Nepal Development Update

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - Nepal's real GDP growth accelerated to 3.9 percent in FY24, up from 2 percent in FY23, driven by a surge in tourist arrivals and increased hydropower production [30][29] - Remittance inflows reached a nine-year high of 25.3 percent of GDP in FY24, significantly contributing to private consumption and overall economic stability [69][54] - The current account balance turned positive for the first time in eight years, with a surplus of 3.9 percent of GDP, attributed to increased remittances and reduced imports [70][54] Recent Economic Developments A.1 Real Sector - The services sector was the key driver of growth, with a 30.7 percent increase in tourist arrivals boosting transportation, accommodation, and food services [30][29] - Private consumption grew by 1.1 percent in FY24, supported by strong remittance inflows, while public investment remained weak due to low capital expenditure execution [30][47] - The agricultural sector grew by 3 percent, with paddy production increasing by 4.3 percent due to favorable conditions and improved fertilizer availability [36][30] A.2 External Sector - Merchandise imports decreased from 34.7 percent to 32.9 percent of GDP, while exports of goods and services increased to 7.6 percent of GDP [54][70] - The current account surplus was driven by a significant increase in remittances, which rose from 23.2 percent to 25.3 percent of GDP [54][69] - Foreign exchange reserves covered 13 months of imports by the end of FY24, well above the policy threshold of 7 months [57][54] A.3 Monetary and Financial Sector - The Nepal Rastra Bank (NRB) reduced the policy rate twice in FY24, first by 50 basis points to 6.5 percent and then by another 100 basis points to 5.5 percent [76][75] - The banking sector faced pressures with a non-performing loans (NPL) ratio reaching 3.8 percent, leading to increased loan-loss provisions [75][18] - Short- and medium-term nominal market interest rates declined, reflecting increased liquidity in the financial system [15][14] Special Focus: International Migration and Well-Being in Nepal - International migration is crucial for Nepal's economy, with remittances accounting for over one-fourth of GDP in FY24 [20][19] - Migration trends show that younger workers are disproportionately affected by unemployment, driving many to seek opportunities abroad [21][20] - The report emphasizes the need for reforms to maximize migration benefits, including reducing costs and improving domestic economic conditions for returnees [27][26]