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With the sharp slowdown in economic activities, the country's economic growth has fallen even lower than during the Covid-19 pandemic. According to the National Statistics Office (NSO), Nepal's economy grew by a meager 0.8 percent in the first quarter of the current fiscal year 2022/23 compared to 0.9 percent in the corresponding period of FY 2020/21 when the impact of the Covid-19 epidemic was intense. The slump in the construction and mining sectors, along with minimal growth in the agriculture and manufacturing sector dragged down the overall economic growth. The NSO report shows the mining sector logged a negative growth rate of 29.2 percent while the construction sector's growth is negative by 24 percent. Similarly, the agriculture sector grew by only 1.6 percent while the manufacturing sector grew by 1.9 percent. The first quarter of the fiscal year is generally the main season for wholesale and retail trade. As major festivals fall in this quarter, business activities generally increase. However, no such growth in business activities was seen this year as wholesale and retail trade recorded a negative growth of 3 percent. The mining and construction sector have been going through a prolonged slump due to a sharp decline in the demand for cement, steel, and other construction materials. The demand for cement, steel, sand, and other construction materials has decreased with a slowdown in construction activities in the country. The decline in public construction and the downturn in private house construction have resulted in a decrease in the consumption of construction materials. Economists say a low economic growth rate indicates economic activities are not sufficiently dynamic and the economy is not expanding. The country's private sector has been complaining that the crisis in the financial system has affected the demand and supply chain of the economy and the NSO report has reiterated this as a fact. The government has always struggled to expedite the development and construction works in the first quarter, but the private sector's activities were hard hit by the liquidity crunch, higher interest rates, rising prices, and falling demand. The only silver lining is, the hotel and restaurant service sector's growth has increased by 45.8 percent in the first quarter of this fiscal year compared to a decline of 4.5 percent in the first quarter of last fiscal year. With the impact of the Covid-19 pandemic subsiding, the hospitality sector is vibrant with an increase in tourism activities.   Sector-wise Growth

Nepal is expected to make slower progress in meeting criteria related to graduation of the country from the Least Developed Country (LDC) to the Developing Country (DC) in the next fiscal year 2023/24 compared to the earlier estimate, according to a new report of the National Planning Commission (NPC). The National Resource Estimate Committee headed by the NPC Vice Chair Min Bahadur Shrestha made a downward revision in all criteria of LDC graduation but said it would not go below the threshold set by the United Nations. In November 2021, the United Nations General Assembly approved a proposal to upgrade Nepal from an underdeveloped country to a middle-income developing country by 2026. The 40th plenary of the 76th Session of the United Nations General Assembly (UNGA) unanimously adopted a resolution endorsing the graduation of Nepal from the LDC category with the preparatory period of five years, according to a statement issued by the Permanent Mission of Nepal to the United Nations in New York. The decision to graduate from Nepal was taken based on Nepal’s progress in two out of three areas, namely the human asset index and the economic vulnerability index. However, the country has long been struggling to meet the criteria related to per capita income, the third component. According to its committee's estimate, Nepal’s per capita income will reach USD 1,572, down from USD 1,595 estimated while preparing the three-yearly Medium-Term Expenditure Framework (MTEF) in the fiscal year 2020/21. The MTEF had estimated progress in the number of economic sectors for the fiscal years 2021/22, 2022/23, and 2023/24. Likewise, Nepal’s score in the economic vulnerability index is estimated at 23.5 in the next fiscal year, up from an earlier estimate of 23. As per the UN criteria, the threshold for LDC graduation is below 32. “Nepal’s economy is vulnerable due to high dependence on imports, particularly that of agricultural goods imports and climate change,” said an expert. Nepal’s dependence on imports for revenue has been exposed as import restriction measures resulted in a massive slump in the government’s revenue. When it comes to the human asset index, Nepal is set to score 77 from an earlier estimate of 78 under MTEF. In order to graduate from LDC, this score should be above 66. “Covid-19 affected the human development performance on which Nepal has been performing very well in recent years,” the expert said. Nepal’s economy suffered badly from Covid-19, and after recovering from the pandemic, the emergence of a massive balance of payment deficit and a liquidity crunch in the last one and a half years. Now, the country is facing a fiscal deficit with revenue insufficient even to finance the administrative expenditures of the government. The Shrestha-led committee has decreased the estimated resource collection by the government in the next fiscal year 2023-24 by over Rs 300 billion compared to its earlier estimate while preparing the medium-term expenditure framework in fiscal 2020-21. The committee made the downward revision in earlier estimates as the government has been witnessing a sharp decline in revenue collection. The committee has estimated the resource generation of Rs 1688.4 billion for the next fiscal year, which is less than Rs 309.4 billion against the earlier estimate of Rs 1997.8 billion as per the three-year Medium Term Expenditure Framework. The government’s revenue, foreign grants and loans, and internal loans are sources of the government’s resources. Even when the government prepared the MTEF in the fiscal year 2020/21, an ambitious estimate of resource collection was not made citing the impacts of the Covid-19 pandemic on the economy. The committee has estimated the revenue collection to decline by 2.5 percent in the current fiscal year from the growth of 30.5 percent in the last fiscal year. The revenue has not been enough even to cover the recurrent expenditure of the government so far. As of February 25, the government collected revenue of Rs 535.82 billion while recurrent expenditure by the same date stood at Rs 555.57 billion, according to the Financial Comptroller General Office (FGCO). The revenue collection declined by Rs 104 billion by February 25 this fiscal year compared to the same period last fiscal year. Considering these factors, the government has already made a downward revision of revenue collection through the mid-term review of the budget.

The Nepal Stock Exchange (NEPSE) plunged by 3. 65 points to close at 2,023. 54 points on Monday. Similarly, the sensitive index dropped by 0. 84 points to close at 383. 01 points. A total of 5,120,888 unit shares of 259 companies were traded for Rs 1. 89 billion. Meanwhile, Swabhimaan Laghubitta Bittiya Sanstha Limited was the top gainer today with its price surging by 9. 73 percent. Likewise, Rapti Hydro and General Construction Limited was the top loser with its price dropped by 6. 43 percent. At the end of the day, the total market capitalization stood at Rs 2. 92 trillion.

The next fiscal year's federal budget will be smaller than the current fiscal year. With the government struggling to manage financial resources due to a widening gap between income and expenditure, the National Planning Commission (NPC) has set the next fiscal year's government expenditure ceiling at Rs 1688.40 billion. The ceiling set by the NPC is smaller by Rs 105.43 billion than the budget for this fiscal year. The then Finance Minister Janardan Sharma had brought the budget of Rs 1793.83 billion for FY 2022/23. However, the Finance Ministry on February 12, trimmed the budget size during the mid-term review by 13.59 percent after realizing that raising the required resources from all sources, particularly revenue and foreign aid, is unachievable. The revised budgetary allocation now amounts to Rs 1,549.99 billion from Rs 1,793.83 billion earlier. The Finance Ministry will prepare the next fiscal year's budget based on the NPC ceiling. According to NPC Member Ram Prasad Phuyal, the ceiling has been lowered for the next fiscal in view of weak revenue mobilization and the decline in foreign assistance. "The budget ceiling for the next fiscal year has been fixed after analyzing various factors such as contraction in revenue mobilization, decline in foreign loans and grants, and additional pressure on payment of the foreign debt due to fluctuation in foreign exchange," said Phuyal. NPC estimates that the government revenue collection will total Rs 1,403 billion for the next fiscal year. The body has set foreign assistance targets (grants and loans) at Rs 201 billion and internal loans at Rs 230 billion for FY 2023/24. Based on the ceiling, ministries will have to propose programs and projects for the next fiscal year, following which discussions will be held to finalize them. Although NPC sets the ceiling of the budget for the upcoming fiscal year, the Finance Ministry generally does not follow the recommendations of the NPC. The National Resources Estimation Committee headed by the NPC Vice Chairman Min Bahadur Shrestha has fixed the ceiling of the federal budget for the next three fiscal years. The NPC has set the budget ceiling of Rs 1,880 billion and Rs 2,088 billion for FY 2024/25 and FY 2025/26 respectively. Similarly, the revenue target for 2024/25 and FY 2025/26 has been set at Rs 1,606 billion and Rs 1,831 billion respectively. NPC has estimated that the country's economy will grow by 4.5 percent in the current fiscal year, 6 percent in FY 2023/24, 7.5 percent in 2024/24 and eight percent in 2025/26.