Fitch forecasts strong growth for Nepal in FY22
Sep 09, 2021
Singapore, September 9 : Fitch Solutions has forecast Nepal's real GDP growth to strengthen to 5 per cent in FY22 (mid-July 2021to mid-July 2022) from the provisional estimate of 4 per cent in FY21.
Rising Covid-19 vaccination rates will allow further easing of containment measures, particularly in the Kathmandu Valley, and also a more sustained and stronger revival in international tourism -- both of which will support the broad services sector.
Construction will also receive a boost from transport and building projects, although labour constraints will continue to pose a risk to the sector's expansion, said Fitch.
Real GDP grew by 4 per cent in FY21, reversing a 2.1 per cent contraction in FY20. Agriculture, retail trade, and construction were the top three growth drivers during FY21, contributing 0.7pp, 0.7pp and 0.4pp respectively with growth rates of 2.6 per cent, 5.3 per cent and 5.6 per cent.
Nepal had reopened to tourists arriving by air from end-December 2020, and this saw an increase in tourist arrivals over January to April 2021.
However, surging Covid-19 infections in Nepal during April and May proved a deterrent to international travellers. Nepal has since increased its international flight connections (June 24) and also restarted domestic flights (July 1), albeit at a reduced passenger capacity.
"We believe that the restarting of domestic flights will support international tourism inflow given easier and quicker transport to different parts of the country," said Fitch.
Easing restrictions in general will also drive a stronger recovery in retail, hospitality, transport and other related services sectors, including real estate and finance.
The rebound in such activities from easing restrictions is likely to offset the negative impact of high inflation in the country.
To be sure, deposit growth has continued to register a strong increase amid the pandemic due to deferred spending. "Household deposits grew by 21 per cent in FY20 and 22 per cent in FY21, and we expect pent up demand to drive the consumer spending rebound as restrictions loosen," said Fitch.
