The Asian Development Bank (ADB) has presented a downbeat assessment of Nepal's economic prospects. In its annual Asian Development Outlook report, published on April 6th, the bank said that real GDP growth in 2010/11 would slow to 3.8%, from 4% in 2009/10. Agriculture is expected to expand by 4%, up from 1.3% a year earlier, owing to a recovery in farm production following crop failures in the previous year, which were caused by a monsoon. Agriculture remains Nepal's most important economic sector, accounting for only around 35% of GDP but providing the livelihoods of most of the country's population. However, the ADB said that the recovery in agriculture would not be sufficiently strong to offset continued weakness in non-farm sectors. Political strife and power shortages are expected to depress the industrial and service sectors, which account for 15% and 50% of GDP respectively. The ADB forecast that industry would expand by only 1% in 2010/11, down from 3.3% in the year-earlier period, owing to a slowdown in construction and higher fuel costs. Meanwhile, the decision by the Nepal Rastra Bank (NRB, the central bank) to tighten monetary policy in its most recent statement is expected to curtail growth in the service sector, which is forecast to grow by 4.5% in 2010/11, down from an expansion of 6% in 2009/10. In 2011/12 the bank expects economic growth to continue to accelerate, to 4%.

Among the downside risks facing the economy, the ADB cited the possibility of an escalation in political disruptions, a sudden correction in real-estate prices, a fall in remittances from conflict-ridden countries in the Middle East and North Africa, a drop in tourist arrivals, and a decline in aid disbursements from Japan following the earthquake and tsunami that devastated that country in March. The surge in global oil prices also poses risks to Nepal's external position, according to the bank. Consumer price inflation is expected to accelerate to 10% in 2010/11, in line with higher global prices for oil and food, before slowing to 8% in 2011/12.