Nepali Economy to Slowdown in FY’18 Due to Recent Floods

September 27, 2017

Nepal’s GDP is forecast to grow by 4.7 percent in FY 2018, down from a preliminary estimate of 6.9% in FY 2017, said the Asian Development Bank (ADB) in its latest report.

The report, titled Macroeconomic Update 2017: Nepal, which assessed Nepali economy in terms of fiscal, real, monetary and external sectors also indicated rise in inflation to 6.5 percent in FY 2018.

The GDP forecast for FY 2018 has been revised down from an earlier estimate of 5.4 percent in the wake of recent floods in mid-August, which affected one-third of the country inundating paddy and other major crops in the Terai belt. 

This situation is likely to have negative impact on the country’s farm output and economic growth in FY 2018, thus leading to inflationary pressure, the report highlighted.

Because of the increasing trade deficit and fall in remittances, Nepal’s current account deficit is also expected to widen from 0.4 percent of GDP in FY 2017 to 2.2 percent of GDP in FY 2018.

Meanwhile, the industrial activity is likely to be positive buoyed by increased supply of electricity and availability of construction materials. “It is likely to expand by 6.6 percent in FY 2018, albeit down from a growth of 10.9% in FY 2017,” the report noted.

Overall, “the economy rebounded strongly in FY 2017 from FY 2016, a difficult year with external shocks. This year, we expect economic growth to revert somewhat to the trend growth rate, partly because of floods. Reforms to improve the quality of public and private investment and to encourage a competitive private sector would reduce the economy’s dependence on external factors such as the monsoon and prospects for remittances,” says Sharad Bhandari, Principal Economist and Officer-in-Charge of ADB’s Nepal Resident Mission.

USD 150 Million Loan for Infrastructure Development

In a move supporting Nepal’s overall development, ADB has approved a USD 150 million loan for the urban and infrastructure development in Nepal.

This loan intends to improve the delivery of urban services across the country and ensure proper infrastructure across eight municipalities in southern Nepal. 

The project targets at ensuring sustainability and development of over 1.5 million population of the country.

“Improving urban infrastructure and service delivery in major urban areas in Nepal, including in the Terai region, is a must, given their importance to the country’s economy and development. Towards these aims, the project will ensure that people in the southern parts of Nepal are living in areas that are safe, sustainable, inclusive, and resilient to climate change,” says Vivian Castro-Wooldridge, an ADB Urban Development Specialist.

Incorporation of climate-resilient and sustainable features, flood-related support across municipalities, construction and rehabilitation of storm water drains, roads, resource recovery centers, sewage system are among other key issues to be covered under the project.