The World Bank (WB) has projected that Nepal's economic growth rate would remain at 4.5 percent in the fiscal year 2013/14.
The government has, however, estimated the growth rate at 5.5 percent during the current fiscal year. The country's economic growth rate was 3.6 percent last fiscal year.
In its twice-a-year ‘South Asia Economic Focus”, the WB has forecasted that economic growth would go up following improvement in agriculture sector, government budget and strong remittance inflows.
The Asian Development (ADB) recently also projected the growth rate of Nepal to remain at 4.5 percent this fiscal year due to favourable monsoon, remittance inflows, timely budget and a political stability.
South Asian nations including Nepal appeared to have largely recovered from last year’s financial turmoil caused by changes in U.S. Federal Reserve monetary policy, said the WB. “Many were rebuilding currency reserves while curbing current account deficits.”
However, these successes on the external side were accompanied by looming problems in the domestic economy. Economic growth could be held back by unstable banking sectors, inflation, fiscal deficits and debt, and persistent shortfalls in energy and transport infrastructure, it added.
“Now that external pressures are waning, it’s time to refocus on addressing problems within the economies in South Asia so that countries can boost growth and reduce poverty,” said South Asia Chief Economist Martin Rama. “The good news is that across South Asia there is a growing momentum in support of reforms to increase growth because governments recognize this is the best way to overcome poverty.”
“We’ve studied banks in Nepal, India, and Pakistan because they are fairly representative of the situation of banks across the region as a whole,” said South Asia Region Economist Markus Kitzmuller.
“Policy makers need to take these vulnerabilities seriously because a problem in the banking sector can easily put pressure on already constrained government budgets and have a damaging impact on the wider economy.”
The banks in Nepal are not lending and therefore not supporting productive investment in the economy, said the WB.