Nepal’s gross domestic product (GDP) growth is projected to slow largely due to tight monetary policy, slackened domestic demand, the unwinding of the Covid-19 stimulus, and persistent global headwinds. Asian Development Bank (ADB) on Tuesday said that the country's growth is expected to decelerate to 4.1 percent in 2023. In September last year, the Manila-based agency had expected Nepal's economy to grow by 4.7 percent this year. According to ADB, agriculture growth will likely moderate to 2.0 percent in 2023. "There has been an increase in paddy output, but winter rainfall has been scanty and will likely affect winter crop yield and overall agriculture output," states the Asian Development Outlook (ADO) April 2023 report. The manufacturing sector growth will likely decelerate due to higher interest rates, import restriction measures, and the slowdown in domestic consumption. A dampened external demand has affected manufacturing and construction subsectors. The ADB has projected that the industry sector's growth will likely decelerate by half, from 10.2 percent to 5.1 percent in 2023. "The key areas of the economy have contracted, notably construction and manufacturing," reads the report.

Services growth will also moderate to 4.4 percent in 2023 from 5.9 percent in FY2022. Credit control measures and a hike in interest rates have slowed down real estate, wholesale, and retail trade activities. While tourism growth has been strong, international tourist arrivals are still at half of the pre-pandemic level.

The ADB outlook has projected inflation to be on the higher side. Despite the monetary tightening, the country's inflation will edge up to 7.4 percent in 2023 from 6.3 percent in 2022. According to ADB, the current account deficit (CAD) is estimated to narrow to 4 percent of GDP due to a declining trade deficit amidst buoyant remittance inflows. ADB has expected inflation to decelerate to 6.2 percent in 2024 assuming a normal harvest, subdued oil prices, and a decline in inflation in India. CAD is expected to further moderate to 3.9 percent of GDP in 2024 as global commodity prices normalize and fossil fuel imports are partially replaced with increased domestic hydroelectricity output. ADB said that growth in private consumption expenditure will slow, and public investment may grow marginally in 2023. Public investment, having contracted by 6.0 percent in 2022, is expected to expand only marginally by 1.3 percent in 2023. After rising by 5.4 percent in 2022, growth in private consumption expenditure will decelerate to 3.7 percent in 2023, dampened by higher prices and credit controls. Public sector consumption is anticipated to expand by 3.6 percent in 2023, largely on election spending by provinces and the federal government. However, the growth in private investment expenditure will slow from 8.8 percent in 2022 to 4 percent in 2023, tamped down by higher policy rates, import restrictions, and cash margin requirements for imports (both have already been lifted). “There are downside risks to the outlook such as a global downturn hitting Nepal’s tourism and remittance receipts,” said ADB Country Director for Nepal Arnaud Cauchois. “Accelerating capital budget spending through focused investment planning, financial management, and project readiness will help spur Nepal’s economic growth over the years.”  

	FY 2021	FY 2022	FY 2023	FY 2024
GPD Growth	4.2%	5.8%	4.1%	5%
Inflation	3.6%	6.3%	7.4%	6.2%