Nepal’s Economy to Post Modest Recovery in FY2021

KATHMANDU / Nepal’s gross domestic product (GDP) is anticipated to grow by 3.1% in fiscal year (FY) 2021 from a contraction of 1.9% in FY2020, says the Asian Development Outlook (ADO) 2021, the flagship economic publication of the Asian Development Bank (ADB).

Growth is expected to recover from the low base in FY2020, as a result of the gradual lifting of nationwide lockdown since July 2020, and a pickup in domestic demand. The ongoing vaccination campaigns against the coronavirus disease (COVID-19) pandemic will help strengthen the economic impetus.

“The COVID-19 contagion that seemed to have tapered off until end-March 2021 is now spreading rapidly. If strict containment measures that have been initiated to tackle this second wave of infections are necessary for a prolonged period in the remainder of this fiscal year, then GDP growth will be lower than the forecast”, said ADB Officer-in-Charge for Nepal Sharad Bhandari.

Agriculture is expected to rise by 2.4% in FY2021 as paddy yield is likely to increase by 1.3%, owing to a good monsoon and increased acreage under production. Manufacturing and service industries gradually reopened following the end of the lockdown since July 2020. The affected industries, including micro, small, and medium-sized enterprises (MSMEs) have been receiving economic support in the form of concessional lending and refinancing of existing loans to mitigate the adverse effects of the downturn.

Construction began to pick up, while the completion of some major projects of the government is expected to boost economic recovery. The Upper Tamakoshi Hydropower is expected to begin its first phase of production, while water from the Melamchi Water Supply Project began flowing since March 2021. Overall, industry is expected to grow by 2.5% after contracting by 4.2% in FY2020. The services sector is expected to grow by 3.4% in FY2021, though hospitality, travel, and tourism subsectors will take a longer time to recover.

The ADO 2021 forecasts inflation to moderate to an average of 5.0% in FY2021, down from 6.2% in FY2020, on the back of a good harvest, smoother supply chains, and subdued non-food prices. The current account deficit is expected to widen from 0.9% of GDP in FY2020 to 2.5% in FY2021, owing to increased import growth.

GDP growth of 5.1% is envisaged for FY2022 in anticipation of vaccination progress against COVID-19, regional and global economic recovery from this pandemic, assumption of a good monsoon leading to better harvest, and steady inflows of workers’ remittance. Inflation is forecast to remain contained at an average of 6.0% in FY2022, assuming a better harvest, subdued oil prices and modest uptick in inflation in India, the major trade partner of Nepal. The current account deficit is expected to widen from 2.5% of GDP in FY2021 to 3.8% in FY2022 as imports of capital goods increase.

The main downside risk to the outlook centers on a resurgence of COVID-19 infections. Political uncertainties and policy inconsistencies, as well as recurrent natural calamities like floods and landslides, could also undermine growth prospects. A weaker than expected regional and global recovery would limit employment opportunities abroad for Nepalese workers, constrain remittance and earnings from exports, and dampen Nepal’s growth.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

Developing Asia to Grow 7.3% in 2021 Even as COVID-19 Lingers

Economic growth in developing Asia is set to rebound to 7.3% this year, supported by a healthy global recovery and early progress on coronavirus disease (COVID-19) vaccines, according to a new report from the Asian Development Bank (ADB).

The projected resurgence follows a 0.2% contraction last year, according to ADB’s flagship economic publication, Asian Development Outlook (ADO) 2021, released today. The region’s growth is forecast to moderate to 5.3% in 2022. Excluding the newly industrialized economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, developing Asia’s economic activity is expected to grow 7.7% this year and 5.6% in 2022.

“Growth is gaining momentum across developing Asia, but renewed COVID-19 outbreaks pose a threat to recovery,” said ADB Chief Economist Yasuyuki Sawada. “Economies in the region are on diverging paths. Their trajectories are shaped by the extent of domestic outbreaks, the pace of their vaccine rollouts, and how much they are benefiting from the global recovery.”

Rising exports are boosting some economies in developing Asia amid strengthening global economic activity, including a rebound in manufacturing. Progress on the production and delivery of COVID-19 vaccines has contributed to this momentum, but the pandemic remains the biggest risk for the region as potential delays in vaccine rollouts or significant new outbreaks could undermine growth. Other risks include increasing geopolitical tensions, production bottlenecks, financial turmoil from tightening financial conditions, and long-term scarring—for instance, learning losses due to school closures.

Most economies in developing Asia will see healthy growth this year and in 2022. Central Asian economies are forecast to grow 3.4% on average this year and 4.0% next year. The trade-dependent economies of Southeast Asia will also recover, with the subregion forecast to grow 4.4% this year and 5.1% in 2022 after contracting 4.0% in 2020. Pacific economies, still affected by global travel restrictions and a collapse in tourism, will post modest growth this year at 1.4%, before expanding by 3.8% next year.

Strong exports and a gradual recovery in household consumption will boost economic activity in the People’s Republic of China (PRC) this year. The country’s gross domestic product (GDP) is forecast to expand 8.1% in 2021 and 5.5% in 2022. East Asia’s GDP is expected to grow 7.4% in 2021 and 5.1% in 2022.

India’s economy, meanwhile, is expected to grow 11.0% in fiscal year (FY) 2021, which ends on 31 March 2022, amid a strong vaccine drive. However, the recent surge in COVID-19 cases may put this recovery at risk. India’s GDP is expected to expand 7.0% in FY2022. This year, South Asia’s GDP growth is expected to rebound to 9.5%, following a 6.0% contraction in 2020, before moderating to 6.6% next year.

Inflation in developing Asia is projected to fall to 2.3% from 2.8% last year, as food-price pressures ease in India and the PRC. The region’s inflation rate is forecast to rise to 2.7% in 2022.

The report also examines the costs of pandemic-induced school closures across developing Asia. Countries are using distance learning, but this is only partially effective as many students lack access to computers and the internet. These disruptions will affect the skills students acquire and, eventually, their productivity and earnings as future workers. Learning losses range from 8.0% of a year of learning in the Pacific, where schools have mostly stayed open, to 55% in South Asia, where school closures have been longest. The present value of students’ future earning reductions is estimated at $1.25 trillion for developing Asia, equivalent to 5.4% of the region’s GDP in 2020.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.