Nepal GDP to grow 4-5pc: ADB

- POST REPORT, Kathmandu
Nepal GDP to grow 4-5pc: ADB

Feb 27, 2015-

The Asian Development Bank (ADB) has projected Nepal’s economy to grow between 4-5 percent this fiscal year based on the assumptions of two scenarios of agricultural, industrial and service sector growth. Likewise, inflation has been projected to remain between 7-8 percent.

The ADB’s forecast has come a few days after the government made a downward revision of its growth estimate to 5 percent from the targeted 6 percent and of inflation to 7.8 percent from the estimated 8 percent.

According to the ADB’s Macro-Economic Update on Nepal released on Friday, the

country’s economy will grow by 4 percent if farm production decreases sharply, the industrial sector recovers modestly as a result of enhanced investor confidence and the service sector suffers a marginal decline due to slowed remittance inflow.

Under another scenario where agricultural output declines marginally, the industrial sector recovers modestly and the growth of the service sector remains stable, the economy is projected to grow at 5 percent.

Delayed and abnormal monsoon rains affected crops like paddy and maize leading their output to decline by 5.1 percent and 6 percent respectively.

The government has projected that winter crops like wheat will be good, but due to a decline in the summer output which contributes heavily to the total agricultural  output, the farm sector is expected to rise by just 1. 8 percent.

The growth of the service sector has been impressive in recent years despite ups and downs in the agriculture and industrial sectors. The ADB said that sluggish growth in remittance in the first half of this fiscal could hit the service sector.

The Asian lender said that a reported deceleration of remittance inflows despite a rise in the number of migrant workers along with a sharp drop in the growth of gold imports during the first half of this fiscal resulted in an unclear picture of the nature of remittance inflow and its impact on consumption.

Remittance inflow increased by just 5 percent during the period against 17.9 percent in US dollar terms during the same period last year while gold imports through formal channels declined by 84.7 percent.

The multilateral donor has stated that remittance could have been sent by using informal channels and money might have been used to bring gold by individuals travelling abroad or by overseas migrants.

As far as inflation is concerned, the ADB has forecast it to drop to 7 percent provided food prices dip gradually in the next six months, non-food prices moderate due to lowered fuel prices and a marginal decline in transport prices. However, domestic market distortion such as non-economic factors and lower harvests creating a shortage of goods in the country could result in higher inflation.

According to the ADB report, a low level of capital expenditure by the government could affect growth prospects adversely. With the government aiming to increase capital expenditure by 5.4 percent of the gross domestic product (GDP), expenditure

will reach 4 percent of the GDP based on the current expenditure pattern. Making a presentation, ADB economic officer Chandan Sapkota said capital expenditure helps to create aggregate demand quickly and encourages private sector spending growth.

The report has also pointed out that the failure to promulgate a new constitution by January 22 forced domestic investors into a wait-and-see position which resulted in domestic investment commitments plunging 64.6 percent to Rs 64.7 billion during the first half of the fiscal.

Meanwhile, foreign direct investment (FDI) commitments jumped 170 percent to Rs 39.4 billion but actual FDI realization declined by 19.5 percent to Rs 1 billion during the first half of the year.

According to the ADB, the large gap in commitment and actual investment indicates that while investor confidence is improving, the investment environment is not entirely favourable due to the prevalence of political uncertainty.

Demography at unique state

KATHMANDU: Nepal is in a unique position where it can exploit its demographic change to support economic growth if an effective public policy is implemented, said the ADB Macro-Economic Update. Referring to the recent projection of the Central Bureau of Statistic (CBS) about Nepal’s population for the next 20 years since 2011, the ADB report said that a declining population growth rate and dependency ratio, rising life expectancy along with declining fertility and child mortality and gradually peaking working age population or that of the youth population indicate that Nepal has reached such a unique point.

According to the CBS report, the share of youth (16-40 years) is expected to increase to 43.3 percent of the total population in 2031 from 40.3 percent in 2011.

“The economy needs to generate enough job opportunities by investing heavily in infrastructure such as energy, transport, information, communication and technology and urban development and human capital (quality education and health),” states the report. (PR)

Published: 28-02-2015 10:18

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