Nepal’s economy has emerged strongly from the pandemic with GDP estimated to have grown by 5.8 percent in the fiscal year 2022, up from 4.2 percent in 2021, a new World Bank Report has said.

Growth was driven by industry and services benefiting from post-pandemic demand and generous financing conditions. Agricultural growth, by contrast, slowed due to unseasonal rains, according to South Asia Economic Focus 2022.

 According to the report, average consumer inflation rose from 3.6 percent in 2022 to 6.3 percent in 2022, including price increases in transportation, education, and housing. Inflation has been broad-based, and the rising cost of basic necessities negatively impacts the poor and vulnerable.

The rapid increase in domestic demand, coupled with rising prices for imported goods, fueled imports early in 2022. By contrast, remittances – Nepal’s largest source of foreign exchange earnings – did not begin growing again until late 2022 and have remained below 2021 levels as a percentage of GDP, the report reads.

Remittances are an important income for households and impact welfare across the distribution. As a result, the current account deficit (CAD) widened to 12.8 percent of GDP in FY22, which Nepal opted to finance through concessional borrowing, trade credits, and a drawdown in reserves which declined from USD 11.8 billion in mid-July 2021 to USD 9.5 billion in mid-July 2022, equivalent to 6.9 months of import cover.

Growth estimates for the South Asia region comprising India, Pakistan, Afghanistan, Bangladesh, Sri Lanka, Nepal, Bhutan and the Maldives — were revised down to 5.8 per cent from 6.8 per cent forecast in June.