Asian Development Bank has asked Nepal to create enabling business environment and political stability in the country as they are key to improving economic performance.
Releasing the 'Asian Development Outlook 2013', Kenichi Yokoyama, the country director of ADB, Nepal, said, "We all agree Nepal has huge potential for growth, but there are also substantial hurdles to overcome in triggering the high growth process."
In its annual report, Manila-based ADB has projected Nepal's gross domestic product growth to slow to 3.5% in the fiscal year 2013 due to shortage of fertilizers, poor monsoon season, low investor confidence and the lack of a full budget, which is also causing funding shortages for ongoing development activities.
Business confidence is lowering mainly due to political instability, policy inconsistency and power outage in the country, said ADB's assistance economic officer Chandan Sapkota.
Despite inflation maintained by the developing Asia at 4% Nepal is experiencing more than double the rate with 8.5% inflation mainly due to high prices for domestic products fuelled by low agricultural production and high fuel prices, ADB report said.
India's 7.5% inflation in the recent period is also contributing to the growing influence facing Nepalese economy, said Sapkota. ADB also advises to control money supply for checking inflation rates.
"While the recent regulatory and monitoring directives by the Central Bank to deal with banking sector issues are steps in the right direction to handle the sector's immediate problems, the report states that much more needs to be done if Nepal is to address structural changes required to shield the banking sector and the economy from internal and external shocks," the report pointed out.
Developing Asia needs to get more engaged with countries like China and India for greater economic growth by looking beyond US, Europe and Japan for growth, said the report.
The ADB also stresses on the need to focus on sustainable development of energy and stresses to make energy clean, accessible and affordable for the general public for supporting growth.