Nepal’s economic growth is expected to be the lowest and inflation the highest in South Asia this fiscal year, said the Asian Development Bank on Wednesday.

Delayed implementation of reconstruction programmes, extended trade and transit disruptions and unfavourable monsoon that hit agriculture production will drag down Nepal’s economic growth to 1.5 percent, the Asian Development Bank said in its flagship Asian Development Outlook 2016 (ADO 2016).

The ADB forecast for inflation in Nepal hovers at 10.5 percent.

The ADB forecast for Nepal’s GDP growth, however, is not much lower than the government projection earlier when it had put the country’s economic growth at 2 percent.

According to the ADO 2016, inflation will remain on the higher side due to combined effects of smaller harvest, acute shortage of fuel and other essential commodities and higher transport costs during most of the year.

In mid-January, Nepal’s inflation hit a seven-year high of 12.1 percent, according to the Nepal Rastra Bank.

According to the ADB, very low growth is seen in services, particularly wholesale and retail trade, transport and communication and tourism which are worst affected by the supply disruptions. The service sector contributes over half of total domestic output. “The industry is projected to see little or no growth owing to fuel shortage and the lack of raw materials for manufacturing and construction,” said the ADB.

 Citing the government’s projection of drop in paddy production by 10 percent and 5 percent drop in maize production, the ADB said growth of the agriculture sector is expected to slow to 0.5 percent.  

ADB Country Director Kenichi Yokoyama said that delay in reconstruction, where huge amount of capital budget has been allocated, hit the growth prospects of the current fiscal year.

The government has allocated Rs91 billion for reconstruction purpose which is almost half of total capital budget for this fiscal. However, hardly any amount has been spent so far. However, economists say there is room for growth as most of the capital budget is spent in the last four months of the fiscal year and there is no blockade now.

Shankar Sharma, former vice-chairman of the National Planning Commission, said ADB’s projection is close to reality in the context “of lifted blockade by India”.

“The government spending in development projects will grow in the coming days, and reconstruction works have begun despite initial delays, which will contribute to marginal growth of economy this fiscal year,” he said.

He added that the borrowing of the private sector has also grown lately which would help the economy grow to some extent.  The ADB has however said that Nepal’s economy could rebound next year with the growth of 4.8 percent if the country enjoys normal monsoon, the National Reconstruction Authority accelerates reconstruction and there is normal cross-border trade and progress in resolving domestic political tensions.