Kathmandu, 9 October: Nepal’s economy is expected to grow at a rate of 5.1 percent in FY2022/23 and 4.9 percent in FY2023/24, reflecting monetary policy normalization, the end of pandemic-era monetary support measures, and still relatively high commodity prices according to the World Bank in its latest macroeconomic update. A rebound in tourism is projected to support Nepal’s services sector and industrial growth is expected to be strong due to increased hydroelectricity production.

While public debt levels are expected to stabilize and pressure on foreign exchange reserves is projected to ease, Nepal continues to face structural challenges relating to a modernization of the tax system, the attraction of new sources of foreign exchange (especially FDI) and full implementation of fiscal federalism that need to be addressed to ensure sustainable and inclusive growth.

Released on Friday, the latest South Asia Economic Focus, Coping with Shocks: Migration and the Road to Resilience, projects regional growth to average 5.8 percent this year - a downward revision of 1 percentage point from the forecast made in June. This follows growth of 7.8 percent in 2021, when most countries were rebounding from the pandemic slump.

While economic distress is weighing down all South Asian countries, some are coping better than others. Exports and the services sector in India, the region’s largest economy, have recovered more strongly than the world average while its ample foreign reserves served as a buffer to external shocks. The return of tourism is helping to drive growth in Maldives, and to a lesser extent in Nepal—both of which have dynamic services sectors.

The combined effects of Covid-19 and the record-high commodity prices due to the war in Ukraine took a heavier toll on Sri Lanka, exacerbating its debt woes and depleting foreign reserves. Plunged into its worst-ever economic crisis, Sri Lanka’s real GDP is expected to fall by 9.2 percent this year and a further 4.2 percent in 2023.  High commodity prices also worsened Pakistan’s external imbalances, bringing down its reserves. After devastating climate-change-fueled floods submerged one-third of the country this year, its outlook remains subject to significant uncertainty.

People's News Monitoring Service