The Asian Development Bank says Nepal's economic growth rate this year could be in the range of 5 to 5.5 percent, lower than the 6.4 percent achieved last year. The forecast hinges on continued growth in agricultural production that grew by 5 percent, due mainly to a favourable monsoon and increased use of fertilisers. The Asian Development Outlook of the ADB also projects continued growth-albeit slow-for Asia as a whole, and faster growth in South Asia (5.8 percent). The ADB expects a slowdown in Nepal's agricultural production and industrial production compared with last year, but maintains there is potential to achieve a five percent growth rate with "appropriate economic policies", especially the reforms that the government has initiated. The bank expects agriculture to grow by four percent and industry by seven to eight percent during 2001.

Inflation, which remained at a low 3.5 percent in 2000, is expected to rise and reach 5.5 percent in 2001. This is because decline in food prices, mainly rice, would be offset by the price of non-food items that would reflect higher fuel costs. The bank also thinks the government's "ambitious" development expenditure and revenue targets in 2001 will be difficult to achieve. Development spending is projected to grow by 45 percent and revenue by just 21 percent. Much of the revenue collection, however, will depend on how effectively the value added tax (VAT) will be enforced, and if the government's recent initiatives-getting the army to man the border posts-to raise customs receipts and increase income tax revenues-will produce results. The shortfall in domestic revenues compared to spending is expected to increase fiscal deficit to 4.5 percent of the GDP, up from the 3.5 percent in 2000.