Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

April 2024
Nepal
Update
but Private Investment Remains Low
Nepal’s Economy on a Recovery Path
Development
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NEPAL
DEVELOPMENT UPDATE
April 2024
NEPAL DEVELOPMENT UPDATE

ACKNOWLEDGEMENTS
The Nepal Development Update is produced twice a year to report on key economic developments
that occurred during the year, placing them in a longer-term and global perspective. The Update is
intended for a wide audience including policymakers, business leaders, the community of analysts
and professionals engaged in the economic debate, and the general public.

This report was produced by the World Bank Macroeconomics, Trade and Investment (MTI) team
for Nepal led by Nayan Krishna Joshi (Country Economist, MTI) and Abdoul Ganiou Mijiyawa (Senior
Country Economist, MTI) and consisting of Prabin Dongol (Consultant, MTI), and Anima Maharjan
(Program Assistant, MTI). Inputs were received from Lokendra Phadera (Economist, ESAPV) and
Prashant Raj Pandey (Economist, ESAF1). The report benefitted from data and consultations with
Dr. Prakash Kumar Shrestha (Executive Director, Nepal Rastra Bank), Mr. Mahesh Acharya (Joint
Secretary, Ministry of Finance), Mr. Hikmat B. Bhandari (Undersecretary, Ministry of Finance), and
Mr. Suresh Neupane (Deputy Manager, CDS and Clearing Limited). The team thanks Mathew Verghis
(Director, Equitable Growth, Finance and Institutions (EFI), South Asia Region), Faris Hadad-Zervos
(Country Director for Maldives, Nepal and Sri Lanka), Shabih Ali Mohib (Practice Manager, MPSTI),
Lada Strelkova (Manager, Operations), and Gregory Smith (Program Leader, EFI) for their guidance
and comments on the report. Akash Shrestha and Avinashi Paudel managed media relations and
dissemination.

The cutoff date is March 15, 2024, and includes data released up until that date.

2
 CONTENTS

ACKNOWLEDGEMENTS 2
EXECUTIVE SUMMARY 5

A RECENT ECONOMIC DEVELOPMENTS

A.1 Real Sector
10
10
A.2 External Sector 15
A.3 Monetary and Financial Sector 18
A.4 Fiscal Sector 22

B OUTLOOK, RISKS, AND CHALLENGES

B.1 Real Sector Outlook
28
28
B.2 External Sector Outlook 29
B.3 Monetary and Financial Sector Outlook 30
B.4 Fiscal Sector Outlook 30
B.5 Risks and Challenges 30

THE WORLD BANK | 3

NEPAL DEVELOPMENT UPDATE

4
NEPAL DEVELOPMENT UPDATE | APRIL 2024

EXECUTIVE
SUMMARY
THE WORLD BANK | 5
EXECUTIVE SUMMARY
RECENT ECONOMIC Nepal also experienced a notable improvement in its
fiscal deficit, with the half-year deficit shrinking to
DEVELOPMENTS 0.4 percent of GDP in H1FY24 (from 1.4 percent in the
same period last year), primarily attributed to reduced
spending. Recurrent and capital expenditure were reduced,
Nepal’s economy saw improved growth in the first half
as part of austerity measures to reflect revenue shortfalls.
of FY24 (H1FY24) compared to FY23, supported by the
Half-year revenue fell to an eight-year low of 8.7 percent
services sector, helping its economic growth rebound
of GDP in H1FY24, mainly due to a decrease in non-trade
from a low of 1.9 percent in FY23 to a forecast of 3.3
revenues and lower VAT and income tax collections resulting
percent in FY24. Accommodation and food services led the
from weakened domestic demand.
way, fueled by a significant rise in tourist arrivals. Financial
and insurance activities also expanded, although there was To mitigate the revenue shortfall, the government adjusted
a contraction in wholesale and retail trade. The industrial its FY24 budget downward through mid-term reviews,
sector contributed to growth as well, supported by higher revising both revenue and spending targets. Moreover,
hydroelectric production. In agriculture, there was an there is also the need for improved budget execution efficiency,
increase in paddy production, aided by improved seed especially for sub-national governments whose budget
availability and favorable weather conditions. execution rates have lagged the federal government’s. Despite
a small increase in public debt, it remains moderate and
Private consumption drove growth on the domestic
sustainable, supported by a significant share of concessional
demand side, supported by a substantial increase of
external loans and prudent fiscal management.
remittance inflows. However, since H1FY21, remittances
growth has not supported higher imports of consumption Average consumer price inflation decreased from 8
goods. Private investment remained sluggish, as evidenced by percent year-on-year (y/y) in H1FY23 to 6.5 percent
decreased imports of capital and intermediate goods. On the (y/y) in H1FY24, primarily attributed to declines in non-
other hand, public consumption and investment contracted, food and services inflation. However, food and beverage
driven by austerity measures and lower revenue collection. inflation slightly increased, driven by cereal grain and spice
inflation, partly due to India’s export restrictions on rice,
The external position strengthened, as the current
offsetting declines in ghee and oil prices.
account balance recorded a surplus, fueled by rising
remittances and a shrinking trade deficit. The half-year Nepal’s poverty rate fell due to migration and remittances,
current account balance turned from a deficit of 0.7 percent alongside consumption increases. The recent nationally
of GDP in H1FY23 to a surplus of 2.7 percent of GDP in H1FY24, household survey data from the Nepal Living Standard Survey
marking the first surplus in eight years. This turnaround 2022/23 shows a large decline in poverty from 25 percent
stemmed from two key factors: a rise in remittance inflows, to just 3.6 percent between 2011 and 2023 (using the 2011
from 10.9 percent to 12.3 percent of GDP, and a narrowing National Poverty Line). The prosperity gap and inequality also
trade deficit, which decreased from 13.2 percent to 11.6 reduced over the same period. However, challenges persist
percent of GDP. Imports declined, primarily due to lower with a weak labor market and limited social assistance, posing
import of goods. However, there was a surge in imports of risks amid economic and climate shocks.
electric cars, due to lower tax rate. Service imports surpassed The monetary policy stance remained cautiously
pre-pandemic levels, driven by a rise in educational services. accommodative in H1FY24. Despite a pick-up in inflation,
While exports of goods and services showed marginal the central bank adopted a more accommodative monetary
growth, they remained below pre-pandemic levels, with policy, lowering the key interest rate by 1 percentage point to
notable expansions in international tourist arrivals and 5.5 percent in early December 2023. However, the recent rate
electricity exports. cut in the policy rate below the inflation ceiling (6.5 percent)
Official remittance inflows reached an eight-year peak in raises concerns regarding adherence to the central bank’s
H1FY24, driven by increased outmigration and currency new monetary policy rule. Real interest rates on deposits
depreciation. Government incentives for migrant workers turned positive, boosting deposit growth to 102.3 percent
further encouraged remittances to flow through official of GDP by the end of H1FY24. Private sector credit, however,
channels. As a result of higher remittance inflows, official contracted to 90.7 percent of GDP. This decline can be
foreign exchange reserves increased and reached 12.1 attributed to a) tighter regulation on working capital loans,
months of import cover by the end of H1FY24. b) high lending rates, and c) weak domestic demand.

6
 NEPAL DEVELOPMENT UPDATE | APRIL 2024

The banking sector remained stable and profitable despite of lumpy skin disease among livestock and a decrease in
challenges. Overall, asset quality remained solid, but there paddy production growth.
were signs of deterioration. Nonperforming loans increased,
with private commercial banks experiencing a larger relative In FY24, consumer price inflation is expected to remain
rise. Average capital adequacy ratio remained above regulatory high at 6.7 percent, close to the central bank’s 6.5
requirements, but pressures were observed, particularly with percent ceiling, due to VAT exemptions removal, India’s
three private commercial banks falling below the regulatory food export restrictions, and increased paddy minimum
minimum for core capital adequacy ratio. Liquidity increased, support prices. However, inflation is forecasted to decline
supported by remittance inflows, prompting the central bank to 6 percent in FY25 and 5.5 percent in FY26, driven by
to implement measures to absorb excess liquidity. Moreover, global commodity price moderation and domestic price
efforts were made to mitigate further decline in banks’ containment through monetary policy. Projected lower
profitability through adjustments in loan loss provisions and inflation in India may also help reduce domestic inflation via
restructuring of loans for select sectors. the currency peg, mitigating imported inflation.

Overall, H1FY24 data corroborated the structural The current account balance is forecasted to return to
challenges facing Nepal’s economy. On the fiscal front, surplus in FY24, driven by robust remittance growth
it highlighted the need to strengthen the execution and and a narrowing trade deficit, but is expected to narrow
efficiency of capital expenditure to boost economic growth, subsequently as remittances taper off and the trade
as well as the importance of reducing dependence on imports deficit expands. The trade deficit is expected to improve in
tax revenue. Sound and consistent monetary policy will also the medium term, falling below its FY23 level. This is due to a
be key to boosting confidence and stimulating economic projected decline in goods imports in FY24, although imports
growth. Addressing the increasing level of non-performing are expected to rebound in FY25 and FY26. Goods exports,
loans in the financial sector is crucial to strengthen financial particularly in electricity, are expected to increase. While
stability and support private investment. On the external services exports could rise with tourism recovery, services
side, the high dependency on remittance inflows exposes imports may surpass exports due to continued emigration.
the country to external shocks. Thus, there’s a need to Despite efforts to attract more foreign direct investment,
strengthen Nepal’s international competitiveness for other inflows are likely to remain modest.
sources of external earnings, such as tourism and foreign
Nepal’s fiscal deficit is poised to decrease significantly
direct investment, by boosting exports of goods.
from its peak in FY23 (about 6 percent of GDP), stabilizing
around 3 percent of GDP in the medium term, despite
OUTLOOK, RISKS, AND a projected higher deficit in FY24 compared to the
government’s revised forecast. Revenue is expected to rise
CHALLENGES to 20.1 percent of GDP by FY26, supported by robust GDP
growth and increased goods imports. Meanwhile, spending
is expected to increase to 22.8 percent of GDP by FY26, driven
Nepal’s economic growth is set to rebound, from 1.9
by enhanced execution of public investment. The National
percent in FY23 to a forecast 3.3 percent in FY24. Growth
Project Bank’s integrated guidelines, introduced in March 2023,
is then projected to further accelerate to 5 percent on
aim to streamline project development and prioritization,
average, over FY25-26. This recovery is largely attributed
contributing to more effective capital spending by FY25.
to the easing of monetary policy, assuming productive use
Financing for the fiscal deficit will likely come from external
of private sector credit. Additionally, reforms to improve
concessional borrowing and domestic sources. However,
business environment could attract more private investment,
public debt is projected to decline to 40.8 percent of GDP by
further boosting medium-term growth prospects.
FY26 from its FY23 peak because of higher economic growth.
The services sector is expected to be the key driver of
growth in the coming years. Accommodation and food The forecast is subject to both domestic and external
services are poised to benefit significantly from the rise in risks. Externally, geopolitical uncertainty could trigger a rise in
tourist arrivals. The ongoing construction of new five-star commodity prices, impacting all sectors. A growth slowdown
hotels and government policies supporting real estate loans in partner countries might also lead to a drop in remittances
are expected to further stimulate the accommodation sub- and tourism, hindering economic growth. Persistent inflation
sector. Meanwhile, the industrial sector is expected to grow, expectations and lower domestic demand could further
buoyed by significant expansions in electricity generation dampen economic activity. Natural disasters pose additional
capacity, fostering a more conducive environment for risks to sustaining welfare gains. Finally, frequent political
industrial activities. However, agricultural growth is projected changes, a top headwind for businesses for over a decade,
to slow down due to various factors, including the outbreak could continue to deter private investment.

THE WORLD BANK | 7

NEPAL DEVELOPMENT UPDATE

8
 NEPAL DEVELOPMENT UPDATE | APRIL 2024

RECENT
A
ECONOMIC
DEVELOPMENTS
THE WORLD BANK | 9
 A
RECENT
ECONOMIC
DEVELOPMENTS

A.1 REAL SECTOR GROSS DOMESTIC PRODUCT BY

INDUSTRIAL CLASSIFICATION
Nepal experienced improved economic growth in the first half
of FY24, driven by a resilient services sector and increased Services Sector
private consumption from higher remittance inflows, despite
subdued domestic demand attributed to lower private The services sector drove the growth, expanding by 3.7
investment. percent (y/y) in the first quarter of FY24 (Q1FY24), with
this trend continuing into Q2FY24. Accommodation and
Economic growth in the first half of FY24 (H1FY24) food service activities fueled the growth due to a significant
improved compared to the same period in FY23 (Figure increase in tourist arrivals of 45.8 percent (y/y) in H1FY24
1). The services sector emerged as the primary driver of this (Figures 2 and 3). Financial and insurance activities also
growth on the supply side, buoyed by increased activity experienced growth, with net interest income of commercial
in tourism-related services. Additionally, expansion inZĞĂů^ĞĐƚŽƌ
banks rising by 9.7 percent (y/y) (Figure 4). However, the
;ĐŽŶƚƌŝďƵƚŝŽŶƚŽ'WŐƌŽǁƚŚ͕ƉĞƌĐĞŶƚĂŐĞƉŽŝŶƚƐͿ
the industrial sector, mainly due to increased electricity expansion was tempered by a contraction in wholesale and
ŐƌŝĐƵůƚƵƌĞ /ŶĚƵƐƚƌLJ ^ĞƌǀŝĐĞƐ 'WĂƚďĂƐŝĐƉƌŝĐĞƐ
production, contributed to the overall growth. The retail
ϮϬ trade, indicating a potential decline in goods imports.
ϭϱ
agricultural sector also witnessed growth, propelled by an Other
ϭϬ services sub-sectors also witnessed growth. A surge
ϱ
increase in main season rice paddy production. in real
Ϭ estate transactions of 19.8 percent (y/y) and a rise
in ͲϭϬ
value-added
Ͳϱ
tax (VAT) from services by 43.6 percent (y/y)
support this (Figures 5 and 6).
Ͳϭϱ
ͲϮϬ
Dϯ&zϭϮ
Dϵ&zϭϮ
Dϯ&zϭϯ
Dϵ&zϭϯ
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Dϵ&zϭϱ
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Dϯ&zϮϬ
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Dϯ&zϮϮ
Dϵ&zϮϮ
Dϯ&zϮϯ
Dϵ&zϮϯ
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&ŝŐϭ

Figure 1. Real GDP grew by 3.7 percent (y/y) in the first Figure 2. Services sector growth was supported by
quarter of FY24. accommodation and food service activities...
ZĞĂů^ĞĐƚŽƌ

;ĐŽŶƚƌŝďƵƚŝŽŶƚŽ'WŐƌŽǁƚŚ͕ƉĞƌĐĞŶƚĂŐĞƉŽŝŶƚƐͿ ;ĐŽŶƚƌŝďƵƚŝŽŶƚŽƐĞƌǀŝĐĞƐ'WŐƌŽǁƚŚ͕ƉĞƌĐĞŶƚĂŐĞƉŽŝŶƚƐͿ
ŐƌŝĐƵůƚƵƌĞ /ŶĚƵƐƚƌLJ ^ĞƌǀŝĐĞƐ 'WĂƚďĂƐŝĐƉƌŝĐĞƐ tŚŽůĞƐĂůĞĂŶĚƌĞƚĂŝůƚƌĂĚĞ dƌĂŶƐƉŽƌƚĂƚŝŽŶĂŶĚƐƚŽƌĂŐĞ
ϮϬ ĐĐŽŵŽĚĂƚŝŽŶ ZĞĂůĞƐƚĂƚĞĂĐƚŝǀŝƚŝĞƐ
KƚŚĞƌƐ &ŝŶĂŶĐŝĂůĂŶĚŝŶƐƵƌĂŶĐĞĂĐƚŝǀŝƚŝĞƐ
ϭϱ ^ĞƌǀŝĐĞƐ'W
ϭϬ ϴ
ϱ ϲ
Ϭ ϰ
Ͳϱ Ϯ
ͲϭϬ Ϭ
Ͳϭϱ
ͲϮ
ͲϮϬ
Ͳϰ
Dϯ&zϭϵ
Dϵ&zϮϬ
Dϯ&zϮϬ
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Dϵ&zϭϳ
Dϯ&zϭϴ
Dϵ&zϭϴ

&ŝŐϭ
&ŝŐϮ

Sources. National Statistics Office and World Bank staff calculations. Sources. National Statistics Office and World Bank staff calculations.
;ĐŽŶƚƌŝďƵƚŝŽŶƚŽƐĞƌǀŝĐĞƐ'WŐƌŽǁƚŚ͕ƉĞƌĐĞŶƚĂŐĞƉŽŝŶƚƐͿ
tŚŽůĞƐĂůĞĂŶĚƌĞƚĂŝůƚƌĂĚĞ dƌĂŶƐƉŽƌƚĂƚŝŽŶĂŶĚƐƚŽƌĂŐĞ ;ŝŶƚĞƌŶĂƚŝŽŶĂůƚŽƵƌŝƐƚĂƌƌŝǀĂůƐ͕ƚŚŽƵƐĂŶĚƐͿ
ĐĐŽŵŽĚĂƚŝŽŶ ZĞĂůĞƐƚĂƚĞĂĐƚŝǀŝƚŝĞƐ
KƚŚĞƌƐ &ŝŶĂŶĐŝĂůĂŶĚŝŶƐƵƌĂŶĐĞĂĐƚŝǀŝƚŝĞƐ ϳϬϬ
10 ϴ
^ĞƌǀŝĐĞƐ'W
ϲϬϬ
ϲ ϱϬϬ
ϰ
ϰϬϬ
Ϯ
 ;ĐŽŶƚƌŝďƵƚŝŽŶƚŽƐĞƌǀŝĐĞƐ'WŐƌŽǁƚŚ͕ƉĞƌĐĞŶƚĂŐĞƉŽŝŶƚƐͿ ;ŶƵŵďĞƌŽĨƌĞĂůĞƐƚĂƚĞƚƌĂŶƐĂĐƚŝŽŶƐ͕ƚŚŽƵƐĂŶĚƐͿ
tŚŽůĞƐĂůĞĂŶĚƌĞƚĂŝůƚƌĂĚĞ dƌĂŶƐƉŽƌƚĂƚŝŽŶĂŶĚƐƚŽƌĂŐĞ
ĐĐŽŵŽĚĂƚŝŽŶ ZĞĂůĞƐƚĂƚĞĂĐƚŝǀŝƚŝĞƐ ϰϱϬ
KƚŚĞƌƐ &ŝŶĂŶĐŝĂůĂŶĚŝŶƐƵƌĂŶĐĞĂĐƚŝǀŝƚŝĞƐ ϰϬϬ
^ĞƌǀŝĐĞƐ'W
ϴ ϯϱϬ
ϲ NEPAL
ϯϬϬ DEVELOPMENT UPDATE | APRIL 2024
ϰ ϮϱϬ
Ϯ ϮϬϬ
Ϭ ϭϱϬ
ͲϮ
ϭϬϬ
ϱϬ
Ͳϰ
Ϭ
&ŝŐϮ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Figure 3. ...which rose on the back of the increase in &ŝŐϱ Figure 6. …and a rise in VAT from services sector suggest
international tourist arrivals, back towards pre-pandemic point to an increase in services
levels
;sdĨƌŽŵƐĞƌǀŝĐĞƐĞĐƚŽƌ͕EWZďŝůůŝŽŶͿ

;ŝŶƚĞƌŶĂƚŝŽŶĂůƚŽƵƌŝƐƚĂƌƌŝǀĂůƐ͕ƚŚŽƵƐĂŶĚƐͿ ϭϮ

ϳϬϬ ϭϬ
ϲϬϬ ϴ
ϱϬϬ
ϲ
ϰϬϬ
ϰ
ϯϬϬ
ϮϬϬ Ϯ

ϭϬϬ &/Őϲ Ϭ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Ϭ
&ŝŐϯ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Sources. Ministry of Finance and World Bank staff calculations.
Sources. Nepal Rastra Bank and World Bank staff calculations.

Industrial Sector
Quarterly GDP data indicates a 6 percent (y/y) growth
Figure 4. Financial and insurance activities also grew, in the industrial sector in the first quarter of FY24, with
reflected in part by the increase in net interest income of high-frequency indicators suggesting this momentum
commercial banks likely continued in the second quarter of FY24. Higher
hydroelectric production contributed to this growth (Figure 7).
;ŶĞƚŝŶƚĞƌĞƐƚŝŶĐŽŵĞ͕EWZďŝůůŝŽŶͿ
The manufacturing sub-sector also increased by 1.7 percent
ϭϮϬ
(y/y) in Q1FY24, driven partly by higher production of food
ϭϬϬ
products and flat-rolled products of steel (Figure 8), and this
ϴϬ
trend continued in Q2FY24, as suggested by goods exports
ϲϬ
data. Additionally, the construction sub-sector expanded by
ϰϬ
&ŝŐϰ 11.1 percent (y/y) in Q1FY24. However, a contraction in the
;ŶĞƚŝŶƚĞƌĞƐƚŝŶĐŽŵĞ͕EWZďŝůůŝŽŶͿ
ϮϬ
production of key construction materials like cement and
ϭϮϬϬ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ iron and steel bars and rods, coupled with declining imports
ϭϬϬ of goods related to construction sector (Figures 9 and 10) and
;ŶƵŵďĞƌŽĨƌĞĂůĞƐƚĂƚĞƚƌĂŶƐĂĐƚŝŽŶƐ͕ƚŚŽƵƐĂŶĚƐͿ
ϴϬ
Sources.
ϰϱϬ
Nepal Rastra Bank and World Bank staff calculations. construction material prices, and lower public investment,
ϲϬϰϬϬ suggests a slowdown in construction activities in the second
ϯϱϬ
ϰϬϯϬϬ quarter of FY24 (see Fiscal Section).
&ŝŐϰ ϮϱϬ
ϮϬϮϬϬ
ϭϱϬ Figure 7. Hydroelectric production continued to grow,
ϬϭϬϬ
Figure 5. An,ϭ&zϭϳ
ϱϬ ,ϭ&zϭϲ increase in real
,ϭ&zϭϴ estate
,ϭ&zϭϵ transactions…
,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ albeit at a slower rate.
Ϭ
,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
&ŝŐϱ ;ĂĚĚŝƚŝŽŶĂůŝŶƐƚĂůůĞĚĐĂƉĂĐŝƚLJ͕ŵĞŐĂǁĂƚƚͿ
;ŶƵŵďĞƌŽĨƌĞĂůĞƐƚĂƚĞƚƌĂŶƐĂĐƚŝŽŶƐ͕ƚŚŽƵƐĂŶĚƐͿ

ϰϱϬ ϳϬϬ
ϰϬϬ ϲϬϬ
;sdĨƌŽŵƐĞƌǀŝĐĞƐĞĐƚŽƌ͕EWZďŝůůŝŽŶͿ
ϯϱϬ ϱϬϬ
ϭϮ
ϯϬϬ ϰϬϬ
ϮϱϬ
ϭϬ
&ŝŐϳ ϯϬϬ
ϮϬϬ
ϴ ϮϬϬ
ϭϱϬ
ϭϬϬ
ϲ ϭϬϬ
ϱϬ Ϭ
ϰ
Ϭ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Ϯ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
&ŝŐϱ
&/Őϲ Ϭ
Sources.,ϭ&zϭϵ
Department of Land
,ϭ&zϮϬ Management
,ϭ&zϮϭ ,ϭ&zϮϮand Archive
,ϭ&zϮϯ and World Bank
,ϭ&zϮϰ Sources. Department of Electricity Development and World Bank staff
staff calculations. calculations.
;ĐŽŵƉŽŶĞŶƚƐŽĨŵĂŶƵĨĂĐƚƵƌŝŶŐƉƌŽĚƵĐƚŝŽŶŝŶĚĞdžͿ
;sdĨƌŽŵƐĞƌǀŝĐĞƐĞĐƚŽƌ͕EWZďŝůůŝŽŶͿ ůůŽƚŚĞƌƐ
DĂŶƵĨĂĐƚƵƌĞŽĨďĂƐŝĐŝƌŽŶĂŶĚƐƚĞĞů
ϭϮ ĞŵĞŶƚ
sĞŐĞƚĂďůĞŽŝůƐ͕ƌĞĨŝŶĞĚ͗ƐŽLJĂďĞĂŶŽŝů͕ƐƵŶĨůŽǁĞƌŽŝůĂŶĚŵƵƐƚĂƌĚŽŝů
ϭϬ DĂŶƵĨĂĐƚƵƌŝŶŐƉƌŽĚƵĐƚŝŽŶŝŶĚĞdž
Ϯϱ
ϴ ϮϬ
&ŝŐϴ ϭϱ
ϲ
ϭϬ THE WORLD BANK | 11
ϰ ϱ
Ϭ
Ϯ Ͳϱ
 ϳϬϬ
ϲϬϬ
ϱϬϬ
RECENT ECONOMIC DEVELOPMENTS
ϰϬϬ

&ŝŐϳ ϯϬϬ
;ĂĚĚŝƚŝŽŶĂůŝŶƐƚĂůůĞĚĐĂƉĂĐŝƚLJ͕ŵĞŐĂǁĂƚƚͿ
ϮϬϬ
ϳϬϬ
ϭϬϬ
ϲϬϬ
Ϭ
ϱϬϬ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϰϬϬ
Figure 8. Manufacturing sector contributed to growth but mechanization, and favorable weather conditions--despite
&ŝŐϳ ϯϬϬ
remains
ϮϬϬ subdued the lack of rainfall in one province--contributed to the rise
;ĐŽŵƉŽŶĞŶƚƐŽĨĐŽŶƐƚƌƵĐƚŝŽŶ͕ǁŽŽĚ͕ŐůĂƐƐ͕ƐƚŽŶĞ͕ďĂƐŝĐŵĞƚĂůƐ͕ŚŽƵƐŝŶŐ͕ĞůĞĐƚƌŝĐĂů
ϭϬϬ in paddy production. Notably, this increase in production,
ĂƉƉůŝĂŶĐĞƐ͕ĨƵƌŶŝƚƵƌĞ͕EWZďŝůůŝŽŶͿ
;ĐŽŵƉŽŶĞŶƚƐŽĨŵĂŶƵĨĂĐƚƵƌŝŶŐƉƌŽĚƵĐƚŝŽŶŝŶĚĞdžͿ
Ϭ
ůůŽƚŚĞƌƐ combined with a decrease in paddy
/ŶƚĞƌŵĞĚŝĂƚĞĐŽŶƐƵŵƉƚŝŽŶ cultivation area, led
'ƌŽƐƐĨŝdžĞĚĐĂƉŝƚĂůĨŽƌŵĂƚŝŽŶ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ &ŝŶĂůĐŽŶƐƵŵƉƚŝŽŶ dŽƚĂů/ŵƉŽƌƚ
DĂŶƵĨĂĐƚƵƌĞŽĨďĂƐŝĐŝƌŽŶĂŶĚƐƚĞĞů
ĞŵĞŶƚ to aϭ͕ϮϬϬ
5.6 percent (y/y) rise in paddy productivity. However,
sĞŐĞƚĂďůĞŽŝůƐ͕ƌĞĨŝŶĞĚ͗ƐŽLJĂďĞĂŶŽŝů͕ƐƵŶĨůŽǁĞƌŽŝůĂŶĚŵƵƐƚĂƌĚŽŝů ;ĐŽŵƉŽŶĞŶƚƐŽĨĐŽŶƐƚƌƵĐƚŝŽŶ͕ǁŽŽĚ͕ŐůĂƐƐ͕ƐƚŽŶĞ͕ďĂƐŝĐŵĞƚĂůƐ͕ŚŽƵƐŝŶŐ͕ĞůĞĐƚƌŝĐĂů
ϭ͕ϬϬϬremains a rice importer, although imports decreased
DĂŶƵĨĂĐƚƵƌŝŶŐƉƌŽĚƵĐƚŝŽŶŝŶĚĞdž
Nepal
ĂƉƉůŝĂŶĐĞƐ͕ĨƵƌŶŝƚƵƌĞ͕EWZďŝůůŝŽŶͿ
Ϯϱ ϴϬϬ
ϮϬ
in H1FY24
ϲϬϬ
due to India’s restrictive 'ƌŽƐƐĨŝdžĞĚĐĂƉŝƚĂůĨŽƌŵĂƚŝŽŶ
/ŶƚĞƌŵĞĚŝĂƚĞĐŽŶƐƵŵƉƚŝŽŶ measures on rice exports
&ŝŐϭϬ &ŝŶĂůĐŽŶƐƵŵƉƚŝŽŶ dŽƚĂů/ŵƉŽƌƚ
&ŝŐϴ ;ĐŽŵƉŽŶĞŶƚƐŽĨŵĂŶƵĨĂĐƚƵƌŝŶŐƉƌŽĚƵĐƚŝŽŶŝŶĚĞdžͿ
ϭϱ (FigureϰϬϬ 12).
ϭ͕ϮϬϬ
ϭϬ ůůŽƚŚĞƌƐ
DĂŶƵĨĂĐƚƵƌĞŽĨďĂƐŝĐŝƌŽŶĂŶĚƐƚĞĞů ϮϬϬ
ϭ͕ϬϬϬ
ϱ
ĞŵĞŶƚ ϴϬϬ Ϭ
Ϭ sĞŐĞƚĂďůĞŽŝůƐ͕ƌĞĨŝŶĞĚ͗ƐŽLJĂďĞĂŶŽŝů͕ƐƵŶĨůŽǁĞƌŽŝůĂŶĚŵƵƐƚĂƌĚŽŝů Figure
ϲϬϬ
11.,ϭ&zϮϬ
Agriculture
,ϭ&zϮϭexpanded
,ϭ&zϮϮ due ,ϭ&zϮϯ
to the increased
,ϭ&zϮϰ
Ͳϱ DĂŶƵĨĂĐƚƵƌŝŶŐƉƌŽĚƵĐƚŝŽŶŝŶĚĞdž &ŝŐϭϬ
ͲϭϬ
Ϯϱ production
ϰϬϬ of paddy…
ϮϬ
Dϯ&zϭϳ Dϯ&zϭϴ Dϯ&zϭϵ Dϯ&zϮϬ Dϯ&zϮϭ Dϯ&zϮϮ Dϯ&zϮϯ Dϯ&zϮϰ ϮϬϬ
&ŝŐϴ ϭϱ
;ƉĂĚĚLJƉƌŽĚƵĐƚŝŽŶ͕ŵĞƚƌŝĐƚŽŶƐͿ
Ϭ
ϭϬ
,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Sources.ϱ National Statistics Office and World Bank staff calculations. ϱϴϬϬ
Ϭ
;ĐŽŵƉŽŶĞŶƚƐŽĨŵĂŶƵĨĂĐƚƵƌŝŶŐƉƌŽĚƵĐƚŝŽŶŝŶĚĞdžͿ ϱϲϬϬ
Ͳϱ ĞŵĞŶƚ /ƌŽŶĂŶĚƐƚĞĞůďĂƌƐĂŶĚƌŽĚƐ
ͲϭϬ ϱϰϬϬ
;ƉĂĚĚLJƉƌŽĚƵĐƚŝŽŶ͕ŵĞƚƌŝĐƚŽŶƐͿ
Figure Dϯ&zϭϳ
ϭϵϬ 9. Production
Dϯ&zϭϴ Dϯ&zϭϵ of key
Dϯ&zϮϬconstruction
Dϯ&zϮϭ Dϯ&zϮϮ materials like
Dϯ&zϮϯ Dϯ&zϮϰ
ϭϳϬ ϱϮϬϬ
ϱϴϬϬ
cement
ϭϱϬ
and iron and steel bars and roads contracted…
ϱϲϬϬ
ϱϬϬϬ
ϭϯϬ &ŝŐϭϭ
;ĐŽŵƉŽŶĞŶƚƐŽĨŵĂŶƵĨĂĐƚƵƌŝŶŐƉƌŽĚƵĐƚŝŽŶŝŶĚĞdžͿ ϱϰϬϬ
ϰϴϬϬ
ϭϭϬ
&ŝŐϵ ĞŵĞŶƚ /ƌŽŶĂŶĚƐƚĞĞůďĂƌƐĂŶĚƌŽĚƐ ϱϮϬϬ
ϰϲϬϬ
ϵϬ
ϭϵϬ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϳϬ ϱϬϬϬ
ϭϳϬ &ŝŐϭϭ
ϱϬ Sources.
ϰϴϬϬ Ministry of Agriculture and Livestock Development and World
ϭϱϬ Dϯ&zϭϳ Dϯ&zϭϴ Dϯ&zϭϵ Dϯ&zϮϬ Dϯ&zϮϭ Dϯ&zϮϮ Dϯ&zϮϯ Dϯ&zϮϰ
Bank staff calculations.
ϭϯϬ ϰϲϬϬ
;ƌŝĐĞĂŶĚƌĞůĂƚĞĚŝŵƉŽƌƚƐ͕EWZďŝůůŝŽŶͿ
ϭϭϬ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
&ŝŐϵ ϮϬ
ϵϬ Figureϭϴ 12. ...however, Nepal remains a rice importer
ϳϬ ϭϲ
ϱϬ ϭϰ
;ƌŝĐĞĂŶĚƌĞůĂƚĞĚŝŵƉŽƌƚƐ͕EWZďŝůůŝŽŶͿ
Dϯ&zϭϳ Dϯ&zϭϴ Dϯ&zϭϵ Dϯ&zϮϬ Dϯ&zϮϭ Dϯ&zϮϮ Dϯ&zϮϯ Dϯ&zϮϰ ϭϮ
ϮϬϭϬ
ϭϴ ϴ
&ŝŐϭϮ
ϭϲ ϲ
Sources. National Statistics Office and World Bank staff calculations.
ϭϰ ϰ
ϭϮ
Ϯ
ϭϬ
Figure 10. …along with a decrease in imports of
&ŝŐϭϮ ϴ
Ϭ
,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϲ
intermediate consumption goods related to the ϰ
construction sector Ϯ
Ϭ
,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
;ĐŽŵƉŽŶĞŶƚƐŽĨĐŽŶƐƚƌƵĐƚŝŽŶ͕ǁŽŽĚ͕ŐůĂƐƐ͕ƐƚŽŶĞ͕ďĂƐŝĐŵĞƚĂůƐ͕ŚŽƵƐŝŶŐ͕ĞůĞĐƚƌŝĐĂů
ĂƉƉůŝĂŶĐĞƐ͕ĨƵƌŶŝƚƵƌĞ͕EWZďŝůůŝŽŶͿ
/ŶƚĞƌŵĞĚŝĂƚĞĐŽŶƐƵŵƉƚŝŽŶ 'ƌŽƐƐĨŝdžĞĚĐĂƉŝƚĂůĨŽƌŵĂƚŝŽŶ Sources. National Statistics Office and World Bank staff calculations.
&ŝŶĂůĐŽŶƐƵŵƉƚŝŽŶ dŽƚĂů/ŵƉŽƌƚ
ϭ͕ϮϬϬ
ϭ͕ϬϬϬ
ϴϬϬ
Gross Domestic Product by Demand
&ŝŐϭϬ ϲϬϬ
ϰϬϬ
On the demand side, private consumption emerged as
ϮϬϬ the primary driver of growth in H1FY24. High-frequency
Ϭ indicators include an increase in the numbers of digital
,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
payments, and a significant rise in remittances (up in nominal
Sources. Nepal Rastra Bank and World Bank staff calculations. terms by 22.6 percent, y/y). Together these point towards a
;ƉĂĚĚLJƉƌŽĚƵĐƚŝŽŶ͕ŵĞƚƌŝĐƚŽŶƐͿ recent increase in private consumption (Figures 13 and 14).
ϱϴϬϬ
Agricultural Sector However, since H1FY21, the increase in remittances may not
ϱϲϬϬ
have contributed to the rise in consumption goods imports.
ϱϰϬϬ
The agricultural sector expanded by 1.2 percent (y/y) in Additionally, a slower growth of wages and salaries, relative
ϱϮϬϬ
the first quarter of FY24. This growth continued in second to inflation, suggests a slowdown in private consumption
ϱϬϬϬ
&ŝŐϭϭ quarter with a 5.2 percent (y/y) increase in main season paddy among earners (Figure 15). Furthermore, the 2021 agricultural
ϰϴϬϬ
production (Figure 11). Improved seed availability, agricultural census reveals that nearly one-third of the total population
ϰϲϬϬ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

12
;ƌŝĐĞĂŶĚƌĞůĂƚĞĚŝŵƉŽƌƚƐ͕EWZďŝůůŝŽŶͿ
ϮϬ
ϭϴ
 NEPAL DEVELOPMENT UPDATE | APRIL 2024

is engaged in farming, with almost 94 percent of agricultural Figure 16. Private investment was subdued as suggested
holdings primarily producing for household consumption. by a slight decline in the import of capital and intermediate
Consequently, it remains unclear whether the reported goods
increase in private consumption, evidenced by the rise in
;ŽǀĞƌĂůůŝŵƉŽƌƚƐ͕EWZďŝůůŝŽŶͿ
digital payments, extends to sectors that rely on traditional
/ŶƚĞƌŵĞĚŝĂƚĞŐŽŽĚƐ ĂƉŝƚĂůŐŽŽĚƐ ŽŶƐƵŵƉƚŝŽŶ /ŵƉŽƌƚƐ
payment methods. ϭϮϬϬ
ϭϬϬϬ
Figure 13. Private consumption remained strong as ϴϬϬ
suggested by an increase in digital payments… ϲϬϬ
&ŝŐϭϲ
ϰϬϬ

dƌĂŶƐĂĐƚŝŽŶĂŵŽƵŶƚ͕EWZďŝůůŝŽŶ EƵŵďĞƌŽĨƚƌĂŶƐĂĐƚŝŽŶ͕ŵŝůůŝŽŶ ϮϬϬ

ϭϬ͕ϬϬϬ ϳϬϬ Ϭ
ϲϬϬ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϴ͕ϬϬϬ dƌĂŶƐĂĐƚŝŽŶĂŵŽƵŶƚ͕EWZďŝůůŝŽŶ EƵŵďĞƌŽĨƚƌĂŶƐĂĐƚŝŽŶ͕ŵŝůůŝŽŶ
&ŝŐϭϯ ϱϬϬ
ϭϬ͕ϬϬϬ ϳϬϬ
ϲ͕ϬϬϬ ϰϬϬ Sources. Department of Customs and World Bank staff calculations.
ϲϬϬ
ϴ͕ϬϬϬ ϯϬϬ
ϰ͕ϬϬϬ
&ŝŐϭϯ ϱϬϬ
ϮϬϬ ;ĐŽŶƚƌŝďƵƚŝŽŶƚŽŚĞĂĚůŝŶĞŝŶĨůĂƚŝŽŶ͕ƉĞƌĐĞŶƚĂŐĞƉŽŝŶƚƐͿ
ϲ͕ϬϬϬ
Ϯ͕ϬϬϬ ϰϬϬ
ϭϬϬ Private investment
&ŽŽĚĂŶĚďĞǀĞƌĂŐĞ remained subdued in KǀĞƌĂůůŝŶĚĞdž
EŽŶͲĨŽŽĚĂŶĚƐĞƌǀŝĐĞƐ H1FY24,
ϰ͕ϬϬϬ Ϭ dƌĂŶƐĂĐƚŝŽŶĂŵŽƵŶƚ͕EWZďŝůůŝŽŶ EƵŵďĞƌŽĨƚƌĂŶƐĂĐƚŝŽŶ͕ŵŝůůŝŽŶ ϯϬϬ ,ŽƵƐŝŶŐĂŶĚƵƚŝůŝƚŝĞƐ dƌĂŶƐƉŽƌƚĂƚŝŽŶ
ϭϬ͕ϬϬϬ
Ϭ
ϳϬϬ
indicated
ϭϬ by a 6 percent (y/y) contraction in nominal
,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ϮϬϬ
Ϯ͕ϬϬϬ ϲϬϬ
ϭϬϬ
imports
ϴ of capital and intermediate goods (Figure 16).
ϴ͕ϬϬϬ
&ŝŐϭϯ Ϭ
Sources. Nepal Rastra Bank and World Bank staff calculations. ϱϬϬ
Ϭ Additionally,
ϲ there was low nominal growth of non-financial
ϲ͕ϬϬϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ϰϬϬ
&ŝŐϭϳ business
ϰ credit of 5.9 percent (y/y), primarily due to tighter
ϯϬϬ Ϯ
ϰ͕ϬϬϬ regulation on working capital loans, elevated lending rates,
Figure 14. …and remittances also grew, but did notϮϬϬ
;EWZďŝůůŝŽŶͿ lead Ϭ
Ϯ͕ϬϬϬ ZĞŵŝƚƚĂŶĐĞ /ŵƉŽƌƚƐŽĨĐŽŶƐƵŵƉƚŝŽŶŐŽŽĚ and weak domestic demand (see Monetary and Financial
to matched
ϴϬϬ increase in imports of consumption goods ϭϬϬ
ͲϮ
ϳϬϬ
Ϭ Ϭ Sector).,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϲϬϬ
;EWZďŝůůŝŽŶͿ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϱϬϬ
ϴϬϬϰϬϬ
ZĞŵŝƚƚĂŶĐĞ /ŵƉŽƌƚƐŽĨĐŽŶƐƵŵƉƚŝŽŶŐŽŽĚ Public consumption and investment remained weak.
&ŝŐϭϰ
ϳϬϬϯϬϬ Nominal public consumption, as measured by the growth
ϲϬϬϮϬϬ
of wages and goods and services, contracted by 11
ϱϬϬϭϬϬ
ϰϬϬ Ϭ
;EWZďŝůůŝŽŶͿ percent
;ƉĞƌĐĞŶƚͿ (y/y) (see Fiscal Sector). Similarly, nominal public
&ŝŐϭϰ
,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ
ZĞŵŝƚƚĂŶĐĞ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
/ŵƉŽƌƚƐŽĨĐŽŶƐƵŵƉƚŝŽŶŐŽŽĚ
ϯϬϬ
ϴϬϬ investment,
ϭϬ proxied /ŶĨůĂƚŝŽŶEĞƉĂů
by capital spending, /ŶĨůĂƚŝŽŶ/ŶĚŝĂ
declined by 5.6
ϮϬϬ
ϳϬϬ
ϭϬϬ
percent
ϴ
(y/y). These declines can be attributed to two key
ϲϬϬ
ϱϬϬ
Ϭ factors (see Fiscal Sector); i) implementation of austerity
,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ϲ
&ŝŐϭϰ
ϰϬϬ;ƉĞƌĐĞŶƚͿ measures; and ii) lower budget for capital spending.
ϯϬϬ /ŶĨůĂƚŝŽŶ 'ƌŽǁƚŚŝŶǁĂŐĞĂŶĚƐĂůĂƌLJŝŶĚĞdž ϰ
ϮϬϬϭϴ &ŝŐϭϴ Overall inflation moderated in H1FY24 due to declining non-
Sources.
ϭϬϬϭϲ
Nepal Rastra Bank, Department of Customs and World Bank staff Ϯ

&ŝŐϭϱ
calculations.
Ϭ
ϭϰ food and service costs
ϭϮ Ϭ
;ƉĞƌĐĞŶƚͿ
,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Figure ϭϬ 15. However, slower growth of wages and salaries,
/ŶĨůĂƚŝŽŶ 'ƌŽǁƚŚŝŶǁĂŐĞĂŶĚƐĂůĂƌLJŝŶĚĞdž Average consumer price inflation decreased in H1FY24,
ϭϴ ϴ
relative
ϭϲ ϲ to inflation, suggests a slowdown in private driven by declines in non-food and services inflation.
&ŝŐϭϱ
consumption
ϭϰ ϰ
The average inflation rate decreased from 8 percent in
ϭϮ Ϯ
Ϭ
;ƉĞƌĐĞŶƚͿ
ϭϬ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
H1FY23 to 6.5 percent (y/y) in H1FY24, which is equal to
ϴ /ŶĨůĂƚŝŽŶ 'ƌŽǁƚŚŝŶǁĂŐĞĂŶĚƐĂůĂƌLJŝŶĚĞdž
ϭϴϲ the central bank’s FY24 inflation target of 6.5 percent
ϭϲϰ
(Figure 17). Despite the decrease, this marks the second-
ϭϰϮ
&ŝŐϭϱ
ϭϮ
Ϭ
highest inflation rate since H1FY16. Non-food and services
ϭϬ
ϴ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ prices decreased by 1.7 percent points to 3.2 percent (y/y)
ϲ in H1FY24 (down from 4.9 percent (y/y) in H1FY23). This
ϰ
Ϯ
decline reflects the easing of housing and utility prices and
Ϭ transportation prices amid the global decline in oil prices,
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
leading to the lower overall inflation rate.

Sources. Nepal Rastra Bank and World Bank staff calculations.

THE WORLD BANK | 13

 ;ŽǀĞƌĂůůŝŵƉŽƌƚƐ͕EWZďŝůůŝŽŶͿ

/ŶƚĞƌŵĞĚŝĂƚĞŐŽŽĚƐ ĂƉŝƚĂůŐŽŽĚƐ ŽŶƐƵŵƉƚŝŽŶ /ŵƉŽƌƚƐ

ϭϮϬϬ
RECENT ECONOMIC DEVELOPMENTS
;ŽǀĞƌĂůůŝŵƉŽƌƚƐ͕EWZďŝůůŝŽŶͿ
ϭϬϬϬ
ϴϬϬ /ŶƚĞƌŵĞĚŝĂƚĞŐŽŽĚƐ ĂƉŝƚĂůŐŽŽĚƐ ŽŶƐƵŵƉƚŝŽŶ /ŵƉŽƌƚƐ
ϭϮϬϬ
ϲϬϬ
&ŝŐϭϲ ϭϬϬϬ
ϰϬϬ
ϴϬϬ
ϮϬϬ
ϲϬϬ
&ŝŐϭϲ Ϭ
ϰϬϬ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Figure 17. Average consumer inflation decreased in Nepal’s poverty rate fell due to migration and remittances,
ϮϬϬ
H1FY24
Ϭ due to lower non-food and services inflation alongside consumption increases, but challenges persist with
,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
a weak labor market and limited social assistance, posing
;ĐŽŶƚƌŝďƵƚŝŽŶƚŽŚĞĂĚůŝŶĞŝŶĨůĂƚŝŽŶ͕ƉĞƌĐĞŶƚĂŐĞƉŽŝŶƚƐͿ
&ŽŽĚĂŶĚďĞǀĞƌĂŐĞ EŽŶͲĨŽŽĚĂŶĚƐĞƌǀŝĐĞƐ KǀĞƌĂůůŝŶĚĞdž risks amid economic and climate shocks.
,ŽƵƐŝŶŐĂŶĚƵƚŝůŝƚŝĞƐ dƌĂŶƐƉŽƌƚĂƚŝŽŶ
ϭϬ
;ĐŽŶƚƌŝďƵƚŝŽŶƚŽŚĞĂĚůŝŶĞŝŶĨůĂƚŝŽŶ͕ƉĞƌĐĞŶƚĂŐĞƉŽŝŶƚƐͿ
ϴ
Nepal’s poverty rate fell, due in large part to a surge in
&ŽŽĚĂŶĚďĞǀĞƌĂŐĞ EŽŶͲĨŽŽĚĂŶĚƐĞƌǀŝĐĞƐ KǀĞƌĂůůŝŶĚĞdž
ϲ ,ŽƵƐŝŶŐĂŶĚƵƚŝůŝƚŝĞƐ dƌĂŶƐƉŽƌƚĂƚŝŽŶ
migration and their remittances. The recent nationally
ϭϬ
&ŝŐϭϳ
ϰ household survey data from the Nepal Living Standard Survey
ϴ
Ϯ
ϲ
2022/23 shows a large decline in poverty from 25 percent to
Ϭ
ϰ just 3.6 percent between 2011 and 2023 (using 2011 National
&ŝŐϭϳ ͲϮ
Ϯ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ Poverty Line), while the extreme poverty rate (using the USD
Ϭ
2.15 line) dropped to below 1 percent. Meanwhile the share
Sources.
ͲϮ Nepal Rastra Bank and World Bank staff calculations.
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ of population living below the USD 6.85 poverty line (used
by upper middle-income countries) fell from 79.7 to 47.8
Figure 18. Average consumer inflation for India in H1FY24
;ƉĞƌĐĞŶƚͿ percent (Figure 19).1 This reduction was accompanied by a
remained lower than Nepal
/ŶĨůĂƚŝŽŶEĞƉĂů /ŶĨůĂƚŝŽŶ/ŶĚŝĂ
ϭϬ 66 percent increase in average real per capita consumption,
;ƉĞƌĐĞŶƚͿ
ϴ with a 70.8 percent rise among the bottom 40 percent of
ϭϬ
ϲ
/ŶĨůĂƚŝŽŶEĞƉĂů /ŶĨůĂƚŝŽŶ/ŶĚŝĂ
the population. Migrants’ remittances played a crucial role
ϰϴ
in this poverty reduction, directly contributing about a third
&ŝŐϭϴ
Ϯϲ
of the decrease, while indirectly boosting domestic wages.
Ϭϰ
The higher wages followed a shift in demand for labor away
&ŝŐϭϴ
Ϯ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ from agriculture. The percentage of households receiving
Ϭ
remittances and the per capita remittances increased for
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ both poor and non-poor households, but it especially
benefitted those at the lower end of the income distribution.
Sources. Nepal Rastra Bank, Ministry of Statistics and Programme Emigration remains an attractive choice for Nepalis due to
Implementation (India), and World Bank staff calculations.
limited job opportunities at home and significantly higher
Conversely, food and beverage inflation increased wages abroad, where migrant workers earn three times more
marginally from 7.2 percent (y/y) in H1FY23 to 7.3 than domestic workers on average.
percent (y/y) in H1FY24. An increase of cereal grain and The prosperity gap and inequality also reduced over the
spice inflation was offset by declines in prices of ghee and last decade. The prosperity gap, defined as the average factor
oil associated with the global decline in edible oil prices. The by which per capita expenditure fall short of the prosperity
rise in cereal grain inflation can be partly attributed to two standard of USD 25 per person per day, decreased from 6.7
factors. One is the government’s increase in the minimum in FY11 to 3.7 in FY23. The inequality, defined by Gini index
support price for paddy by more than 7.5 percent. The other for consumption inequality, fell by 1.5 percentage points
is India’s restrictive measures on rice exports, and additional from 32.8 in FY11 to 31.3 in FY23 (Figure 20). While the gap
20 percent export duty. Additionally, higher spice inflation between the richest 10 percent and the poorest 10 percent
was triggered by increased prices of large cardamom and (90/10 ratio) is still substantial (7.1 times higher consumption
cumin. in 2023), it narrowed slightly compared to 2011. Similarly, the
Among other factors, Nepal’s inflation is influenced by gap between the richest 10 percent and the middle class
India’s inflation due to the currency peg, but inflation (90/50 ratio) also decreased from 3.5 to 3.2 over the same
in India during H1FY24 remained lower than in Nepal period. Nepal has even raised its official poverty line, by
(Figure 18). The imposition of VAT on air travel and other raising the real value of the threshold by 70 percent to reflect
select goods, such as potatoes and onions, coupled with rising living standards and changing consumption patterns.
India’s export ban on onions could have also contributed to Under the revised new poverty threshold, one-fifth of the
the relatively higher inflation in H1FY24. Nepal’s population now lives in poverty (Figure 19).

1
The FY23 poverty rates using the international lines and the Gini index presented in the trends are based on the 2022/23 welfare aggregate, which is comparable with the NLSS
III. The same indicators with the newly updated 202223 welfare aggregate, which will serve as benchmarks for future comparisons, are as follows: poverty headcount rates at
USD 2.15 and USD 6.85 per person per day thresholds are 0.37 percent and 44.07 percent, respectively, while the Gini index is 30.02.

14
 NEPAL DEVELOPMENT UPDATE | APRIL 2024

Figure 19. Poverty rate fell in 2023 using 2011 National

Poverty Line
A.2 EXTERNAL SECTOR
EĂƚŝŽŶĂůƉŽǀĞƌƚLJůŝŶĞ;ϮϬϮϯͿ h^Ϯ͘ϭϱƉĞƌƉĞƌƐŽŶƉĞƌĚĂLJ;ϮϬϭϳ;WWWͿͿ
EĂƚŝŽŶĂůƉŽǀĞƌƚLJůŝŶĞ;ϮϬϭϭͿ h^ϲ͘ϴϱƉĞƌƉĞƌƐŽŶƉĞƌĚĂLJ;ϮϬϭϳ;WWWͿͿ

EĂƚŝŽŶĂůƉŽǀĞƌƚLJůŝŶĞ;ϮϬϮϯͿ
EĂƚŝŽŶĂůƉŽǀĞƌƚLJůŝŶĞ;ϮϬϮϯͿ h^Ϯ͘ϭϱƉĞƌƉĞƌƐŽŶƉĞƌĚĂLJ;ϮϬϭϳ;WWWͿͿ
h^Ϯ͘ϭϱƉĞƌƉĞƌƐŽŶƉĞƌĚĂLJ;ϮϬϭϳ;WWWͿͿ
TheϭϬϬexternal sector saw continued improvement, as the
ϳϵ͘ϳϬ
EĂƚŝŽŶĂůƉŽǀĞƌƚLJůŝŶĞ;ϮϬϭϭͿ
EĂƚŝŽŶĂůƉŽǀĞƌƚLJůŝŶĞ;ϮϬϭϭͿ h^ϲ͘ϴϱƉĞƌƉĞƌƐŽŶƉĞƌĚĂLJ;ϮϬϭϳ;WWWͿͿ
h^ϲ͘ϴϱƉĞƌƉĞƌƐŽŶƉĞƌĚĂLJ;ϮϬϭϳ;WWWͿͿ current
ϴϬ account balance shifted to a surplus fueled by rising
ϭϬϬ
ϭϬϬ remittances
ϲϬ and a shrinking trade deficit, resulting in an
ϳϵ͘ϳϬ
ϳϵ͘ϳϬ
ϰϳ͘ϴϬ
ϴϬ
ϴϬ &ŝŐϭϵ increase
ϰϬ in foreign exchange reserves.
ϲϬ Ϯϱ͘ϭϲ ϮϬ͘Ϯϳ
ϲϬ
ϮϬ
&ŝŐϭϵ
&ŝŐϭϵ ϰϬ
ϰϬ
ϰϳ͘ϴϬ ϰϳ͘ϴϬ The current accountbalance turned positive in H1FY24
ϴ͘ϮϬ ϯ͘ϱϳ
Ϭ͘ϵϭ
Ϯϱ͘ϭϲ ϮϬ͘Ϯϳ ϮϬ͘Ϯϳ Ϭ
ϮϬ
Ϯϱ͘ϭϲ as remittances expanded &zϭϭ
and trade deficit narrowed.
&zϮϯ
The
ϮϬ ϴ͘ϮϬ ϯ͘ϱϳ
ϴ͘ϮϬ Ϭ͘ϵϭ ϯ͘ϱϳ
Ϭ Ϭ͘ϵϭ current account balance shifted from a deficit of 0.7 percent
Ϭ
&zϭϭ &zϮϯ
&zϭϭ &zϮϯ of GDP in H1FY23 to a surplus of 2.7 percent of GDP in H1FY24,
Sources. National Statistics Office and World Bank staff calculations. the first surplus in eight years (Figure 21). The surplus was
primarily driven by higher remittances, which rose from 10.9
ϵϬͬϱϬƌĂƚŝŽ
Figure 20. Inequality also reduced over the decade to 2023 percent of GDP in H1FY23 to ϵϬͬϭϬƌĂƚŝŽ
12.3 percent of'ŝŶŝŝŶĚĞdž
GDP in H1FY24,
ϯϱ
ϵϬͬϱϬƌĂƚŝŽ ϵϬͬϭϬƌĂƚŝŽ 'ŝŶŝŝŶĚĞdž plus
ϯϬ
the narrowing
ϯϮ͘ϴϬ trade deficit, which decreased from 13.2
ϯϭ͘Ϯϴ
ϯϱ ϵϬͬϱϬƌĂƚŝŽ ϵϬͬϭϬƌĂƚŝŽ 'ŝŶŝŝŶĚĞdž
ϯϱ
ϯϬ
ϯϮ͘ϴϬ
ϯϭ͘Ϯϴ &ŝŐϮϬ percent
Ϯϱ of GDP to 11.6 percent of GDP over the same period.
ϯϮ͘ϴϬ
&ŝŐϮϬ ϯϬ
Ϯϱ ϯϭ͘Ϯϴ As ϮϬ
a result of the surplus, official foreign exchange reserves
&ŝŐϮϬ ϮϬ
Ϯϱ increased
ϭϱ to 12.1 months of import cover at the end of
ϭϱ
ϮϬ H1FY24 (Figureϳ͘ϰϲ
ϭϬ 22). ϳ͘ϭϬ
ϭϬ
ϭϱ ϱ
ϳ͘ϰϲ ϳ͘ϭϬ ϯ͘ϰϲ ϯ͘ϮϮ
ϱ Ϭ
ϭϬ ϯ͘ϰϲ ϯ͘ϮϮ
Ϭ
ϱ
ϳ͘ϰϲ ϳ͘ϭϬ Figure 21. The current
&zϭϭ account balance turned
&zϮϯ positive in
ϯ͘ϰϲ
&zϭϭ &zϮϯ ϯ͘ϮϮ
Ϭ H1FY24…
&zϭϭ &zϮϯ džƚĞƌŶĂů
džƚĞƌŶĂů
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
Sources. National Statistics Office and World Bank staff calculations.
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
'ŽŽĚƐŝŵƉŽƌƚƐ 'ŽŽĚƐĞdžƉŽƌƚƐ
džƚĞƌŶĂů 'ŽŽĚƐŝŵƉŽƌƚƐ 'ŽŽĚƐĞdžƉŽƌƚƐ
^ĞƌǀŝĐĞŝŵƉŽƌƚƐ ^ĞƌǀŝĐĞĞdžƉŽƌƚƐ
^ĞƌǀŝĐĞŝŵƉŽƌƚƐ ^ĞƌǀŝĐĞĞdžƉŽƌƚƐ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ ZĞŵŝƚƚĂŶĐĞƐ ƵƌƌĞŶƚĂĐĐŽƵŶƚďĂůĂŶĐĞ
ZĞŵŝƚƚĂŶĐĞƐ ƵƌƌĞŶƚĂĐĐŽƵŶƚďĂůĂŶĐĞ
Observed progress remains at significant risk from
ϮϬ 'ŽŽĚƐŝŵƉŽƌƚƐ 'ŽŽĚƐĞdžƉŽƌƚƐ ϮϬ
ϭϱ
ϭϱ ^ĞƌǀŝĐĞŝŵƉŽƌƚƐ ^ĞƌǀŝĐĞĞdžƉŽƌƚƐ
economic and climate shocks, mainly due to the lack
ϭϬ ZĞŵŝƚƚĂŶĐĞƐ ƵƌƌĞŶƚĂĐĐŽƵŶƚďĂůĂŶĐĞ
ϭϬ
ϱ
ϱ
ϮϬ
of targeted policy instruments for the poor and a weak
Ϭ
ϭϱ
Ͳϱ
Ϭ
Ͳϱ
ϭϬ ͲϭϬ
domestic labor market. The rate of being out of the labor
ͲϭϬ
Ͳϭϱϱ Ͳϭϱ
ͲϮϬϬ ͲϮϬ
force remains high even for those with secondary education
ͲϮϱͲϱ ͲϮϱ
&ŝŐϮϭ ͲϭϬ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ &ŝŐϮϭ
(52Ͳϭϱpercent) and tertiary education (28 percent), with high ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ͲϮϬ
&ŝŐϮϭ
unemployment
ͲϮϱ prevalent across the education distribution. Sources. Nepal Rastra Bank and World Bank staff calculations.
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Self-employment or unpaid work comprised a third of
all employment in FY23. Despite this, the current social Figure 22. …leading to an accumulation of reserves.
assistance programs are largely categorically targeted and
/ŵƉŽƌƚĐŽǀĞƌĂŐĞ͕ŵŽŶƚŚƐ
have limited reach among the poor. Even with a significant &ŽƌĞŝŐŶĞdžĐŚĂŶŐĞƌĞƐĞƌǀĞƐ͕h^ďŝůůŝŽŶ
increase in senior citizens’ and single women’s allowances ϮϬ
&ŝŐϮϮ ϭϴ
(by 10 and 6 times, respectively) and the introduction of new ϭϲ
cash-based support programs over the last decade, social ϭϰ
ϭϮ
assistance contributes marginally to poverty reduction (by ϭϬ
ϴ
2 percentage points in FY23). The absence of well-targeted ϲ
ϰ
social protection that can reach both the poor and be scaled Ϯ
up in response to shocks adds to the increasing risk of falling Ϭ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
back into poverty, particularly in the face of Nepal’s high
vulnerability to climate change2 and weak insurance markets. Sources. Nepal Rastra Bank and World Bank staff calculations.
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
&ŽŽĚĂŶĚďĞǀĞƌĂŐĞƐ /ŶĚƵƐƚƌŝĂůƐƵƉƉůŝĞƐ &ƵĞů
ĂƉŝƚĂůŐŽŽĚƐ dƌĂŶƐƉŽƌƚĞƋƵŝƉŵĞŶƚ ŽŶƐƵŵĞƌŐŽŽĚƐ
dŽƚĂůŝŵƉŽƌƚƐ
Ϯϱ
ϮϬ
ϭϱ
&ŝŐϮϯ
ϭϬ
2
Nepal also faces increasing climate risks; while it ranks 10th in the world as a country most affected by past climate hazards, it is 44th most vulnerable to future climate risks.
ϱ
Ϭ
THE WORLD BANK
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
| 15
 RECENT ECONOMIC DEVELOPMENTS

Imports continued to decline from a peak of H1FY22. primarily driven by a rise in educational services imports,
Imports fell from 14.3 percent of GDP in H1FY23 to 12.6 fueled by Nepalese students pursuing higher education
percent of GDP in H1FY24, due to a decrease in goods abroad. During H1FY24, over 45,000 Nepalese obtained no
imports (Figure 23). A decline in industrial supplies import objection certificates from the government to study abroad.
significantly contributed to lower goods imports in H1FY24.
Exports of goods and services grew marginally but
By contrast, imports of electric cars, jeeps, and vans (included
remained below their pre-pandemic level of H1FY20.
under transport equipment) increased by more than 100
Exports expanded by 0.1 percentage points to 3.5 percent of
/ŵƉŽƌƚĐŽǀĞƌĂŐĞ͕ŵŽŶƚŚƐ
percent (y/y) in part due to lower customs duties on these &ŽƌĞŝŐŶĞdžĐŚĂŶŐĞƌĞƐĞƌǀĞƐ͕h^ďŝůůŝŽŶ
GDP in H1FY24 (Figure 24 and Table 1), driven by a significant
vehicles compared to their fossil fuel counterparts. The pace ϮϬ
&ŝŐϮϮ surge
ϭϴ in international tourist arrivals, which rose by 45.8
of decline in goods imports, however, was in H1FY24 slower ϭϲ
/ŵƉŽƌƚĐŽǀĞƌĂŐĞ͕ŵŽŶƚŚƐ percent
ϭϰ (y/y) in H1FY24. However, the travel component of
compared to H1FY23 when import restriction measures were
&ŽƌĞŝŐŶĞdžĐŚĂŶŐĞƌĞƐĞƌǀĞƐ͕h^ďŝůůŝŽŶ
ϭϮ
services exports continued to lag the travel component of
ϭϬ
inϮϬeffect. Key factors contributing to the decrease in goods ϴ
services imports since the first half of FY20. Goods exports,
ϭϴ ϲ
&ŝŐϮϮ
imports
ϭϲ included: i) India’s reduction in custom duties on ϰ
excluding electricity, on the other hand, declined due to lower
Ϯ
ϭϰ
edible
ϭϮ oil imports, leading to a 64.7 percent (y/y) decrease Ϭ
exports of refined edible oil. Electricity exports continued to
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
inϭϬϴcrude edible oil imports; ii) lower fossil fuel prices; and iii) expand, reaching 0.2 percent of GDP and surpassing imports,
lower
ϲ imports of unwrought gold. supported by increased hydroelectricity production. Among
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
ϰ
&ŽŽĚĂŶĚďĞǀĞƌĂŐĞƐ /ŶĚƵƐƚƌŝĂůƐƵƉƉůŝĞƐ &ƵĞů
Ϯ
Ϭ
the components
ĂƉŝƚĂůŐŽŽĚƐ of goods exports, iron andŽŶƐƵŵĞƌŐŽŽĚƐ
dƌĂŶƐƉŽƌƚĞƋƵŝƉŵĞŶƚ steel exports also
dŽƚĂůŝŵƉŽƌƚƐ
Figure 23.,ϭ&zϭϳ
,ϭ&zϭϲ Goods imports
,ϭ&zϭϴ ,ϭ&zϭϵ continued
,ϭ&zϮϬ ,ϭ&zϮϭ to decline
,ϭ&zϮϮ ,ϭ&zϮϯin H1FY24
,ϭ&zϮϰ experienced
Ϯϱ a significant increase, doubling their share to 0.1
percent
ϮϬ of GDP. The government added iron and steel, as well
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ as electricity,
ϭϱ along with other goods and services, to the list
&ŽŽĚĂŶĚďĞǀĞƌĂŐĞƐ /ŶĚƵƐƚƌŝĂůƐƵƉƉůŝĞƐ &ƵĞů &ŝŐϮϯ
ĂƉŝƚĂůŐŽŽĚƐ dƌĂŶƐƉŽƌƚĞƋƵŝƉŵĞŶƚ ŽŶƐƵŵĞƌŐŽŽĚƐ of promising export items in the new Nepal Trade Integration
ϭϬ
dŽƚĂůŝŵƉŽƌƚƐ ϱ
Ϯϱ Strategy, which has been implemented since July 2023.
Ϭ
ϮϬ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϭϱ
&ŝŐϮϯ Figure 24. Exports of goods and services grew marginally
ϭϬ
ϱ ;ĐŽŵƉŽŶĞŶƚƐŽĨŐŽŽĚƐĂŶĚƐĞƌǀŝĐĞƐĞdžƉŽƌƚƐ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
Ϭ ůĞĐƚƌŝĐŝƚLJ WĂůŵŽŝů ^ŽLJĂďĞĂŶŽŝů ĂƌĚĂŵŽŵ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ KƚŚĞƌŐŽŽĚƐ ĂƌƉĞƚ ^ĞƌǀŝĐĞƐ KǀĞƌĂůůĞdžƉŽƌƚƐ
ϱ

ϰ
Sources. Department of Customs, Nepal Rastra Bank, and World Bank staff
calculations. ϯ
;ĐŽŵƉŽŶĞŶƚƐŽĨŐŽŽĚƐĂŶĚƐĞƌǀŝĐĞƐĞdžƉŽƌƚƐ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ &ŝŐϮϰ Ϯ
Note: Goods imports do notWĂůŵŽŝů
ůĞĐƚƌŝĐŝƚLJ include electricity^ŽLJĂďĞĂŶŽŝů
imports. ĂƌĚĂŵŽŵ
KƚŚĞƌŐŽŽĚƐ ĂƌƉĞƚ ^ĞƌǀŝĐĞƐ KǀĞƌĂůůĞdžƉŽƌƚƐ ϭ
ϱ Ϭ
While goods imports declined, services imports in H1FY24 ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϰ
surpassed their pre-pandemic level of H1FY20. In H1FY24,
ϯ
&ŝŐϮϰ
services imports reached 2.6 percent of GDP, expanding by Sources. Department of Customs, Nepal Rastra Bank, and World Bank
Ϯ
0.3 percentage points compared to H1FY23. This growth was staff calculations.
ϭ

Ϭ
Table,ϭ&zϭϲ
1. Selected External
,ϭ&zϭϳ ,ϭ&zϭϴ Sector
,ϭ&zϭϵ ,ϭ&zϮϬIndicators (percent
,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ of GDP)
,ϭ&zϮϰ

H1FY18 H1FY19 H1FY20 H1FY21 H1FY22 H1FY23 H1FY24

Current Account Balance -2.8 -3.9 -2.0 -1.2 -7.1 -0.7 2.7

Balance of Goods and Services -14.5 -17.3 -15.9 -14.0 -18.1 -13.2 -11.6

Total Exports of Goods and Services 3.7 3.8 4.0 2.3 3.6 3.4 3.5

Total Imports of Goods and Services -18.2 -21.1 -19.9 -16.3 -21.6 -16.6 -15.1

Remittances 9.9 11.5 11.5 11.4 9.5 10.9 12.3

Net Foreign Direct Investment 0.4 0.1 0.3 0.2 0.2 0.0 0.1

Gross Official Reserves (USD billion) 10.5 9.4 9.7 12.8 9.9 10.3 13.7
Source: Nepal Rastra Bank and World Bank staff calculations

16
 NEPAL DEVELOPMENT UPDATE | APRIL 2024

ZĞŵŝƚƚĂŶĐĞƐ͕h^ďŝůůŝŽŶ ZĞŵŝƚƚĂŶĐĞŝŶĨůŽǁƐ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚ
ϭϰ
Official remittance inflows continued to expand in Figure 25. Remittance inflows continued to expand in part
&ŝŐϮϱ ϭϮ at the same rate observed in H1FY23. Remittance
H1FY24 due to …
inflows
ϭϬ jumped from 10.9 percent of GDP in H1FY23 to reach
an eight-year peak of 12.3 percent of GDP in H1FY24 (Figure ZĞŵŝƚƚĂŶĐĞƐ͕h^ďŝůůŝŽŶ ZĞŵŝƚƚĂŶĐĞŝŶĨůŽǁƐ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚ
ϴ ϭϰ
25). Higher outmigration in previous years (Figure 26), plus a
ϭϮ
ϲ
2.2 percent (y/y) depreciation of the Nepalese rupee (NPR)&ŝŐϮϱ
ϭϬ
against
ϰ the US dollar, fueled the rise in remittances in H1FY24. ϴ ZĞŵŝƚƚĂŶĐĞƐ͕h^ďŝůůŝŽŶ ZĞŵŝƚƚĂŶĐĞŝŶĨůŽǁƐ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚ
Additionally, the expansion of money transfer agencies and ϭϰ
ϲ
Ϯ
government incentives for migrant workers, such as reserving&ŝŐϮϱ ϭϮ
ϰ
Ϭ
10 percent of Initial Public Offerings, providing social security ϭϬ
Ϯ

,ϭ&zϭϲ
benefits, and ,ϭ&zϭϳ
offering higher,ϭ&zϭϴ
interest ,ϭ&zϭϵ ,ϭ&zϮϬ
rates on fixed Ϭϴ
,ϭ&zϮϭ ,ϭ&zϮϮ
deposits, ,ϭ&zϮϯ ,ϭ&zϮϰ
ϲ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
encouraged these funds to flow through official channels,
ϰ
further contributing to the higher remittance inflows.
Ϯ
Sources. Nepal Rastra Bank and World Bank staff calculations.
;ŶƵŵďĞƌŽĨŽƵƚͲŵŝŐƌĂƚŝŽŶ͕ƚŚŽƵƐĂŶĚƐͿ
Ϭ
The;ŶƵŵďĞƌŽĨŽƵƚͲŵŝŐƌĂƚŝŽŶ͕ƚŚŽƵƐĂŶĚƐͿ
nominal effective exchange rate (NEER) remained ϯϬϬ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
&ŝŐϮϲ
relatively unchanged, while the real effective exchange Figure
ϮϱϬ 26. … increasing outmigrant from previous years
ϯϬϬ
&ŝŐϮϲ rate (REER) appreciated. In HIFY24, the NEER - calculated ϮϬϬ
;ŶƵŵďĞƌŽĨŽƵƚͲŵŝŐƌĂƚŝŽŶ͕ƚŚŽƵƐĂŶĚƐͿ
as the
ϮϱϬgeometric weighted average of nominal bilateral rates ϭϱϬ
ϯϬϬ
between the NPR and a basket of currencies of major trading&ŝŐϮϲ ϭϬϬ
ϮϬϬ declined marginally by 0.1 percent (y/y) (Figure 27).
partners- ϮϱϬ
ϱϬ
Conversely,
ϭϱϬ the REER, which adjusts the NEER by relative ϮϬϬ
Ϭ
consumer prices, appreciated by 2.4 percent (y/y). The REER ϭϱϬ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

ϭϬϬ
appreciation - with relatively unchanged NEER - suggests ϭϬϬ

that consumer prices in Nepal increased at a higher pace ϱϬ

ϱϬ
than in its major trading partners. Ϭ
;ƵŐƵƐƚϮϬϬϮсϭϬϬͿ EZ ,ϭ&zϮϮ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ZZ,ϭ&zϮϯ ,ϭ&zϮϰ
Ϭ ϭϱϬ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ
&ŝŐϮϳ ,ϭ&zϮϮ
ϭϰϬ ,ϭ&zϮϯ
Sources.
,ϭ&zϮϰ
Nepal Rastra Bank and World Bank staff calculations.
ϭϯϬ
ϭϮϬ
;ƵŐƵƐƚϮϬϬϮсϭϬϬͿ EZ
Figure 27. Nominal effective exchange rate remained relatively unchanged,
ϭϭϬ while real effective exchange rateZZ
appreciated
ϭϬϬ
ϭϱϬ
&ŝŐϮϳ ϵϬ
ϭϰϬ
ϴϬ
ϭϯϬ
;ƵŐƵƐƚϮϬϬϮсϭϬϬͿ EZ ZZ
ϳϬ
ϭϮϬ
ϭϭϬ
ϭϱϬ ϭϬϬ
&ŝŐϮϳ ϭϰϬ
ϵϬ
DŽŶĞƚĂƌLJ ϴϬ
ϭϯϬ ϳϬ

ϭϮϬ
ϭϭϬ
ϭϬϬ DŽŶĞƚĂƌLJ

ϵϬ
ϴϬ
ϳϬ

DŽŶĞƚĂƌLJSources. World Bank staff calculations

THE WORLD BANK | 17

 RECENT ECONOMIC DEVELOPMENTS

A.3 MONETARY AND points in FY22 (August 2021 and February 2022) and FY23
(July 2022). However, at the beginning of FY24 (July 2023),
FINANCIAL SECTOR it lowered its policy rate by 50 basis points, and further by
100 basis points to 5.5 percent in December 2023 (Figure 28).
Since FY23, the NRB implemented a rule for setting the policy
Monetary policy remained cautiously accommodative,
rate based on foreign exchange reserves and inflation rate
balancing the need to manage inflation and external
ceiling. The rule also requires that it would set the policy rate
pressures, while supporting credit flow towards productive
no lower than the annual inflation ceiling.3 While inflation
sectors.
pressures are gradually easing and the external sector is
After three hikes in FY22 and FY23, the NRB lowered its stable, the recent policy rate reduction below the inflation
policy rates twice in H1FY24 as inflationary and external ceiling (6.5 percent) contradicts the NRB’s new monetary
pressures eased. The NRB raised its policy rate by 400 basis policy rule.

Figure 28. The central bank cut the policy rate twice in H1FY24

;ǁĞŝŐŚƚĞĚĂǀĞƌĂŐĞ͕ƉĞƌĐĞŶƚͿ
/ŶƚĞƌďĂŶŬƌĂƚĞ hƉƉĞƌďŽƵŶĚƌĂƚĞ >ŽǁĞƌďŽƵŶĚƌĂƚĞ WŽůŝĐLJƌĂƚĞ /ŶĨůĂƚŝŽŶĐĞŝůŝŶŐ
ϭϬ
ϵ
ϴ
ϳ
&ŝŐϮϴ ϲ
ϱ
ϰ
ϯ
Ϯ ;ǁĞŝŐŚƚĞĚĂǀĞƌĂŐĞ͕ƉĞƌĐĞŶƚͿ
ϭ /ŶƚĞƌďĂŶŬƌĂƚĞ hƉƉĞƌďŽƵŶĚƌĂƚĞ >ŽǁĞƌďŽƵŶĚƌĂƚĞ WŽůŝĐLJƌĂƚĞ /ŶĨůĂƚŝŽŶĐĞ
Ϭ ϭϬ
ϵ
ƉƌͲϭϴ

ƵŐͲϭϴ

ƉƌͲϮϮ

ƉƌͲϮϯ
:ĂŶͲϭϵ
DĂƌͲϭϵ

ƵŐͲϭϵ

DĂƌͲϮϬ

:ĂŶͲϮϯ

ƵŐͲϮϯ

:ĂŶͲϮϰ
DĂƌͲϮϰ
:ƵůͲϮϬ

ĞĐͲϮϬ

:ƵůͲϮϭ
ĞĐͲϭϵ

&ĞďͲϮϭ

&ĞďͲϮϮ

KĐƚͲϮϯ
KĐƚͲϭϵ

KĐƚͲϮϬ

^ĞƉͲϮϭ

^ĞƉͲϮϮ
DĂLJͲϮϬ

DĂLJͲϮϭ
EŽǀͲϭϴ

EŽǀͲϮϭ

EŽǀͲϮϮ
:ƵŶͲϭϴ

:ƵŶͲϭϵ

:ƵŶͲϮϮ

:ƵŶͲϮϯ
ϴ
ϳ
&ŝŐϮϴ ϲ
ϱ
ϰ
;ƉĞƌĐĞŶƚͿ ϯ
Sources. Nepal Rastra Bank and World Bank staff calculations.
/ŶĨůĂƚŝŽŶƌĂƚĞ ZĞĂůĚĞƉŽƐŝƚƌĂƚĞ Ϯ ZĞĂůůĞŶĚŝŶŐƌĂƚĞ
ϭ
ϭϬ Ϭ
&ŝŐϮϵ
ƉƌͲϭϴ

ƵŐͲϭϴ

ƉƌͲϮϮ

ƉƌͲϮϯ
:ĂŶͲϭϵ
DĂƌͲϭϵ

ƵŐͲϭϵ

DĂƌͲϮϬ

ƵŐͲϮϯ
:ƵůͲϮϬ

ĞĐͲϮϬ

:ƵůͲϮϭ

:ĂŶͲϮϯ
ĞĐͲϭϵ
KĐƚͲϭϵ

KĐƚͲϮϬ

&ĞďͲϮϭ

^ĞƉͲϮϭ

&ĞďͲϮϮ

^ĞƉͲϮϮ
DĂLJͲϮϬ

DĂLJͲϮϭ
EŽǀͲϭϴ

EŽǀͲϮϭ

EŽǀͲϮϮ
:ƵŶͲϭϴ

:ƵŶͲϭϵ

:ƵŶͲϮϮ

:ƵŶͲϮϯ
Real interestϴ rates on deposits turned positive in Figure 29. Real interest rates remained positive in H1FY24…
November ϲ2022, and continued this trend in H1FY24.
With inflation trending downwards at a pace higher than ;ƉĞƌĐĞŶƚͿ
/ŶĨůĂƚŝŽŶƌĂƚĞ ZĞĂůĚĞƉŽƐŝƚƌĂƚĞ ZĞĂůůĞŶĚŝŶŐƌĂƚĞ
the nominalϰ weighted average interest rate on deposits, the
&ŝŐϮϵ
ϭϬ
ϴ
real interestϮrate on deposits picked up and reached above
ϲ
2 percent inϬthe last three months of H1FY24, the first since
ϰ
February 2021 (Figure 29).
ͲϮ Ϯ
:ƵůͲϭϵ

:ƵůͲϮϬ

:ƵůͲϮϭ

:ƵůͲϮϮ

:ƵůͲϮϯ
ƉƌͲϭϵ

ƉƌͲϮϬ

ƉƌͲϮϭ

ƉƌͲϮϮ

ƉƌͲϮϯ
KĐƚͲϭϵ

KĐƚͲϮϬ

KĐƚͲϮϭ

KĐƚͲϮϮ

KĐƚͲϮϯ
:ĂŶͲϮϭ

:ĂŶͲϮϮ

:ĂŶͲϮϰ
:ĂŶͲϮϬ

:ĂŶͲϮϯ

Ϭ
ͲϮ
:ƵůͲϭϵ

:ƵůͲϮϬ

:ƵůͲϮϭ

:ƵůͲϮϮ

:ƵůͲϮϯ
ƉƌͲϭϵ

ƉƌͲϮϬ

ƉƌͲϮϭ

ƉƌͲϮϮ

ƉƌͲϮϯ
KĐƚͲϭϵ

KĐƚͲϮϬ

KĐƚͲϮϭ

KĐƚͲϮϮ

KĐƚͲϮϯ
:ĂŶͲϮϬ

:ĂŶͲϮϭ

:ĂŶͲϮϮ

:ĂŶͲϮϯ

:ĂŶͲϮϰ

Sources. Nepal Rastra Bank and World Bank staff calculations.

;ĚĞƉŽƐŝƚƐďLJƐŽƵƌĐĞ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
;ĚĞƉŽƐŝƚƐďLJƐŽƵƌĐĞ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ &ŝŐϯϬ
&ŝŐϯϬ &ŽƌĞŝŐŶĚĞƉŽƐŝƚƐ EŽŶďĂŶŬƐĨŝŶĂŶĐŝĂů ŽƌƉŽƌĂƚŝŽŶƐ
&ŽƌĞŝŐŶĚĞƉŽƐŝƚƐ EŽŶďĂŶŬƐĨŝŶĂŶĐŝĂů ŽƌƉŽƌĂƚŝŽŶƐ
/ŶĚŝǀŝĚƵĂůƐ KƚŚĞƌƐ dŽƚĂůĚĞƉŽƐŝƚƐ
ϭϮϬ
/ŶĚŝǀŝĚƵĂůƐ KƚŚĞƌƐ dŽƚĂůĚĞƉŽƐŝƚƐ
ϭϬϬ
ϭϮϬ
3 ϴϬ
The Central Bank Act defines the objective of the central bank as follows: ‘...to formulate necessary monetary and foreign exchange policies in order to maintain the stability of
pricesϭϬϬ
and balance of payments for economic stability and sustainable development of the economy
ϲϬ and manage it...’. Starting from FY23, the central bank explicitly stated in its
monetary policy speech that the policy rate will be determined based on the capacity of foreign
ϰϬ
exchange reserves to cover imports of goods and services, as well as inflation.
ϴϬ it was announced that the policy rate will not be set lower than the annual inflation target.
Furthermore,
ϮϬ
ϲϬ Ϭ
18 ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϰϬ
ϮϬ
 /ŶƚĞƌďĂŶŬƌĂƚĞ hƉƉĞƌďŽƵŶĚƌĂƚĞ >ŽǁĞƌďŽƵŶĚƌĂƚĞ WŽůŝĐLJƌĂƚĞ /ŶĨůĂƚŝŽŶĐĞŝůŝŶŐ
ϭϬ
ϵ
ϴ
ϳ NEPAL DEVELOPMENT UPDATE | APRIL 2024
&ŝŐϮϴ ϲ
ϱ
ϰ
ϯ
Ϯ
ϭ
Ϭ
ƉƌͲϭϴ

ƵŐͲϭϴ

ƉƌͲϮϮ

ƉƌͲϮϯ
:ĂŶͲϭϵ
DĂƌͲϭϵ

ƵŐͲϭϵ

DĂƌͲϮϬ

:ƵůͲϮϬ

ĞĐͲϮϬ

:ƵůͲϮϭ

:ĂŶͲϮϯ

ƵŐͲϮϯ

:ĂŶͲϮϰ
DĂƌͲϮϰ
ĞĐͲϭϵ
KĐƚͲϭϵ

KĐƚͲϮϬ

&ĞďͲϮϭ

^ĞƉͲϮϭ

&ĞďͲϮϮ

^ĞƉͲϮϮ

KĐƚͲϮϯ
DĂLJͲϮϬ

DĂLJͲϮϭ
EŽǀͲϭϴ

EŽǀͲϮϭ

EŽǀͲϮϮ
:ƵŶͲϭϴ

:ƵŶͲϭϵ

:ƵŶͲϮϮ

:ƵŶͲϮϯ
Positive real interest rates increased remittances and value ratio for personal loans up to NPR 5 million, from a range
spurred deposit growth. As a result, deposits reached 102.3 of 30-40 percent to 50 percent; and iii) increase in the loan-to-
;ƉĞƌĐĞŶƚͿ
percent of GDP by the end ofZĞĂůĚĞƉŽƐŝƚƌĂƚĞ
/ŶĨůĂƚŝŽŶƌĂƚĞ H1FY24, a 3.7 percentage point
ZĞĂůůĞŶĚŝŶŐƌĂƚĞ value ratio for real estate loans within the Kathmandu Valley,
ϭϬ
&ŝŐϮϵ increase compared to H1FY23 (Figure 30). Individual deposits, from 40 percent to 50 percent.
ϴ
which accounted for more than 60 percent of overall deposits,
ϲ
contributed
ϰ
2.3 percentage points to this rise, followed by Figure 31. However, private sector credit declined driven
non-banking
Ϯ
financial institutions (2.1 percentage points). by non-financial business credit…
WithinϬ deposit types, time deposits and saving deposits led
;ƚŽƚĂůĐƌĞĚŝƚďLJĐƌĞĚŝƚŽƌƚLJƉĞ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
the growth,
ͲϮ driven by higher interest rates. &ŝŐϯϭ
EŽŶͲďĂŶŬƐĨŝŶĂŶĐŝĂů EŽŶͲĨŝŶĂŶĐŝĂůďƵƐŝŶĞƐƐ ,ŽƵƐĞŚŽůĚ
:ƵůͲϭϵ

:ƵůͲϮϬ

:ƵůͲϮϭ

:ƵůͲϮϮ

:ƵůͲϮϯ
ƉƌͲϭϵ

ƉƌͲϮϬ

ƉƌͲϮϭ

ƉƌͲϮϮ

ƉƌͲϮϯ
KĐƚͲϭϵ

KĐƚͲϮϬ

KĐƚͲϮϭ

KĐƚͲϮϮ

KĐƚͲϮϯ
:ĂŶͲϮϬ

:ĂŶͲϮϭ

:ĂŶͲϮϮ

:ĂŶͲϮϯ

:ĂŶͲϮϰ
KƚŚĞƌƐ dŽƚĂů

Figure 30. …resulting in an increase to overall deposits ϭϮϬ

ϭϬϬ
ϴϬ
;ĚĞƉŽƐŝƚƐďLJƐŽƵƌĐĞ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
&ŝŐϯϬ ϲϬ
&ŽƌĞŝŐŶĚĞƉŽƐŝƚƐ EŽŶďĂŶŬƐĨŝŶĂŶĐŝĂů ŽƌƉŽƌĂƚŝŽŶƐ
ϰϬ
/ŶĚŝǀŝĚƵĂůƐ KƚŚĞƌƐ dŽƚĂůĚĞƉŽƐŝƚƐ
ϮϬ
ϭϮϬ
Ϭ
ϭϬϬ
,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϴϬ
ϲϬ
Sources: Nepal Rastra Bank and World Bank staff calculations.
ϰϬ ;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
ϮϬ Note: Others include “Others” as defined in private ůĂŝŵƐŽŶŐŽǀĞƌŶŵĞŶƚ
EĞƚĨŽƌĞŝŐŶĂƐƐĞƚƐ credit by sector and
Ϭ
lending to staff ofůĂŝŵƐŽŶƉƌŝǀĂƚĞƐĞĐƚŽƌ
banking and financial institutionsKƚŚĞƌƐ
ϭϲϬ ƌŽĂĚŵŽŶĞLJ;DϮͿ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ϭϰϬ
WhileϭϮϬ
ϭϬϬ
private sector credit contracted, the broad
Sources. Nepal Rastra Bank and World Bank staff calculations. ϴϬ
money ϲϬ
supply (M2) increased from 106.6 percent to a
Note: Others include local government, Non-profit organizations, and ϰϬ
recordϮϬ high of 110 percent of GDP between H1FY23 and
miscellaneous &ŝŐϯϮ Ϭ
H1FY24
ͲϮϬ (Figure 32). This growth was primarily driven by a
ͲϰϬ
rise in credit to the government (1.8 percentage points) and
In contrast, private sector credit contracted by 3.6 ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
foreign assets (5.5 percentage points), offsetting the effect of
;ƚŽƚĂůĐƌĞĚŝƚďLJĐƌĞĚŝƚŽƌƚLJƉĞ͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
percentage points to 90.7 percent of GDP by the end of&ŝŐϯϭ EŽŶͲďĂŶŬƐĨŝŶĂŶĐŝĂů EŽŶͲĨŝŶĂŶĐŝĂůďƵƐŝŶĞƐƐ ,ŽƵƐĞŚŽůĚ
H1FY24. Non-financial business credit, the largest category, declining private sector credit on money supply. Government
KƚŚĞƌƐ dŽƚĂů
led the decline, falling by 2.6 percentage points, despite a borrowing increased due to moderate revenue performance
;EW>ƌĂƚŝŽŽĨĐŽŵŵĞƌĐŝĂůďĂŶŬƐ͕ƉĞƌĐĞŶƚͿ
ϭϮϬ

1.4 percentage point decrease in lending rates (Figure 31). (see

ϭϬϬfiscal section), and foreign
'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ assets rose
WƌŝǀĂƚĞďĂŶŬƐ on the back of
KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ
ϱ
This decrease was primarily due to tighter regulation on higher
ϰϴϬ remittances (see external section).
ϰϲϬ
working capital loans implemented by the central bank ϯ
ϯϰϬ
from October 2022 and in line with FY24’s monetary policy to&/Őϯϯ Figure
ϮϮϬ 32. …but this was more than offset by the increase
Ϯ
shift its focus towards channeling credit towards productive in credit
ϭϬ to government and foreign assets resulting in a
ϭ ,ϭ&zϮϮ
sectors, particularly small and medium-sized enterprises, record
Ϭ high for broad money ,ϭ&zϮϯ
supply ,ϭ&zϮϰ

while discouraging excessive concentration of loans. These

;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
guidelines capped loans to a company’s annual turnover
EĞƚĨŽƌĞŝŐŶĂƐƐĞƚƐ ůĂŝŵƐŽŶŐŽǀĞƌŶŵĞŶƚ
and required repayment of excess amounts in installments ůĂŝŵƐŽŶƉƌŝǀĂƚĞƐĞĐƚŽƌ KƚŚĞƌƐ
by mid-June 2025. Additionally, elevated lending rates, lower ϭϲϬ ƌŽĂĚŵŽŶĞLJ;DϮͿ
ϭϰϬ
public investment execution, and weak domestic demand ϭϮϬ
ϭϬϬ
could have also contributed to the lower non-financial ϴϬ
ϲϬ
business credit. However, in contrast, household credit, ϰϬ
ϮϬ
consisting primarily of education, hire purchase, personal,&ŝŐϯϮ Ϭ
ͲϮϬ
and real estate loans, expanded by 0.4 percentage points, ͲϰϬ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
driven by higher educational and personal loans. During
H1FY24, the central bank implemented several key measures Sources. Nepal Rastra Bank and World Bank staff calculations.
to stimulate credit growth. These included: i) increase in the
;EW>ƌĂƚŝŽŽĨĐŽŵŵĞƌĐŝĂůďĂŶŬƐ͕ƉĞƌĐĞŶƚͿ
Note: Others stand for government deposits, claims on non-financial
maximum loan amount for first-time residential homes from government enterprises, claims onWƌŝǀĂƚĞďĂŶŬƐ
financial institutions, and net non-
'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ
NPR 15 million to NPR 20 million; ii) increase in the loan-to- monetary
ϱ liabilities
ϰ
ϰ
ϯ
ϯ
Ϯ
&/Őϯϯ
Ϯ
ϭ
ϭ
Ϭ
THE WORLD BANK | 19
 RECENT ECONOMIC DEVELOPMENTS

The banking sector maintained its stability and profitability, construction, and livestock, which were granted a six-month
supported by robust asset quality, steady liquidity, and extension for restructuring and rescheduling until mid-
prudent capital adequacy ratios, despite facing a slight January 2024 in October 2023. A recently announced audit of
uptick in nonperforming loans and challenges to the capital the 10 largest banks, scheduled to take place later this year,
adequacy fund. would help assessing the quality of their loan portfolios.

The banking sector’s asset quality remained adequate The banking sector’s capital adequacy remained well
through the first half of FY24 but continued to show signs above the regulatory minimum capital adequacy ratio
of deterioration. The share of nonperforming loans (NPLs), (CAR) of 11 percent, but recent pressures have been
defined as loans overdue by 90 days or more, stood below observed. In mid-January 2024, the CAR of commercial banks
5 percent in January 2024 for commercial banks. However, was 12.4 percent, with state-owned and private commercial
during the first half of FY24, NPLs of commercial banks banks at 12.9 percent and 12.3 percent respectively, as
increased on aggregate, with private commercial banks of mid-January 2024 (Figure 34). Commercial banks are
experiencing a larger relative increase4 compared to state- mandated to maintain a countercyclical buffer of 0.5 percent
owned commercial banks (Figure 33). Consequently, the by the end of FY24, raising the minimum CAR to 11.5 percent.
number of borrowers being blacklisted5 surged by close to Additionally, in February 2024, the central bank increased the
90 percent (y/y) in H1FY24. Therefore, close monitoring of the threshold for loans extended to agricultural, small, cottage,
banking sector’s asset quality is warranted, given the potential and medium-scale enterprises counted in the ‘Regulatory
deterioration of loans in sectors such as hotels, restaurants, Retail Portfolio’ from NPR 10 million to NPR 20 million. This
measure is anticipated to alleviate pressure on the capital
Figure 33. Banking sector’s asset quality deteriorated adequacy fund, as these portfolios carry a relatively low risk
recently but remained below 5 percent level… weight of 75 percent. As of mid-January 2024, three private
commercial banks had a core capital adequacy ratio (CCAR)
;EW>ƌĂƚŝŽŽĨĐŽŵŵĞƌĐŝĂůďĂŶŬƐ͕ƉĞƌĐĞŶƚͿ
below the regulatory minimum of 8.5 percent.
'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ WƌŝǀĂƚĞďĂŶŬƐ KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ
ϱ
ϰ
The aggregate liquidity of the banking sector increased
ϯ in H1FY24 relative to H1FY23, with the key indicator of
&/Őϯϯ Ϯ aggregate liquidity, net liquidity (defined as net liquid
ϭ assets to total deposits), staying above the regulatory
Ϭ requirement of 20 percent throughout the first six
months of FY24 (Figure 35). This increase could be attributed
to a surge in remittance inflows during H1FY24 (refer to
Sources. Nepal Rastra Bank and World Bank staff calculations. the external section) and the lack of demand for credit.
Consequently, the interbank rate mostly stayed below the
Figure 34. …while capital adequacy ratio stood well lower bound rate of the interest rate corridor in H1FY24, even
above the regulatory minimum capital adequacy ratio after a 150-basis point decrease to 3 percent in December
2023, and despite the central bank’s attempt to absorb
;ZŽĨĐŽŵŵĞƌĐŝĂůďĂŶŬƐ͕ƉĞƌĐĞŶƚͿ
the excess liquidity of NPR 315 billion through the deposit
'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ WƌŝǀĂƚĞďĂŶŬƐ KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ
&ŝŐϯϰ
collection (Figure 28). However, starting from mid-February
ϮϬ
2024, the central bank began implementing the standing
ϭϱ
deposit facility to absorb excess liquidity, under which banks
ϭϬ
will be able to deposit excess funds in the central bank at
ϱ
the deposit collection rate rather than waiting for the central
Ϭ
bank to conduct periodic auctions. As of March 3, 2024, it
had absorbed over NPR 400 billion of excess liquidity from
the market, thereby maintaining the interbank rate close to
Sources. Nepal Rastra Bank and World Bank staff calculations. the lower bound rate of the interest rate corridor.
;ŶĞƚůŝƋƵŝĚŝƚLJŽĨĐŽŵŵĞƌĐŝĂůďĂŶŬƐ͕ƉĞƌĐĞŶƚͿ
'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ WƌŝǀĂƚĞďĂŶŬƐ KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ
4
The level of NPLs represents the absolute amount of problematic loans at a specific point in time, while the growth rate of NPLs indicates how rapidly this level is changing over
ϰϱ
ϰϬ
time. NPL of state-owned commercial banks increased by 12 percent (y/y), while that of private commercial banks increased by 53 percent (y/y).
ϯϱ
5
Borrowers may be blacklisted for following reasons; i) failing to repay loans of NPR 1 million after one year; ii) misusing collateral; and iii) providing false statements regarding
ϯϬ
their business or collateral.
Ϯϱ
ϮϬ
ϭϱ
ϭϬ
20 ϱ
Ϭ
&ŝŐϯϱ
 'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ WƌŝǀĂƚĞďĂŶŬƐ KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ
&ŝŐϯϰ ϮϬ

ϭϱ
NEPAL DEVELOPMENT UPDATE | APRIL 2024
ϭϬ

Figure 35. The aggregate liquidity of the banking sector Despite marginal improvements, Nepal’s stock market
also increased. remained subdued relative to the peak of June 2021.

;ŶĞƚůŝƋƵŝĚŝƚLJŽĨĐŽŵŵĞƌĐŝĂůďĂŶŬƐ͕ƉĞƌĐĞŶƚͿ The stock market continued to remain below the peak of

'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ WƌŝǀĂƚĞďĂŶŬƐ KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ June 2021 in H1FY24. Although the Nepal Stock Exchange
ϰϱ
ϰϬ Index (NEPSE) rose by 1.1 percent during this period, partly
ϯϱ
ϯϬ attributed to the decrease in interest rates, it remained below
Ϯϱ
ϮϬ its peak in June 2021 (Figure 37). Moreover, trading volume
ϭϱ
ϭϬ and value increased in H1FY24 after a contraction in H1FY23.
ϱ
&ŝŐϯϱ
Ϭ Consequently, capital gains tax from the stock market rose
by more than 50 percent (y/y) (Figure 38). To bolster the stock
market, the central bank modified the risk weightage for
share mortgage loans, increasing the limit to NPR 5 million
Sources. Nepal Rastra Bank and World Bank staff calculations.
with a 150 percent risk weight for loans above NPR 5 million
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ (up from NPR 2.5 million previously), while maintaining a 100
The overall banking sector has remained profitable, but
EĞƚŝŶƚĞƌĞƐƚŝŶĐŽŵĞ EĞƚƉƌŽĨŝƚ >ŽĂŶůŽƐƐƉƌŽǀŝƐŝŽŶ percent risk weight for loans up to NPR 5 million (extended
net profits have been decreasing since H1FY23. In H1FY24,
ϭ͘ϴ from NPR 2.5 million under the previous policy). Additionally,
theϭ͘ϲnet profit of commercial banks decreased by 14.9 percent
;ZŽĨĐŽŵŵĞƌĐŝĂůďĂŶŬƐ͕ƉĞƌĐĞŶƚͿ
ϭ͘ϰ the central bank raised the maximum single obligor limit
(y/y), compared to a decline of 1.3 percent (y/y) in H1FY23,
ϭ͘Ϯ 'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ
&/Őϯϲ WƌŝǀĂƚĞďĂŶŬƐ KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ for lending against shares from NPR 120 million to NPR
&ŝŐϯϰ reflecting
ϭ͘Ϭ a decrease in net interest income (Figure 36). This
ϮϬϬ͘ϴ 150 million for individual investors and NPR 200 million for
decline
Ϭ͘ϲ primarily resulted from increased interest expenses
ϭϱ institutional investors dedicated to the securities market.
onϭϬϬ͘ϰ
fixed
Ϭ͘Ϯ deposits with a tenure of over one year. Additionally,
theϱ increase in loan loss provisions resulting from the
Ϭ͘Ϭ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ Figure 37. Stock market index rose in H1FY24 but remains
increase
Ϭ
in NPL, which stood at 3.2 percent of GDP by the
below the peak of June 2021
end of H1FY24, also contributed to the decline in net profit.
However, the central bank introduced provisions aimed EW^/ŶĚĞdž
tĞŝŐŚƚĞĚĂǀĞƌĂŐĞĚĞƉŽƐŝƚƌĂƚĞ͕ƉĞƌĐĞŶƚ
at preventing further increases in loan loss provisions. For tĞŝŐŚƚĞĚĂǀĞƌĂŐĞůĞŶĚŝŶŐƌĂƚĞ͕ƉĞƌĐĞŶƚ
EW^/ŶĚĞdž
ϯ͕ϱϬϬ ϭϰ
example, in October 2023, the central bank reduced the loan ϯ͕ϬϬϬ
tĞŝŐŚƚĞĚĂǀĞƌĂŐĞĚĞƉŽƐŝƚƌĂƚĞ͕ƉĞƌĐĞŶƚ
ϭϮ
tĞŝŐŚƚĞĚĂǀĞƌĂŐĞůĞŶĚŝŶŐƌĂƚĞ͕ƉĞƌĐĞŶƚ
loss provision on good loans from
;ŶĞƚůŝƋƵŝĚŝƚLJŽĨĐŽŵŵĞƌĐŝĂůďĂŶŬƐ͕ƉĞƌĐĞŶƚͿ
1.3 percent to 1.25 percent
&ŝŐϯϳ
Ϯ͕ϱϬϬ
ϯ͕ϱϬϬ ϭϬ
ϭϰ
Ϯ͕ϬϬϬ
ϯ͕ϬϬϬ ϴ
ϭϮ
and allowed an extension forWƌŝǀĂƚĞďĂŶŬƐ
'ŽǀĞƌŶŵĞŶƚŽǁŶĞĚďĂŶŬƐ restructuring and rescheduling
KǀĞƌĂůůĐŽŵŵĞƌĐŝĂůďĂŶŬƐ
ϭ͕ϱϬϬ
Ϯ͕ϱϬϬ ϲ
ϭϬ
ϰϱ
ofϰϬloans for select sectors, which would carry a loan loss&ŝŐϯϳ ϭ͕ϬϬϬ
Ϯ͕ϬϬϬ ϴϰ
ϯϱ
provision
ϯϬ of only 5 percent. ϱϬϬ
ϭ͕ϱϬϬ ϲϮ
Ϯϱ ϭ͕ϬϬϬϬ ϰϬ
May-… May-…

ϮϬ
ƉƌͲϭϳ ƉƌͲϭϳ

DĂƌͲϮϬ DĂƌͲϮϬ

ƉƌͲϮϮ ƉƌͲϮϮ
KĐƚͲϭϵ KĐƚͲϭϵ
:ƵŶͲϭϲ :ƵŶͲϭϲ

:ƵůͲϭϴ :ƵůͲϭϴ

ƵŐͲϮϬ ƵŐͲϮϬ

:ƵŶͲϮϭ :ƵŶͲϮϭ

:ƵůͲϮϯ :ƵůͲϮϯ
EŽǀͲϭϲ EŽǀͲϭϲ

EŽǀͲϮϭ EŽǀͲϮϭ
:ĂŶͲϭϲ :ĂŶͲϭϲ

:ĂŶͲϮϭ :ĂŶͲϮϭ
ĞĐͲϭϴ ĞĐͲϭϴ

ĞĐͲϮϯ ĞĐͲϮϯ
^ĞƉͲϭϳ ^ĞƉͲϭϳ
&ĞďͲϭϴ &ĞďͲϭϴ

^ĞƉͲϮϮ ^ĞƉͲϮϮ
&ĞďͲϮϯ &ĞďͲϮϯ

ϱϬϬ Ϯ
ϭϱ
ϭϬ Ϭ Ϭ
ϱ
Ϭ
&ŝŐϯϱ Sources. Nepal Stock Exchange and World Bank staff calculations.
Figure 36. Banking sector’s net profit declined in H1FY24
due to a decrease in net interest income and increase in Figure 38. Capital gains tax raised from the stock market
loan loss provision increased, due to increase in trading value and volume
;ĐĂƉŝƚĂůŐĂŝŶƚĂdž͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
Ϭ͘ϬϯϬ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ ;ĐĂƉŝƚĂůŐĂŝŶƚĂdž͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
Ϭ͘ϬϮϱ
EĞƚŝŶƚĞƌĞƐƚŝŶĐŽŵĞ EĞƚƉƌŽĨŝƚ >ŽĂŶůŽƐƐƉƌŽǀŝƐŝŽŶ Ϭ͘ϬϯϬ
Ϭ͘ϬϮϬ
ϭ͘ϴ Ϭ͘ϬϮϱ
ϭ͘ϲ Ϭ͘Ϭϭϱ
Ϭ͘ϬϮϬ
ϭ͘ϰ
Ϭ͘ϬϭϬ
&/Őϯϲ ϭ͘Ϯ Ϭ͘Ϭϭϱ
ϭ͘Ϭ Ϭ͘ϬϬϱ
Ϭ͘ϴ Ϭ͘ϬϭϬ
Ϭ͘ϲ Ϭ͘ϬϬϬ
&ŝŐϯϴ Ϭ͘ϬϬϱ ,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Ϭ͘ϰ
Ϭ͘Ϯ Ϭ͘ϬϬϬ
Ϭ͘Ϭ &ŝŐϯϴ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
&ŝƐĐĂů

Sources. Nepal Rastra Bank and World Bank staff calculations. &ŝƐĐĂů Sources. CDSC and World Bank staff calculations.
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
džƉĞŶĚŝƚƵƌĞ ZĞǀĞŶƵĞ &ŝƐĐĂůďĂůĂŶĐĞ
ϭϰ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ Ϯ͘Ϭ
ϭϮ džƉĞŶĚŝƚƵƌĞ ZĞǀĞŶƵĞ &ŝƐĐĂůďĂůĂŶĐĞ ϭ͘ϱ
ϭϰ
ϭϬ ϭ͘Ϭ
Ϯ͘Ϭ
ϭϮϴ Ϭ͘ϱ
ϭ͘ϱ
ϭϬϲ
THE WORLD BANK | Ϭ͘Ϭ21
ϭ͘Ϭ
ͲϬ͘ϱ
Ϭ͘ϱ
ϴϰ
Ͳϭ͘Ϭ
Ϭ͘Ϭ
ϲϮ
Ͳϭ͘ϱ
ͲϬ͘ϱ
 EW^/ŶĚĞdž
tĞŝŐŚƚĞĚĂǀĞƌĂŐĞĚĞƉŽƐŝƚƌĂƚĞ͕ƉĞƌĐĞŶƚ
RECENT ECONOMIC tĞŝŐŚƚĞĚĂǀĞƌĂŐĞůĞŶĚŝŶŐƌĂƚĞ͕ƉĞƌĐĞŶƚ
DEVELOPMENTS
ϯ͕ϱϬϬ ϭϰ
ϯ͕ϬϬϬ ϭϮ
Ϯ͕ϱϬϬ ϭϬ
&ŝŐϯϳ
Ϯ͕ϬϬϬ ϴ
ϭ͕ϱϬϬ ϲ
ϭ͕ϬϬϬ ϰ

A.4 FISCAL SECTOR

ϱϬϬ Ϯ
remained relatively stable at 3.4 percent of GDP (Figure 42),
Ϭ Ϭ
as the decline in imports was less pronounced in H1FY24

May-…
ƉƌͲϭϳ

DĂƌͲϮϬ

ƉƌͲϮϮ
KĐƚͲϭϵ
:ƵŶͲϭϲ

:ƵůͲϭϴ

ƵŐͲϮϬ

:ƵŶͲϮϭ

:ƵůͲϮϯ
EŽǀͲϭϲ

EŽǀͲϮϭ
:ĂŶͲϭϲ

:ĂŶͲϮϭ
ĞĐͲϭϴ

ĞĐͲϮϯ
^ĞƉͲϭϳ
&ĞďͲϭϴ

^ĞƉͲϮϮ
&ĞďͲϮϯ
compared to H1FY23. Non-tax revenues also rose marginally
Despite revenue hitting an eight-year low, Nepal’s fiscal on the back of an increase in dividend receipts from financial
deficit shrank as spending decreased. Public debt remains institutions, and passport fees from increased migration (Figure
manageable, buoyed by a significant share of external 40). Tax expenditure also contributed to the decline in revenue,
concessional loans. with an increase of 0.3 percentage points of GDP in H1FY24.
;ĐĂƉŝƚĂůŐĂŝŶƚĂdž͕ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
The fiscal deficit decreased in H1FY24, with the half Figure 40. Revenue reached an eight-year low in H1FY24
Ϭ͘ϬϯϬ
year number narrowing from 1.4 percent of GDP in driven by lower non-trade revenue…
Ϭ͘ϬϮϱ
H1FY23 to 0.4 percent of GDP in H1FY24, primarily due ;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
to Ϭ͘ϬϮϬ
reduced spending. This marks the second consecutive ;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
EŽŶƚĂdžƌĞǀĞŶƵĞ dƌĂĚĞƚĂdžƌĞǀĞŶƵĞ EŽŶͲƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
EŽŶƚĂdžƌĞǀĞŶƵĞ dƌĂĚĞƚĂdžƌĞǀĞŶƵĞ EŽŶͲƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
year of a negative fiscal balance, after consistent surplus
Ϭ͘Ϭϭϱ
KƚŚĞƌƌĞĐĞŝƉƚƐ 'ƌĂŶƚƐ dŽƚĂůĚŽŵĞƐƚŝĐƌĞǀĞŶƵĞ
from H1FY19 to H1FY22 (Figure 39). The government faced a
Ϭ͘ϬϭϬ KƚŚĞƌƌĞĐĞŝƉƚƐ 'ƌĂŶƚƐ dŽƚĂůĚŽŵĞƐƚŝĐƌĞǀĞŶƵĞ
ϭϰ
ϭϰ
ϭϮ
revenue shortfall in H1FY23 due to import restrictions, which
Ϭ͘ϬϬϱ
ϭϮ
ϭϬ
contributed
Ϭ͘ϬϬϬ to the larger fiscal deficit in that period. &ŝŐϰϬ ϭϬϴ
&ŝŐϯϴ &ŝŐϰϬ
,ϭ&zϭϲ ,ϭ&zϭϳ ,ϭ&zϭϴ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ϴϲ
ϲϰ
Figure 39. Lower spending led to reduction in the fiscal ϰϮ

&ŝƐĐĂů deficit in H1FY24 ϮϬ

Ϭ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
džƉĞŶĚŝƚƵƌĞ ZĞǀĞŶƵĞ &ŝƐĐĂůďĂůĂŶĐĞ
Source: Ministry of Finance and World Bank staff calculations.
ϭϰ Ϯ͘Ϭ
ϭϮ ϭ͘ϱ
ϭϬ ϭ͘Ϭ Figure 41. …indicating weak domestic demand and lower
ϴ
Ϭ͘ϱ demand for health-damaging products…
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
Ϭ͘Ϭ EŽŶƚĂdžƌĞǀĞŶƵĞ dƌĂĚĞƚĂdžƌĞǀĞŶƵĞ EŽŶͲƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
ϲ
ͲϬ͘ϱ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
KƚŚĞƌƌĞĐĞŝƉƚƐ 'ƌĂŶƚƐ dŽƚĂůĚŽŵĞƐƚŝĐƌĞǀĞŶƵĞ
ϰ Ͳϭ͘Ϭ ;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
/ŶĐŽŵĞƚĂdž džĐŝƐĞͲĚŽŵĞƐƚŝĐƉƌŽĚƵĐƚŝŽŶ
ϭϰ /ŶĐŽŵĞƚĂdž džĐŝƐĞͲĚŽŵĞƐƚŝĐƉƌŽĚƵĐƚŝŽŶ
Ϯ Ͳϭ͘ϱ sdͲƉƌŽĚƵĐƚŝŽŶ͕ƐĂůĞƐ͕ƐĞƌǀŝĐĞ dŽƚĂůŶŽŶͲƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
&ŝŐϯϵ ϭϮ
ϲ sdͲƉƌŽĚƵĐƚŝŽŶ͕ƐĂůĞƐ͕ƐĞƌǀŝĐĞ dŽƚĂůŶŽŶͲƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
Ϭ ͲϮ͘Ϭ ϲ
ϭϬ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ &ŝŐϰϬ ϱ
ϱϴ
ϰϲ
Source: Ministry of Finance and World Bank staff calculations. ϰ
&ŝŐϰϭ ϯϰ
&ŝŐϰϭ ϯϮ
ϮϬ
Revenue (including grants) reached an eight-year low in Ϯ
,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ϭ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ
H1FY24, with half-year numbers declining from 9.1 percent ϭ
Ϭ
of GDP in H1FY23 to 8.7 percent of GDP in H1FY24. This ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ Ϭ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ
decline was primarily driven by lower non-trade revenues ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ
Source: Ministry of Finance and World Bank staff calculations.
(Figure 40), attributed to: i) reduced excise revenue resulting
from decreased demand for health-damaging products such
as tobacco, liquor, and beer7; and ii) diminished VAT revenue Figure 42. …while trade revenues remained below trend levels
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
from domestic production and distribution of goods, as well as ƵƐƚŽŵĚƵƚLJ sdͲŝŵƉŽƌƚ
ƵƐƚŽŵĚƵƚLJ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
džĐŝƐĞĚƵƚLJͲŝŵƉŽƌƚ sdͲŝŵƉŽƌƚ
dŽƚĂůƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
lower income tax revenue from individuals and private limited ϲ džĐŝƐĞĚƵƚLJͲŝŵƉŽƌƚ
/ŶĐŽŵĞƚĂdž dŽƚĂůƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
džĐŝƐĞͲĚŽŵĞƐƚŝĐƉƌŽĚƵĐƚŝŽŶ
ϲ sdͲƉƌŽĚƵĐƚŝŽŶ͕ƐĂůĞƐ͕ƐĞƌǀŝĐĞ dŽƚĂůŶŽŶͲƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
companies, due to weakened domestic demand (Figure 41). ϱϲ
ϱ
However, there was an improvement in VAT on tourism and ϰ
ϰϱ
&ŝŐϰϮ
travel services due to the implementation of VAT on air travel&ŝŐϰϮ ϯ
ϯϰ
Ϯ
(except for inbound in case of international travel), carriage&ŝŐϰϭ
Ϯϯ
ϭ
service, and cargo services (except for export). Furthermore,
8
ϭϮ
Ϭ
income tax revenue from public limited companies increased Ϭϭ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
following the FY24 budget provision requiring banks, financial Ϭ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

institutions (including insurance companies), to pay income tax ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

on profits derived from mergers or acquisitions and issuance

of Further Public Offerings at a premium rate. Trade revenues Source: Ministry of Finance and World Bank staff calculations.

;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
6
Most public spending is bunched into the last quarter of the fiscal year, and this this is particularly pronounced for capital spending. As such largesdͲŝŵƉŽƌƚ
ƵƐƚŽŵĚƵƚLJ share of fiscal deficit does not
occur in the first half of fiscal year. džĐŝƐĞĚƵƚLJͲŝŵƉŽƌƚ dŽƚĂůƚƌĂĚĞƚĂdžƌĞǀĞŶƵĞ
7
Data for the first quarter of FY24 suggests that the production of tobacco and beer decreased ϲby 1.5 percent (y/y) and 6 percent (y/y), respectively.
8
The government-imposed VAT on these services through the FY24 budget. ϱ
ϰ
&ŝŐϰϮ
ϯ
22
Ϯ
ϭ
 ϭϬ
ϴ
&ŝŐϰϰ ϲ
ϰNEPAL DEVELOPMENT UPDATE | APRIL 2024
Ϯ
Ϭ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

Expenditures also contracted in H1FY24, declining from Figure 45. …and reduced fiscal transfers
10.5 percent of GDP in H1FY23 to 9.1 percent of GDP in
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
H1FY24, primarily due to lower recurrent expenditure &ŝƐĐĂůƚƌĂŶƐĨĞƌƚŽůŽĐĂůůĞǀĞů &ŝƐĐĂůƚƌĂŶƐĨĞƌƚŽƉƌŽǀŝŶĐĞ
(Figure 43). The recurrent expenditure declined due to two ZĞǀĞŶƵĞƐŚĂƌŝŶŐƚŽůŽĐĂůůĞǀĞů ZĞǀĞŶƵĞƐŚĂƌŝŶŐƚŽƉƌŽǀŝŶĐĞ
dŽƚĂůĨŝƐĐĂůƚƌĂŶƐĨĞƌĂŶĚƌĞǀĞŶƵĞƐŚĂƌŝŶŐ
key factors: i) reduced fiscal transfers, including revenue ϱ
sharing with subnational governments (Figure 45), aligned ϰ
&ŝŐϰϱ
with lower budget allocations resulting from revenue ϯ
shortfalls; and ii) implementation of austerity measures, Ϯ
such as the abolition of incentive allowances, additional ϭ
time allowances9, purchase of new vehicles and furniture, as Ϭ
well as restructuring and vacancies in government agencies ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

(Figure 44). Additionally, capital expenditure also saw a

decrease (Figure 43) due to lower budget allocations10 and Source: Ministry of Finance and World Bank staff calculations.

structural issues of underspending of the capital budget.

To address the revenue and external borrowing shortfall,
Figure 43. Expenditures declined mainly due to a lower the government adjusted original FY24 budgeted
recurrent spending… expenditure downward. Given the revenue performance in
H1FY24, the government revised the original FY24 revenue
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ target downward by 15.5 percent as part of its mid-term
ZĞĐƵƌƌĞŶƚĞdžƉĞŶĚŝƚƵƌĞ ĂƉŝƚĂůĞdžƉĞŶĚŝƚƵƌĞ dŽƚĂůĞdžƉĞŶĚŝƚƵƌĞ review (Figure 46). This adjustment was one of the largest
ϭϮ downward revisions of revenue since FY19. Together with the
ϭϬ lower expected receipt of external borrowing (Figure 47), this
ϴ led to a downward revision of the original spending budget
ϲ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
by 13.8 percent (Figure 48). Additionally, the downward
&ŝŐϰϯ ϰ
ZĞĐƵƌƌĞŶƚĞdžƉĞŶĚŝƚƵƌĞ ĂƉŝƚĂůĞdžƉĞŶĚŝƚƵƌĞ dŽƚĂůĞdžƉĞŶĚŝƚƵƌĞ
revision of capital spending (15.9 percent) exceeded that of
ϭϮ
Ϯ recurrent spending (13.3 percent). As in the past, spending is
ϭϬ
Ϭ likely to be further revised downward towards the end of the
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϴ fiscal year and then during the period of actual data release.
ϲ
Source: Ministry of Finance, Nepal Rastra Bank, and World Bank staff The progress report of FY24 on major policies and programs
&ŝŐϰϯ calculations.
ϰ for H1FY24 from the Office of the Prime Minister mentioned
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
Ϯ Recurrent
Note: spending includes revenue sharing
KƚŚĞƌĞdžƉĞŶĚŝƚƵƌĞ to sub-national
^ŽĐŝĂůƐĞĐƵƌŝƚLJ the top three reasons for programs not meeting their targets,
'ƌĂŶƚƐ ^ƵďƐŝĚŝĞƐ
governments.
Ϭ /ŶƚĞƌĞƐƚ͕ƐĞƌǀŝĐĞĨĞĞ͕ďĂŶŬĐŽŵŵŝƐƐŝŽŶ hƐĞŽĨŐŽŽĚƐĂŶĚƐĞƌǀŝĐĞƐ including lack of preparation for projects’ implementation,
,ϭ&zϭϵ ,ϭ&zϮϬ
tĂŐĞƐĂŶĚĐŽŵƉĞŶƐĂƚŝŽŶ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ
ZĞǀĞŶƵĞƐŚĂƌŝŶŐ ,ϭ&zϮϰ
dŽƚĂůƌĞĐƵƌƌĞŶƚĞdžƉĞŶĚŝƚƵƌĞ lack of source assurance, and lack of suggestions or opinions
ϭϬ
Figure 44. …reflecting lower administrative spending… from other agencies. Smoothing expenditures over the fiscal
ϴ
year would support spending efficiency and spending quality.
&ŝŐϰϰ ϲ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
ϰ KƚŚĞƌĞdžƉĞŶĚŝƚƵƌĞ ^ŽĐŝĂůƐĞĐƵƌŝƚLJ

Ϯ
'ƌĂŶƚƐ
/ŶƚĞƌĞƐƚ͕ƐĞƌǀŝĐĞĨĞĞ͕ďĂŶŬĐŽŵŵŝƐƐŝŽŶ
^ƵďƐŝĚŝĞƐ
hƐĞŽĨŐŽŽĚƐĂŶĚƐĞƌǀŝĐĞƐ Figure 46. The government revised downward the original
Ϭ
tĂŐĞƐĂŶĚĐŽŵƉĞŶƐĂƚŝŽŶ
dŽƚĂůƌĞĐƵƌƌĞŶƚĞdžƉĞŶĚŝƚƵƌĞ
ZĞǀĞŶƵĞƐŚĂƌŝŶŐ
FY24 revenue target by 15.5 percent in H1FY24…
ϭϬ ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

ϴ ;ƉĞƌĐĞŶƚͿ
&ŝŐϰϰ ϲ ϭϮϬ
ϰ ϵϳ ϭϬϬ
ϭϬϬ ϵϱ ϵϱ
ϴϵ ϴϱ
Ϯ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ ϴϬ
Ϭ
&ŝƐĐĂůƚƌĂŶƐĨĞƌƚŽůŽĐĂůůĞǀĞů &ŝƐĐĂůƚƌĂŶƐĨĞƌƚŽƉƌŽǀŝŶĐĞ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ ϲϬ
ZĞǀĞŶƵĞƐŚĂƌŝŶŐƚŽůŽĐĂůůĞǀĞů ZĞǀĞŶƵĞƐŚĂƌŝŶŐƚŽƉƌŽǀŝŶĐĞ
dŽƚĂůĨŝƐĐĂůƚƌĂŶƐĨĞƌĂŶĚƌĞǀĞŶƵĞƐŚĂƌŝŶŐ &ŝŐϰϲ ϰϬ
Source:
ϱ Ministry of Finance, Nepal Rastra Bank, and World Bank staff
calculations. ϮϬ
ϰ
&ŝŐϰϱ
Note:ϯ Recurrent spending includes revenue sharing to sub-national Ϭ
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ &zϭϵ &zϮϬ &zϮϭ &zϮϮ &zϮϯ &zϮϰZ
governments.
Ϯ
&ŝƐĐĂůƚƌĂŶƐĨĞƌƚŽůŽĐĂůůĞǀĞů &ŝƐĐĂůƚƌĂŶƐĨĞƌƚŽƉƌŽǀŝŶĐĞ
ϭ ZĞǀĞŶƵĞƐŚĂƌŝŶŐƚŽůŽĐĂůůĞǀĞů ZĞǀĞŶƵĞƐŚĂƌŝŶŐƚŽƉƌŽǀŝŶĐĞ Source: Ministry of Finance and World Bank staff calculations.
dŽƚĂůĨŝƐĐĂůƚƌĂŶƐĨĞƌĂŶĚƌĞǀĞŶƵĞƐŚĂƌŝŶŐ
ϱϬ Note: The data refers to the ratio of revised estimate made during the mid-
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϰ term review to the original budget, expressed as percentage.
&ŝŐϰϱ
9
Incentive
ϯ allowances include additional compensation provided as a reward for achieving specific performance targets, whereas overtime allowance refers to compensation
provided to public civil servants for working beyond their regular working hours.
Ϯ
10
The government allocated NPR 302.1 billion for capital expenditure in FY24, down from NPR 380.4 billion. One reason for the decreased allocation is to compensate for the
ϭ
increased allocation for domestic debt servicing (interest and principal repayments). ;ƉĞƌĐĞŶƚͿ
Ϭ
ϵϬ ϴϱ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
ϴϬ T H Eϳϴ W O R L ϳϯ
D BANK | 23
ϳϬ ϳϬ
ϳϬ ϲϰ
ϲϬ
ϱϬ
 ϲϬ
;ƉĞƌĐĞŶƚͿ
&ŝŐϰϲ ϰϬ
ϵϬ ϴϱ
ϮϬ ϳϴ
ϴϬ ϳϬ ϳϯ ϳϬ
RECENT ECONOMIC DEVELOPMENTS ϳϬ ϲϰ
Ϭ
&zϭϵ &zϮϬ &zϮϭ &zϮϮ &zϮϯ &zϮϰZ ϲϬ
ϱϬ
&ŝŐϰϳ
ϰϬ
ϯϬ
ϮϬ
ϭϬ
Figure 47. ...and also external borrowing target by the Figure
Ϭ 48. …leading to a downward revision of spending
&zϭϵ &zϮϬ &zϮϭ &zϮϮ &zϮϯ &zϮϰZ
same magnitude… target by 13.8 percent
;ƉĞƌĐĞŶƚͿ ;ƉĞƌĐĞŶƚͿ
ZĞĐƵƌƌĞŶƚ ĂƉŝƚĂů dŽƚĂů
ϵϬ ϴϱ
ϳϴ ϭϮϬ
ϴϬ ϳϬ ϳϯ ϳϬ ϵϴ
ϵϱ ϵϮ ϵϰ ϵϲ ϵϮ ϵϲ
ϳϬ ϲϰ ϭϬϬ ϵϬ ϵϬ ϴϳ ϴϯ ϴϲ ϴϳ ϴϰ ϴϲ
ϴϰ ϴϬ ϴϬ
ϲϬ ϴϬ
ϱϬ &ŝŐϰϴ
&ŝŐϰϳ ϲϬ
ϰϬ
ϯϬ ϰϬ
ϮϬ
ϮϬ
ϭϬ
Ϭ Ϭ
&zϭϵ &zϮϬ &zϮϭ &zϮϮ &zϮϯ &zϮϰZ &zϭϵ &zϮϬ &zϮϭ &zϮϮ &zϮϯ &zϮϰZ

Source: Ministry of Finance and World Bank staff calculations. Source: Ministry of Finance and World Bank staff calculations.
;ƉĞƌĐĞŶƚͿ
Note: The data refers ZĞĐƵƌƌĞŶƚ
to the ratio ofĂƉŝƚĂů
revised estimate
dŽƚĂů made during Note: The data refers to the ratio of revised estimate made during the mid-
the ϭϮϬ
mid-term review to the original budget, expressed as percentage. term review to the original budget, expressed as percentage.
ϵϱ ϵϰ ϵϲ ϵϴ ϵϲ
ϭϬϬ ϵϮ ϵϬ ϵϮ ϵϬ
ϴϰ ϴϳ ϴϯ ϴϲ ϴϳ ϴϰ ϴϲ
ϴϬ ϴϬ
Figure
ϴϬ 49. Budget spending executions of subnational governments were lower than those of the federal government in H1FY24
&ŝŐϰϴ ϲϬ

ϰϬ
;ďƵĚŐĞƚĞdžĞĐƵƚŝŽŶ͕ƉĞƌĐĞŶƚͿ
ϮϬ
&ĞĚĞƌĂůĐĂƉŝƚĂů &ĞĚĞƌĂůƌĞĐƵƌƌĞŶƚ &ĞĚĞƌĂůƚŽƚĂů WƌŽǀŝŶĐĞĐĂƉŝƚĂů
Ϭ
&zϭϵWƌŽǀŝŶĐĞƌĞĐƵƌƌĞŶƚ
&zϮϬ &zϮϭ &zϮϮ WƌŽǀŝŶĐĞƚŽƚĂů
&zϮϯ &zϮϰZ >ŽĐĂůƚŽƚĂů
ϱϬ
ϰϱ
ϰϬ
ϯϱ
ϯϬ
Ϯϱ
ϮϬ
ϭϱ
ϭϬ
&ŝŐϰϵ ϱ
Ϭ
,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

Sources. Ministry of Finance and World Bank staff calculations.

Note: The data refers to the ratio of actual spending in the first half to the original budget, expressed as percentage.
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
Spending budget ŽŵĞƐƚŝĐĚĞďƚ
executions of provincial and local
džƚĞƌŶĂůĚĞďƚ PublicdŽƚĂůĚĞďƚ
debt remains moderate and sustainable due to
governments
ϱϬ were lower than those of the federal a largely concessional external debt stock and prudent
government in the first half of FY24. Provincial governments fiscal management. It increased by 12.7 percentage
ϰϬ 15.3 percent of the FY24 budget (Figure 49), slightly
spent only points since FY19 and 1.5 percentage points since
lower than 16.2 percent of H1FY23 spending execution rate, H1FY23, reaching 39.9 percent of GDP in H1FY24 (Figure
ϯϬ
but significantly lower than the federal budget execution rate 50). Despite this increase, public debt remains moderate
ϮϬ
of 34.2 percent. Local governments were also able to spend and sustainable, with concessional public and publicly
only 25.3 percent in the first half of FY24, marginally up from guaranteed external debt accounting for 49.8 percent of
ϭϬ
&ŝŐϱϬ 24.3 percent in H1FY23. Similarly, provincial governments’ total public debt in H1FY24 (Table 2). The other half of the
capital budget
Ϭ execution was lower than the recurrent budget debt stock is domestic public debt denominated in local
execution, mirroring
,ϭ&zϭϵthe trend seen at the,ϭ&zϮϭ
,ϭ&zϮϬ federal level.
,ϭ&zϮϮ currency,
,ϭ&zϮϯ and mainly comprised of development bonds,
,ϭ&zϮϰ

;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
24
KƚŚĞƌƐ ĞŶƚƌĂůďĂŶŬ ĂŶŬŝŶŐĂŶĚĨŝŶĂŶŝĐĂůŝŶƐƚŝƚƵƚŝŽŶƐ dŽƚĂů
ϮϮ
 ϯϬ
Ϯϱ
ϮϬ
ϭϱ
ϭϬ
&ŝŐϰϵ ϱNEPAL DEVELOPMENT UPDATE | APRIL 2024
Ϭ
,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ

;ďƵĚŐĞƚĞdžĞĐƵƚŝŽŶ͕ƉĞƌĐĞŶƚͿ
&ĞĚĞƌĂůĐĂƉŝƚĂů &ĞĚĞƌĂůƌĞĐƵƌƌĞŶƚ &ĞĚĞƌĂůƚŽƚĂů WƌŽǀŝŶĐĞĐĂƉŝƚĂů
WƌŽǀŝŶĐĞƌĞĐƵƌƌĞŶƚ WƌŽǀŝŶĐĞƚŽƚĂů >ŽĐĂůƚŽƚĂů ;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
and
ϱϬ Treasury bills. By the end of H1FY24, banking and ceilings for FY24 and FY25 were
ŽŵĞƐƚŝĐĚĞďƚ set at 5.5 anddŽƚĂůĚĞďƚ
džƚĞƌŶĂůĚĞďƚ 5 percent of
ϰϱ
financial
ϰϬ institutions held close to 95 percent of domestic their projected GDP, respectively. The Public Debt Act has
ϱϬ
ϯϱ
public
ϯϬ
debt, higher than 85 percent end H1FY23 (Figure 51). set the
ϰϬ ceiling for external public debt at one-third of the

The
Ϯϱ National Natural Resources and Fiscal Commission previous
ϯϬ fiscal year’s GDP. The debt amortization grew by
ϮϬ
annually
ϭϱ sets the ceiling for domestic borrowing for all 0.1 percentage points to 1.3 percent of GDP by the end of
ϮϬ
ϭϬ
&ŝŐϰϵ three
ϱ
tiers of government. For the federal government, the&ŝŐϱϬ H1FY24.
ϭϬ

Ϭ Ϭ
,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ
Figure 51. The vast majority of domestic debt is held by
Figure 50. Public debt remains moderate and sustainable banking and financial institutions
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ ;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ
ŽŵĞƐƚŝĐĚĞďƚ džƚĞƌŶĂůĚĞďƚ dŽƚĂůĚĞďƚ KƚŚĞƌƐ ĞŶƚƌĂůďĂŶŬ ĂŶŬŝŶŐĂŶĚĨŝŶĂŶŝĐĂůŝŶƐƚŝƚƵƚŝŽŶƐ dŽƚĂů
ϱϬ
ϮϮ
ϮϬ
ϰϬ ϭϴ
ϭϲ
ϯϬ ϭϰ
ϭϮ
ϮϬ ϭϬ
ϴ
ϭϬ ϲ
&ŝŐϱϬ &ŝŐϱϭ ϰ
Ϭ Ϯ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ Ϭ
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ ,ϭ&zϮϮ ,ϭ&zϮϯ ,ϭ&zϮϰ

Source: Public Debt Management office and World Bank staff calculations. Source: Nepal Rastra Bank and World Bank staff calculations.
;ĂƐĂƐŚĂƌĞŽĨ'W͕ƉĞƌĐĞŶƚͿ

Table KƚŚĞƌƐ
2. Nepal’sĞŶƚƌĂůďĂŶŬ
Stock of public debt (in NPR billion) and
ĂŶŬŝŶŐĂŶĚĨŝŶĂŶŝĐĂůŝŶƐƚŝƚƵƚŝŽŶƐ dŽƚĂů as percentage of GDP
ϮϮ
ϮϬ
ϭϴ
FY22 FY23 H1FY23 H1FY24
ϭϲ
ϭϰ Share Share Share Share Share Share Share Share
ϭϮ
ϭϬ of of of of of of of of
ϴ
ϲ
total GDP total GDP total GDP total GDP
&ŝŐϱϭ ϰ Financing Source Stock (%) (%) Stock (%) (%) Stock (%) (%) Stock (%) (%)
Ϯ
Ϭ
Public and publicly
,ϭ&zϭϵ ,ϭ&zϮϬ ,ϭ&zϮϭ 1025.8
,ϭ&zϮϮ 51.0
,ϭ&zϮϯ 20.8 1170.2
,ϭ&zϮϰ 50.9 21.7 1102.5 53.3 20.5 1185.7 49.8 19.9
guaranteed external debt
Multilateral 894.5 44.4 18.1 1029.8 44.8 19.1 963.4 46.6 17.9 1044.4 43.9 17.5
o/w World Bank 509.7 25.3 10.3 580.3 25.2 10.8 551.2 26.7 10.2 579.6 24.4 9.7
o/w ADB 315.0 15.6 6.4 370.1 16.1 6.9 258.9 12.5 4.8 379.2 15.9 6.4
o/w IMF 43.7 2.2 0.9 52.1 2.3 1.0 45.3 2.2 0.8 58.9 2.5 1.0
Bilateral 131.4 6.5 2.7 140.5 6.1 2.6 139.1 6.7 2.6 141.3 5.9 2.4
o/w Non-Paris Club 75.8 3.8 1.5 78.9 3.4 1.5 77.3 3.7 1.4 80.7 3.4 1.4
o/w China 35.3 1.8 0.7 34.6 1.5 0.6 35.4 1.7 0.7 34.7 1.5 0.6
o/w India 36.4 1.8 0.7 39.6 1.7 0.7 37.3 1.8 0.7 40.8 1.7 0.7
o/w Paris Club 55.6 2.8 1.1 61.5 2.7 1.1 61.8 3.0 1.1 60.6 2.5 1.0
Domestic public debt 987.4 49.0 20.0 1129.1 49.1 21.0 964.2 46.7 17.9 1193.9 50.2 20.0
Treasury Bills 355.8 17.7 7.2 457.8 19.9 8.5 329.7 16.0 6.1 413.3 17.4 6.9
Development Bonds 620.4 30.8 12.6 656.4 28.5 12.2 625.4 30.3 11.6 769.8 32.3 12.9
Others 11.2 0.6 0.2 14.8 0.6 0.3 9.1 0.4 0.2 10.9 0.5 0.2
Total 2013.30 100.0 40.8 2299.4 100.0 42.7 2066.7 100.0 38.4 2379.7 100.0 39.9
Nominal GDP (NPR billion) 4933.7 5381.3 5381.3 5964.7
Nominal Exchange Rate Average
(NPR/USD) 120.8 130.7 130.7 132.9

Source: Public Debt Management Office, National Statistics Office, and World Bank staff calculations

THE WORLD BANK | 25

NEPAL DEVELOPMENT UPDATE

26
NEPAL DEVELOPMENT UPDATE | APRIL 2024

OUTLOOK,
B
RISKS, AND
CHALLENGES
THE WORLD BANK | 27
B
OUTLOOK,
RISKS, AND
CHALLENGES

B.1 REAL SECTOR OUTLOOK the electricity sub-sector. Over 3,000 megawatts of
additional electricity generation capacity are currently under
construction, with some new generation expected by FY26.
Nepal’s economic growth is projected to rebound from This increased and more reliable power supply will create
a low of 1.9 percent in FY23 to 3.3 percent in FY24. This a more favorable environment for industrial activity, as
momentum is expected to continue, with the forecast businesses will have better access to the energy they need to
reaching 4.6 percent growth in FY25, and 5.3 percent by FY26, operate, expand, and increase productivity.
close to its long-term potential (Table 3). Further easing of
Agricultural growth is projected to decelerate to 2.2
monetary policy is a key driver of this projected recovery,
percent in FY24, before averaging 2.5 percent annually
assuming that there is productive usage of private sector
over FY25-FY26. This slowdown is attributed to factors
credit. Moreover, medium-term growth could be bolstered
such as the outbreak of lumpy skin disease, which affected
by business environment reforms aimed at attracting more
more than 65,000 livestock by October 2023, but was largely
private investment.
contained by mid-January 2024. Additionally, a decrease in
The services sector is expected to continue to be the the pace of paddy production growth to 4.3 percent in FY24
primary driver of growth over the medium term. The from 6.9 percent in FY23 is expected to further contribute to
accommodation and food services sub-sectors are poised the overall slowdown in agricultural growth. The government
to benefit significantly from a projected increase in both has allocated NPR 30 billion (0.5 percent of FY24 GDP) in the
international and domestic tourism. This growth is fueled FY24 budget for the purchase of fertilizers, ensuring timely
by the ongoing construction of over 20 new five-star hotels, availability for paddy transplantation in June 2024.
adding to the existing 16. The hotel sector is currently
Consumer price inflation is anticipated to remain
estimated to handle over 3 million tourists annually. Real
elevated in FY24 before gradually declining. With an
estate services are also expected to see a boost due to the
average annual inflation projected at 6.7 percent in FY24,
central bank’s policies, including an increase in the loan-to- close to the central bank’s 6.5 percent ceiling, factors
value ratio for real estate loans and a higher lending ceiling such as the removal of VAT exemptions on select basic
(NPR 20 million) for first-time homebuyers. Finally, the food items, India’s food export restrictions, and increased
wholesale and retail sub-sector is anticipated to contribute minimum support prices of paddy contribute to this trend.
from FY25 onwards, supported by a recovery in goods In subsequent years, inflation is forecasted to decrease
imports. Taking these factors into account, service sector to 6 percent in FY25 and further to 5.5 percent in FY26,
growth is projected to accelerate to 4 percent in FY24 and driven by the moderation of global commodity prices and
average 5.6 percent over FY25-FY26. containment of domestic price pressures through monetary
policy. The expected lower inflation in India could also aid
Nepal’s industrial sector is poised for growth in the in reducing domestic inflation through the currency peg, as
medium term, fueled by a significant expansion in imported inflation will subdue.

28
 NEPAL DEVELOPMENT UPDATE | APRIL 2024

Table 3. Macroeconomic projections of selected key indicators

(annual percent change unless indicated otherwise)
FY21 FY22 FY23e FY24f FY25f FY26f

Real GDP growth, at constant market prices 4.8 5.6 1.9 3.3 4.6 5.3

Private Consumption 8.0 6.8 4.1 3.5 3.7 3.7

Government Consumption -1.7 9.6 -35.2 -16.5 9.2 9.3

Gross Fixed Capital Formation 9.8 3.8 -10.9 -4.4 15.4 12.1

Exports, Goods and Services -21.3 34.1 5.5 5.4 12.5 14.7

Imports, Goods and Services 18.8 15.1 -17.2 -4.5 13.1 9.7

Real GDP growth, at constant factor prices 4.5 5.3 2.2 3.3 4.6 5.3

Agriculture 2.8 2.2 2.7 2.2 2.4 2.5

Industry 6.9 10.8 0.6 2.9 5.7 8.6

Services 4.7 5.3 2.3 4.0 5.4 5.8

Inflation (Consumer Price Index) 3.6 6.3 7.7 6.7 6.0 5.5

Current Account Balance (% of GDP) -7.7 -12.6 -1.3 3.9 1.6 1.0

Net Foreign Direct Investment (% of GDP) 0.4 0.4 0.1 0.2 0.4 0.6

Fiscal Balance (% of GDP) -4.0 -3.7 -6.2 -3.1 -2.8 -2.7

Revenues (% of GDP) 23.3 23.1 19.2 18.7 19.6 20.1

Debt (% of GDP) 39.9 40.8 42.7 42.5 41.7 40.8

Primary Balance (% of GDP) -3.2 -2.7 -4.8 -1.7 -1.6 -1.7

Source: Ministry of Finance, Nepal Rastra Bank, and National Statistics Office for history. World Bank staff for estimates and forecasts. Notes: e =estimate; f =
forecast.

B.2 EXTERNAL SECTOR imports are likely to surpass exports due to continued
emigration for work and study. Nepal’s government has a
OUTLOOK medium-term goal of reducing the trade deficit to 15 percent
of GDP by FY28.11 This ambitious target hinges on a two-
pronged strategy: lowering imports to 35 percent of GDP and
boosting exports to 20 percent of GDP.
The trade deficit (goods and services) is expected to
improve in the medium term. This is due to a projected Nepal’s current account balance is projected to record a
decline in goods imports in FY24, driven by factors such surplus in FY24, for the first time since FY16. This is driven
as restrictions on Indian exports, lower global oil prices, by robust remittance growth fueled by record migration in
and weak domestic demand. Although goods imports are FY23 and a narrowing trade deficit. However, the surplus is
expected to rebound in FY25 and FY26 as domestic demand expected to narrow from about 3.9 percent of GDP in FY24
strengthens, they will likely remain below FY23 levels, mainly to an average of 1.3 percent of GDP over FY25-26 as the
due to lower commodity prices. Goods exports, particularly in trade deficit expands, outweighing the increased remittance
electricity, are set to increase from FY25 onwards, which will inflows which are anticipated to taper off from FY25. Despite
help reduce reliance on fossil fuel imports. Services exports efforts to attract more foreign direct investment (FDI), inflows
are expected to rise as tourism recovers. Meanwhile, services are likely to remain modest.

11
See Nepal Trade Integration Strategy, 2023.

THE WORLD BANK | 29

OUTLOOK, RISKS, AND CHALLENGES

B.3 MONETARY AND fiscal deficit in FY24 is higher than the revised government
forecast.12 Revenue is expected to reach 20.1 percent
FINANCIAL SECTOR of GDP by FY26, bolstered by stronger GDP and rising
goods imports. Spending is also anticipated to increase,
OUTLOOK reaching 22.8 percent of GDP by FY26, fueled by enhanced
public investment execution. The National Project
Bank’s integrated guidelines, issued in March 2023, are
The central bank is anticipated to gradually ease expected to streamline project development, selection,
monetary policy over the medium term. Following a and prioritization, leading to better capital spending by
100-basis points reduction to 5.5 percent in the policy interest FY25. The fiscal deficit is expected to be financed through
rate during the first quarter review of FY24, it is expected external concessional borrowing and domestic sources. As
to remain unchanged in the second half of FY24. However, a result of smaller deficits and higher economic growth, the
cuts of 50 basis points each are forecasted at the beginning total public debt is projected to decline to 40.8 percent of
of FY25 and FY26, leading to a policy interest rate of 4.5 GDP by FY26 from its peak in FY23.
percent by the start of FY26, slightly above the pandemic-
low and below the pre-pandemic level. The central bank will
retain the exchange rate peg of the Nepalese Rupee against
the Indian Rupee as a nominal anchor of monetary policy
B. 5 RISKS AND CHALLENGES
throughout the forecast period.
The forecast is subject to both domestic and external
risks. Externally, geopolitical uncertainty could trigger a rise in
commodity prices, impacting all sectors. A growth slowdown
B.4 FISCAL SECTOR in partner countries might also lead to a drop in remittances
and tourism, hindering economic growth. Persistent inflation
OUTLOOK expectations and lower domestic demand could further
dampen economic activity. Natural disasters pose additional
Nepal’s fiscal deficit is projected to fall significantly risks to sustaining welfare gains. Finally, frequent political
from its record high in FY23, stabilizing around 3 changes, a top headwind for businesses for over a decade,
percent of GDP in the medium term. The projected could continue to deter private investment.

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In February 2024, the government slightly increased the expected fiscal deficit for FY24 to 2.5 percent of its forecasted GDP from 2.4 percent of the original budget in May
2023. These revisions were underpinned by the capital budget execution of 88.2 percent, external borrowing execution of 85 percent, and 57 percent of targeted revenue
collection in the second half of the FY24 fiscal year, surpassing historical five-year averages. However, meeting these targets in FY24 is less likely due to economic challenges and
structural issues, exacerbated by the recent change in government.

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NEPAL DEVELOPMENT UPDATE | APRIL 2024

THE WORLD BANK | 31

NEPAL DEVELOPMENT UPDATE

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The World Bank

Nepal Country Office, P.O. Box 798
Yak and Yeti Hotel Complex
Durbar Marg, Kathmandu, Nepal
Tel.: 4236000
Email: [email protected]

www.worldbank.org/np
www.facebook.com/WorldBankNepal

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