections of 7.5 percent in 2024 and 6.4 percent in 2025.
Nepal's economic growth rate took a hit in 2020 due to the COVID-19 pandemic, and the country has been grappling with economic challenges since then. This year's economic growth rate is notably lower than the average growth rate observed in the last decade.
Revised interest rate corridor system introduced
The World Bank's report attributes the economic contraction to Nepal's adoption of a tight monetary policy and restrictions on imports. It also acknowledges positive developments in the electricity generation sector, with a notable impact on the industrial sector.
The report highlights that private sector investment remains subdued due to low loan demand and decreased overall market demand. Additionally, there is concern that the overall agricultural sector's growth rate may contract if rice production is affected by factors like lumpy skin disease in cattle and a lack of irrigation.
Nepal's current account deficit is expected to reach 3.7 percent of GDP by 2025. The report also notes an increase in public debt as a share of Nepal's GDP, with associated payments for principal and interest, which will contribute to the fiscal budget's liability.
Just recently, the Asian Development Bank (ADB) released the 'Nepal Micro Economic Update,' which forecasted an improved economic outlook for Nepal in 2024 compared to 2023. ADB predicted a GDP growth rate of 1.9 percent in 2023 and a more promising 4.3 percent in 2024.
