Increased use of hydroelectricity will help moderate Nepal’s current account deficit in 2024: ADB

Kathmandu; The Asian Development Bank (ADB) has estimated that Nepal’s current account deficit will be moderated to 3.9 percent of the country’s GDP in 2024 due to an increase in the use of hydroelectricity output.

Unveiling the Asian Development Outlook, the multilateral lending institution has said the current account deficit will be narrowed down from four percent in 2023 to 3.9 percent in 2024. “The current account deficit is expected to moderate as global commodity prices normalize and fossil fuel imports are partially replaced with increased domestic hydroelectricity output,” reads the ADB report.

Meanwhile, the ADB has estimated Nepali economy to grow by 4.1 percent in the current fiscal year, lower than earlier estimation of 5.8 percent. It is due to tight monetary policy, slackened domestic demand, the unwinding of COVID-19 stimulus, and persistent global headwinds.

“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.”

Agriculture growth will likely moderate to 2.0 percent in FY2023, down from 2.3 percent in FY2022. 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. Industry growth will likely decelerate as higher interest rates, import restriction measures, slowdown in domestic consumption, and a dampened external demand have affected manufacturing and construction subsectors, reads ADB report.  

Services growth will also moderate to 4.4 percent from 5.9 percent in FY2022. Credit control measures and 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 has projected that the country’s inflation will edge up to 7.4 percent in 2023 from 6.3 in 2022, despite the government implementing tight monetary policy reigning in demand. Inflation is expected to decelerate to 6.2 percent in 2024, based on a normal harvest, subdued oil prices, and a decline in inflation in India, reads a press release issued by the ADB.