COVID, Rising Commodity Price and Interest Rate Taking Toll On Economy of Nepal And It's Neighboring Countries

Despite robust economic growth in recent years, developing countries are grappling with rising commodity prices, supply bottlenecks, vulnerabilities in financial sectors, and an overall economic crisis. Even though GDP growth continues to be solid post-pandemic, the ongoing war in Russia-Ukraine is contributing to increasing inflation, fiscal deficits, and deteriorating current account balances for these developing countries.

Daunting challenges from climate labor, environmental degradation, and increasing inequalities pose serious threats to the growth and prosperity of these countries. Here’s a look at the GDP of a few neighboring countries of Nepal, including Nepal for the year 2021 and predictions for the year (2022-2023);

*Source: IMF World Economic Outlook Database, April 2022

In India, GDP is expected to fall to 6.9% in the year 2023, a decline of 2% as compared to the GDP of 2021. The main reason for such decline might be contributed to the household consumption that will be constrained by the incomplete recovery of the labor market and inflationary pressures.

Even though Bangladesh made a strong economic recovery from the pandemic, growth faces new headwinds as global commodity prices increase due to the uncertainty created by the war in Ukraine. From the looks of it, Bangladesh might face weaker demand from Europe for its exports. However, exports of services from the region are on the rise, which is a piece of positive news.

The economic outlook in Sri Lanka is highly uncertain due to fiscal and external imbalances. The projection claims that the GDP will increase by few margins in 2023, yet the final conclusion can’t be made because the borrowing spree, the borrowings which the government borrowed from foreign lenders, is coinciding with a series of events; such as man-made catastrophes, heavy monsoons, and, a government ban on almost all of the chemical fertilizers that helped the farmer to harvest.

The economy of Nepal is anticipated to grow by 1.4% in the fiscal year 2022 from an estimated 2.3% growth in FY2021. The growth for the year 2023, is also anticipated to be 6.1%. Despite the global challenges, mostly due to the trade deficit, Nepal is on a path of slower albeit continued gradual recovery.