A leading multilateral donor agency to Nepal has forecast that the economic growth of the country would be less than four percent in the fiscal year 2004.

The Asian Development Bank made this projection based on available statistics. Addressing a press meet at the Bank’s Nepal office Friday, country director Sultan Hafeez Rahman, said the number of killings and conflict-related deaths was highest this year. “The conflict, combined with political instability, presents a complex development setting,” he added.

According to the ADB, Nepal’s economic growth continues to be significantly below the level achieved before the conflict. While the economy recovered to a growth of 3.6 percent in FY2004 from 2.7 percent in 2003, it was still below the average 5.1 percent growth level achieved during the FY 1991-97 period.

“The conflict also contributed to a slowdown in development activities, especially in rural areas. Only 88 percent of the targeted government spending was realized, with health, drinking water, roads and agriculture being adversely affected,” the Manila-based Bank said.

Revenue collection increased by 11 percent—meeting the target for FY2004 and a steady increase in remittances continued to flush Nepal’s financial sector. The Bank has estimated that Nepal is receiving annually around 1 billion US dollars worth remittance sent by the Nepalis working abroad.

“The economy is likely to grow by about 3.7 percent in 2004,” said Rahman. “To increase the growth rate of Nepal’s economy, it will be important for Nepal to deepen economic reforms to address the pressing issues of poverty, poor governance, and public service delivery,” he added.

Conflict remains Nepal’s biggest challenge for poverty reduction, said Rahman. He further added that looking at the structure of Nepali economy over the last five years, there seems to be conflict rate of growth hovering between the lower band of 2.5 percent and upper band of 4 percent.  “As long as the conflict remains, we will probably see the (economic) growth fluctuating in this region,” he added.

Given the continuing political instability and the difficult security situation, there is unlikely to have much improvement in the economic outlook next year, the Bank said.