Nepal’s economy is projected to grow by 4.9% in fiscal year (FY) 2025, an increase from the estimated growth of 3.9% in FY2024, according to the latest edition of the Asian Development Bank’s (ADB) flagship economic publication.
Arnaud Cauchois, ADB country director for Nepal, stated, “Gross domestic product growth will pick up due to a gradual recovery in domestic demand, accelerated infrastructure spending, and further revitalization of tourism and related services.”
According to the Asian Development Outlook (ADO) for September 2024, the growth of the agricultural sector will depend on favorable harvest conditions resulting from timely paddy planting and a normal monsoon season. The industrial sector is expected to benefit from enhanced electricity generation capacity, while the services sector will see growth driven by increased tourist arrivals, particularly benefiting the accommodation and food service industries.
The report also notes that a cautiously accommodative monetary policy will further bolster domestic demand, with planned capital budget acceleration expected to strengthen wholesale and retail trade, transportation and storage, and real estate activities. ADB indicates that the Nepal Rastra Bank's target of maintaining inflation within 5.0% for FY 2025 appears achievable.
According to the report, “External risks will remain relatively manageable. The external position improved in FY 2024, characterized by a reduced trade deficit alongside robust remittance inflows and a rise in tourist arrivals.” However, it also warns that the current account balance may shift to a deficit of approximately 1% of GDP in FY 2025, down from a surplus of 3.9%, as the economy recovers and remittance inflows stabilize.
The report cautions that heightened geopolitical tensions in the Middle East could negatively impact Nepal’s remittance income and lead to increased oil and food prices. A global economic slowdown may also pose risks to the country’s tourism revenues.
“A perennial risk to economic growth in Nepal is its high vulnerability to natural disasters and climate-related shocks,” the report stated.