Nepal's gross domestic product (GDP) grew by 3.6% in Fiscal Year 2013 (ended July 2013), slowing from 4.5% growth a year earlier. Unfavorable weather, chemical fertilizer shortages, and delay in passing a budget for FY2013 (ended 15 July 2013) weakened growth. Inflation climbed to an estimated 9.9% from 8.3% last year as agriculture faltered, higher prices in India raised the import bill, and the Nepal rupee depreciated.
|Selected Economic Indicators (%) - Nepal||2013||2014|
|ADO 2013||Update||ADO 2013||Update|
|Current Account Balance (share of GDP)||-0.5||3.4||-1.8||1.8|
Source: Asian Development Outlook (ADO) 2013 Update; ADB estimates.
The lack of political consensus delayed approval of the FY2013 budget for 9 months, constricting capital expenditures. Combined with robust revenue growth, this left a year-end budget surplus equal to 0.4% of GDP, reversing the 2.2% deficit last year. The external position weakened slightly as remittances decelerated and imports rose, narrowing the current account surplus to an estimated 3.4% of GDP from 4.9% in FY2012. However, this outcome is significantly better than the Asian Development Outlook (ADO) 2013 forecast in April, as imports expanded much more slowly and remittances grew a bit more quickly than expected.
In FY2014, GDP is now expected to exceed the ADO 2013 forecast and grow by 4.5% on the favorable monsoon, restored supplies of chemical fertilizers, and a timely budget. Remittances will sustain expansion in services, but growth in industry will remain constrained by persistent power outages and long-standing structural bottlenecks, including a distorted labor market, deficient skills, investment lacking in research and development, inadequate infrastructure, and low productivity.
Prices in FY2014 will be under pressure from hikes in administered fuel prices, continued inflation in India transmitted through the currency peg, and higher import prices as the Nepal rupee depreciates. The ADO 2013 Update raises the inflation forecast to 10.5%. The current account balance forecast is greatly improved from the April projection as greater remittance inflows and tourism income offset rising imports. The increase in the number of migrants to the Gulf and higher incentives to remit money as the rupee weakens are expected to accelerate remittance growth greatly in FY2014.
Source: ADB. 2013. Asian Development Outlook 2013 Update. Manila.