Nepal Development Update, April 2024
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Washington, DC: World Bank
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Nepal’s economy saw improved growth
in the first half of FY24 (H1FY24) compared to FY23,
supported by the services sector, helping its economic
growth rebound from a low of 1.9 percent in FY23 to a
forecast of 3.3 percent in FY24. Accommodation and food
services led the way, fueled by a significant rise in
tourist arrivals. Financial and insurance activities also
expanded, although there was a contraction in wholesale and
retail trade. The industrial sector contributed to growth as
well, supported by higher hydroelectric production. In
agriculture, there was an increase in paddy production,
aided by improved seed availability and favorable weather
conditions. Private consumption drove growth on the domestic
demand side, supported by a substantial increase of
remittance inflows. However, since H1FY21, remittances
growth has not supported higher imports of consumption
goods. Private investment remained sluggish, as evidenced by
decreased imports of capital and intermediate goods. On the
other hand, public consumption and investment contracted,
driven by austerity measures and lower revenue collection.
To mitigate the revenue shortfall, the government adjusted
its FY24 budget downward through mid-term reviews, revising
both revenue and spending targets. Moreover, there is also
the need for improved budget execution efficiency,
especially for sub-national governments whose budget
execution rates have lagged the federal government’s.
Despite a small increase in public debt, it remains moderate
and sustainable, supported by a significant share of
concessional external loans and prudent fiscal management.