Developing ’22 goal challenge

  • economic survey
  • - Slump in per capita growth - Fears of inflation, trade deficit haunt
Developing ’22 goal challenge

Jul 12, 2015-

As economic growth hit eight-year low and per capita income growth slowed due to the April 25 devastating earthquake, the country’s target to graduate to a developing country by 2022 has been more challenging, the Economic Survey shows.

The economy is expected to grow by just 3 percent this fiscal year. “Without attaining a 7-8 percent of continuous growth, it will be difficult to attain a developing country status by 2022,” states the government’s Economic Survey published on Sunday.

Gross Domestic Product growth is essential to increase the people’s income. Due to the earthquake, per capita income of Nepalis grew marginally by Rs4483 to Rs76,065, against a growth of Rs8818 the previous year.

Besides, the survey report states that poverty could spike with the earthquakes badly damaging rural infrastructure, agriculture and animal husbandry. Citing a World Bank report, the survey said the disaster might have pushed 700,000 people back to poverty.

“The impact of the earthquakes on drinking water, sanitation, school, health service and food security will create a situation of multi-dimensional poverty,” the report says.

However, former vice-chairman of National Planning Commission Shankar Sharma does not believe that poverty might have risen sharply.

“Remittance and wages will cause the poverty rate to fall over the years. I don’t think the two components will decline anytime soon,” he said. Instead, wages are expected to rise due to a labour shortage.

In the current fiscal, the growth in most of the economic sectors is expected to slump as a result of the quakes. Agriculture, mining, manufacturing, electricity, construction, wholesale and retail business, hotel, transportation, financial intermediates and real estate are expected to see slower growth while fishery, public administration, education and health services would grow year-on-year.

Among them, the lowest growth of 0.8 percent has been expected in real estate due to a slowdown in trade and damage to the housing business.

Presenting the economic survey in Parliament, Finance Minister Ram Sharan Mahat said the economy had suffered due to the earthquake, unfavourable weather affecting growth in agriculture and the government’s failure to spend.

While the agricultural yield was expected to slow down this year, the earthquake caused losses in production worth Rs52 billion, according to the report.

Based on the government’s spending plan, economists said, the GDP will rebound next year. The government increased the budget ceiling by Rs106 billion to Rs841 billion, putting more money in reconstruction.

“Next fiscal’s growth will depend on the government’s ability to spend,” said Sharma. “The failure to appoint key officials in the National Reconstruction Authority is a huge concern regarding spending.”

Reconstruction being the main focus of the government, additional budget injection of over Rs100 billion is expected to expand construction-related service and trade.

“This will have a big impact on growth. I expect the economy to grow by 7 percent next fiscal,” said Min Bahadur Shrestha, chief at the research division of Nepal Rastra Bank.

Given the low base for growth, increased economic activities are expected to shoot up growth. As the quake did not affect industrial zones in the Tarai and big hydropower projects were not hit too hard, conditions are favourable for growth, according to the survey. Economists say there are signs that tourism will revive to some extent. But there are other challenges. While carrying out massive reconstruction works, the economy could face increased inflation and trade deficit.

The report says domestic production would not meet the demand for steel, fitting equipment, cement, bricks and timber so surging imports could offset the country’s balance of payments (BoP) situation. Huge cash flow in the economy from both the government and the private sector is expected to shoot up inflation. The likely fall in agricultural production would also fuel inflation.

“However, low Indian inflation remains as a stabilising factor and inflation can be checked if supply constraints are removed,” said Shrestha. The report also points to the risk to the financial sector with insurance companies receiving claims worth Rs16 billion and banking sector’s credit worth Rs38 billion risking default.

Published: 13-07-2015 07:22

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