Kathmandu: The Asian Development Bank (ADB) has revised its economic growth forecast for Nepal, predicting a stronger performance for the current year 2026 than previously anticipated. Despite the persistent geopolitical tensions in the Middle East and the resulting disruptions in global energy markets that have pressured various South Asian economies, the ADB’s latest assessment suggests that Nepal’s economy is proving more resilient than estimated earlier this April.
In its newly released ‘Asian Development Outlook 2026,’ the Manila-based lender raised Nepal’s projected growth rate to 3.9 percent for 2026, a significant jump from the 2.7 percent forecast published in April. The report attributes this upward revision primarily to strong performance and expanded activity within the country’s hydroelectricity sector, which has bolstered national output.
However, the ADB warns that the economic horizon for 2027 remains fraught with challenges, leading the bank to downgrade next year’s growth projection from 5.0 percent to 4.5 percent. This cautious outlook is driven by fears that the prolonged conflict in the Middle East could deter international tourists and negatively impact the outflow of Nepali migrant workers, both of which are vital pillars of the national economy.
These new figures align closely with domestic estimates, as Nepal’s National Statistics Office had previously projected a growth rate of 3.85 percent for the current fiscal year. On the inflation front, the ADB expects consumer price increases to remain relatively contained at 3.2 percent in 2026, thanks to improvements in the domestic food supply. Nevertheless, inflation is expected to climb to 5.0 percent in 2027, spurred by rising fuel prices and an increase in internal demand.
The broader South Asian region, however, faces a general slowdown, with the ADB lowering the regional growth forecast for 2026 to 6.0 percent, down from the 6.3 percent estimated in April. The analysis suggests that high oil prices resulting from Middle Eastern tensions are driving up production and import costs across the region. Additionally, the uncertainty surrounding remittances from the Gulf states is expected to weigh heavily on countries like Nepal, India, and Pakistan.
India, the region’s largest economy, has seen its 2026 growth forecast trimmed to 6.6 percent from an earlier 6.9 percent. The report cites the pressure of high fuel prices on real household income as the primary culprit for this slowdown. While policy interventions by the Indian government—such as fuel tax cuts, targeted credit support, and public capital expenditure—are expected to provide some cushion, the ADB has maintained its 7.3 percent growth target for India in 2027, banking on improved global conditions and trade agreements.
Other neighbours are also grappling with downward revisions; Bangladesh’s growth forecast for 2026 was lowered to 3.7 percent due to weak exports and vulnerabilities in its banking sector, with its 2027 outlook also reduced to 4.5 percent. Similarly, while Pakistan is expected to grow by 3.7 percent in 2026, its 2027 target was slashed to 3.7 percent from an earlier 4.5 percent due to rising energy costs and pressures on remittance inflows. Sri Lanka is projected to maintain a 4 percent growth rate in 2026, though a slight contraction to 4 percent is expected in 2027 as the delayed effects of recent interest rate hikes take hold.
In the smaller regional economies, Bhutan’s 2026 growth was revised down to 6.5 percent due to high transport and construction costs, though it is expected to rebound to 7.2 percent in 2027. Afghanistan is showing signs of recovery with a projected 2.3 percent growth in 2026, driven by improved agriculture, while the Maldives’ forecast remains unchanged at 1 percent for 2026 and 3 percent for 2027. Inflationary pressures remain a regional concern, with India expected to see 5.2 percent inflation due to heatwaves and a weaker currency, while Pakistan and Bangladesh could face rates as high as 7.2 percent and 8.8 percent, respectively.
Ultimately, the ADB concludes that South Asian nations must navigate a complex landscape defined by energy crises, surging shipping costs, and remittance volatility. Across the wider developing Asia and Pacific region, the bank expects an average growth rate of 4.9 percent for 2026, provided that the prolonged Middle Eastern conflict does not further fracture global supply chains and energy security.
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