Nepal: Economy

Nepal’s gross domestic product (GDP) grew by an estimated 5.2% in Fiscal Year 2014 (ended 15 July 2014), up from 3.5% a year earlier and exceeding the forecast. Timely monsoon rains boosted agriculture by 4.7%, and robust growth in remittance inflows fueled growth in services at 6.1%. Inflation, which had been expected to stay about the same, moderated from 9.9% last year as food and other price pressures abated on improved domestic food supplies, some easing of inflation in India, and marginal strengthening of the Nepalese rupee.

Selected economic indicators (%) - Nepal 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 4.5 5.2 4.7 4.6
Inflation 10.0 9.1 9.5 9.5
Current Account Balance (share of GDP) 3.6 4.7 3.7 4.5

Source: ADB estimates.

Despite the timely presentation of the complete FY2014 budget, realized public expenditure, especially capital spending, was lower than planned, indicating ministries’ continued low absorption capacity. High revenue growth and low expenditure combined to shrink the budget deficit to the equivalent of only 0.1% of GDP. The external position strengthened significantly on the high remittance inflows and despite the widening trade deficit, boosting the current account surplus beyond the forecast to 4.7% of GDP, up from 3.4% in the previous year.

In FY2015, GDP growth is now expected to slow to 4.6% as the disappointing monsoon will likely hurt agricultural production. A slew of investment-friendly reforms in the FY2015 budget is likely to boost investor confidence and industrial output, and growth in remittance inflows is expected to stay robust, supporting strong expansion in services and keeping growth just a touch below the 4.7% projected in the Asian Development Outlook (ADO) 2014 in April.

Inflation is expected to remain elevated in FY2015 as price pressures mount because of the expected smaller harvest, high (though moderating) food prices in India, hikes for administered fuel and transportation prices, and higher public sector wages. Despite accelerated import growth, marginally faster growth in remittances is now expected to generate a current account surplus 0.8 percentage points wider than projected in April.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.