KATHMANDU: The World Bank has forecast the Nepali economy to grow by 5.1percent in the fiscal year 2022/23 and 4.9 percent in 2023/24.

The Work Bank forecast is based on normalization of monetary policy, the end of pandemic-era monetary support measures, and still relatively high commodity prices.

“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,” the World Bank said in its latest macroeconomic update.

“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.”

The latest South Asia Economic Focus titled ‘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 the growth of 7.8 percent in 2021, when most countries were rebounding from the pandemic slump, the World Bank said in its update.

“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 the 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,” it added.

The World Bank’s Nepal Development Update, which was released on Thursday, contains a special focus on the macroeconomic impacts of climate change. “Nepal is highly vulnerable to climate change and must adapt to global warming, even though it is a negligible contributor to global greenhouse gases,” the World Bank said in its update.

The World Bank analysis presented in the update finds that negative impacts are expected to accelerate sharply in the second half of the century, with GDP contracting 24% relative to the baseline projections by 2100.

“Nepal’s GDP and other macroeconomic losses in the first three decades of the 21st century are small to begin with, but are expected to accelerate quickly in the second half of the century as temperatures and climate events reach higher levels of intensity,” said Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka. “These findings underscore the urgency of implementing measures aligned with the country’s Green, Resilient, and Inclusive Development (GRID) pathway, to increase Nepal’s adaptive capacity to climate-related shocks.”