KATHMANDU / Gradual recovery is underway in Nepal, boosted by the lifting of containment measures as vaccination picks up and tourism and migrant worker flow recover. The economy is expected to grow by 3.9 percent in FY22, an improvement over 1.8 percent growth in FY21, but still below pre-pandemic growth averages, according to World Bank’s latest South Asia Economic Focus.
In South Asia, recovery continues as global
demand rebounded and targeted containment measures helped minimize the economic
impacts of the recent waves of COVID-19. But the recovery remains fragile and uneven,
and most countries are far from pre-pandemic trend levels, states the World
Bank’s twice-yearly regional update. In Nepal, recovery is vulnerable to risks,
and will rely on the continued gradual resumption of economic activities
alongside social distancing and an effective vaccination rollout this year.
The latest South Asia Economic Focus
titled Shifting Gears: Digitization
and Services-Led Development projects the region to grow by 7.1 percent
in 2021 and 2022. While the year-on-year growth remains strong in the region,
albeit from a very low base in 2020, the recovery has been uneven across
countries and sectors. South Asia’s average annual growth is forecast to be 3.4
percent over 2020-23, which is 3 percentage points less than it was in the four
years preceding the pandemic.
“The
pandemic provides the opportunity for countries to craft a recovery path that
draws lessons from the crisis,” stated Faris
Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka.
“Nepal
recently adopted the Kathmandu Declaration as a joint commitment of the
government and development partners towards the country’s Green, Resilient, and
Inclusive Development (GRID). Mobilizing the private sector through green
investment and support for small and medium enterprises with job growth
potential in the services sector is a key part of Nepal’s GRID strategy.”
COVID-19 has left long-term scars on
the region’s economy, the impacts of which can last well into the recovery. Many
countries experienced lower investment flows, disruptions in supply chains, and
setbacks to human capital accumulation, as well as substantial increases in
debt levels. The pandemic is estimated to have caused 48 to 59 million people to
become or remain poor in 2021 in South Asia.
As countries build back, they have a
chance to rethink their long-term development models. With the emergence of new
digital technologies, South Asia has an opportunity to shift gears from a
traditional manufacturing-led growth model and capitalize on the potential of its
services sector.
The role of services in the region’s
economy has been increasing amid rapid technological change and the accelerated
structural transformation of global economic activity in response to the
pandemic. The adoption of digital technologies makes services more tradable, enables
services to increase productivity of other sectors—including manufacturing—and creates
new markets. Some South Asian countries are increasingly providing business and
professional services that add value to manufacturing and play a key role in
global value chains.
In Nepal, the pandemic has accelerated
the growth of digital services, with the use of electronic payment transactions
increasing by double digits. Growth in the services sector as a whole is
expected to drive Nepal’s recovery, despite structural constraints such as slow
domestic job creation, the country’s high vulnerability to natural disasters and
climate change, and large infrastructure gaps.
“Countries
in South Asia have a strong comparative advantage in exporting services,
particularly business processes and tourism, whereas they have struggled to
break into manufacturing export markets,”
said Hans Timmer, World Bank Chief
Economist for the South Asia Region. “To realize the potential of the services-led development, the region
needs to rethink regulations and establish new institutions to support
innovation and competitiveness.”