Nepal is expected to grow by 3.87 percent in the current fiscal year in the optimistic scenario—recovery of trade and robust tourism growth—according to the annual account estimates released by National Statistics Office on Tuesday.

Computed on the basis of this growth rate, Nepal’s gross domestic product (GDP) at the purchaser's price is estimated to reach Rs5.70 trillion at the end of the fiscal year in mid-July.

The office’s growth estimate is slightly higher than the Asian Development Bank’s projection of 3.6 percent. The World Bank, on the other hand, has forecasted a growth rate of 3.3 percent. The government’s initial target was to achieve a robust 6 percent growth.

“The growth figure shows that the country’s economy is recovering,” said Hem Raj Regmi, deputy chief statistician at the National Statistics Office.

“Last fiscal year, we grew by nearly 2 percent and this fiscal year, we will add another 2 percent,” he said.

The growth forecast is based on the actual data for nine months and projected data for three months of the final quarter of the financial year.

The statistical office said that on the optimistic side, they have estimated that trade, wholesale and retail business, and hotels and accommodation would grow in the next three months.

The Nepali economy has historically been stuck in a low-growth trap in the past decades due to a decade-long Maoist insurgency followed by strikes, bandas, load shedding, and earthquakes.

Nepal was struck by two powerful earthquakes of magnitudes 7.8 and 7.3 on April 25 and May 12, respectively, killing 8,790 people and injuring 22,300. The economic loss was estimated at $7 billion, out of which 76 percent was in the private sector.

Following the disaster, Nepal’s economic growth rate plunged to 3.98 percent in the fiscal year 2014-15 and decelerated further to 0.43 percent in 2015-16.

But since then, a flurry of post-disaster activities has meant that the economy is growing at breakneck speed. The Nepali economy grew by 8.98 percent in the fiscal year 2016-17, the highest growth rate since the fiscal year 1993-94.

In 2017-18, the economy grew by 7.62 percent and 6.66 percent in 2018-19, according to the National Statistics Office, formerly the Central Bureau of Statistics, the main government body that deals with the country's vital statistics.

The worst came in 2019-20 when the world was hit by the Covid pandemic. The pandemic-induced supply and demand shock on the economy caused Nepal's economy to plunge to a negative 2.37 percent.

This is the first annual negative growth rate since 1982-1983 when Nepal’s economic growth rate plummeted to -2.97 percent, according to the World Bank.

The statistics office then attributed the negative growth rate to a drought in 1980-81 that led to a severe food crisis.

Nepal’s economy, which rebounded strongly after Covid, has been marred by political instability and haphazard decisions to gain short-term benefits, economists say.

“The expenditure from the government and the private sector is staggeringly slow,” said Regmi.

Private investment remained sluggish, as evidenced by decreased imports of capital and intermediate goods. On the other hand, public consumption and investment contracted, driven by austerity measures and low revenue collection.

“The annual spending of the three tiers of the government stands at a combined Rs500 billion. If we assume that the private sector pumped four times more than the government into the national economy, the total expenditure will be Rs2.5 trillion,” said Regmi. “Now imagine what output would come from these small investments,” he questioned.

“There is no environment for Nepal to achieve a double-digit economic growth rate. We need to increase expenditure. We need to encourage the private sector to invest.”

“If the country’s capital expenditure remains the same, there is no need to be optimistic.”

Regmi, however, said that Nepal’s growth rate neither will slow down nor grow. “It will remain static.”

The statistical office has estimated that the per capita gross national income or per capita income may rise to $1,456 this year from $1,405 in the last fiscal year. The per capita GDP may reach $1,434 in the current fiscal year, from $1,389 in the last fiscal year. The per capita income means the average annual income of a person.

According to the report, the final consumption expenditure or money spent by Nepalis on consumption will reach Rs5.27 trillion, which is 92.38 percent of the GDP.

This means people are saving less or on average a person saves 7.62 percent of their income, which is so far not good, according to the officials. The workers' remittance as a percentage of GDP has been expected to reach 22.96 percent in the current fiscal year.

The statistical office said that the agriculture sector, which contributes 24.60 percent to the country’s economy, was projected to grow by 3.05 percent this fiscal year.

The manufacturing sector which contributes 4.8 percent to the GDP has been expected to drop by 1.60 percent by the end of the fiscal year. Similarly, the construction sector, which contributes 5.41 percent to the GDP, has been projected to drop 2.07 percent.

The retail and wholesale sector, the repair of motor vehicles, which accounts for 13.84 percent of the GDP, slowed 0.16 percent.

Accommodation and food service activities, which are linked to tourism activities, have been expected to see a robust growth of 21.84 percent, the highest among all 18 economic compositions in the Nepali economy, followed by the electricity and gas subsector.

Economists say that retail stores are seeing a slowdown in discretionary spending by consumers, primarily because of inflationary pressures, reflecting how a slowing economy has dampened the market mood.

A credit crunch, real estate slowdown, tumbling stock market and rising unemployment have rattled the economy even as a new government was formed.

Nepalis are not buying cars, furniture, gold and clothes. Stores in Kathmandu’s major markets like New Road, Mahabauddha and Durbarmarg have launched sales offers, but buyers are still not showing up.

People are spending less at restaurants and purchasing less goods for their homes. They are cutting their budgets almost everywhere.

“The government needs to encourage the private sector to invest to bring the economy on the track,” said Regmi.