The enabling environment for thedevelopment of Nepal has improved, but opportunities need tobe effectively leveraged through focused policy action.Nepal has significant resources in the form of remittancesfrom abroad, but the economy cannot use these resources in aproductive manner to enhance the overall welfare of allcitizens. Specific priorities for development include: (1)creating a growth promotion vision and agenda; (2)resolution of Nepal's "fiscal paradox"; (3)boosting investments; and (4) tackling enduring financialsector risks and managing excess. After a difficult year inFY13, the economy is poised to recover, albeit modestly. InFY13, Nepal achieved only modest growth of 3.6 percent. Thiswas due largely to poor performance of the agriculturalsector as well as very modest levels of industrial activity.Nepal s internal and external balances are sound but not forthe right reasons.Low expenditure and robust revenuegrowth accounted for a large budget surplus and decliningdebt. Nepal s external position is comfortable because oflarge remittance inflows. On the external side, Nepal hasbenefited from the depreciation of the rupee but also - andmuch more significantly - from a sharp further increase ininward remittances which are expected to amount to over 30percent of GDP in FY14. Monetary policy has sought toachieve a delicate equilibrium between controlling inflationand supporting economic activity but the optimal balance mayevolve and call for corrections. For FY14, the outlook iscautiously optimistic. As remittances have become a definingfeature of the Nepali economy the country must learn tomanage excess liquidity.
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