ADB predicts 4.8pc growth as economy returns to normal

- Post Report, Kathmandu

Sep 17, 2016-

Nepal’s economy is likely to grow by 4.8 percent in the current fiscal year on the back of normal monsoon rains, acceleration in the pace of post-earthquake reconstruction, steady remittance inflows and normalisation in trade and supplies, the Asian Development Bank (ADB) said.

The estimate of the multilateral lending agency is 1.7 percentage points lower than the government’s growth forecast of 6.5 percent for the fiscal year 2016-17.

“However, there are downside risks, such as disputes that can arise during the process of implementing the new constitution and bad weather conditions during the dry season which can affect winter crop production. These factors may hit Nepal’s economic growth,” ADB Country Director Kenichi Yokoyama said Friday, speaking at the launch of the ADB’s Macroeconomic Update 2016.

Yet Yokoyama was pretty optimistic that above-normal monsoon rains, gradual acceleration in the pace of post-quake reconstruction and the commitment expressed by the government to raise capital expenditure would help the economy to expand by the projected 4.8 percent.

If the economy grows at this pace, the rate will be a three-year high. Nepal last recorded an economic growth of more than 

4.8 percent in fiscal 2013-14, when the Gross Domestic Product (GDP) expanded by 5.7 percent. 

Economic growth then dropped to 2.3 percent in the fiscal year 2014-15 due to the devastating earthquakes of April and May 2015. The economic output further shrank to an estimated 0.8 percent in the last fiscal year largely because of a trade blockade imposed by India, which hit supplies of almost all goods, and an unfavourable monsoon.

One of the factors that determines the fate of the country’s economy is monsoon rains. A good monsoon can push up agricultural production, which makes up 33 percent of the GDP. An unfavourable monsoon, on the other hand, can reduce farm output and exert pressure on the GDP.

This fiscal year, the monsoon rains were above normal and on time unlike in the past few years. As a result, paddy transplantation was completed on about 95 percent of the rice fields by the first week of August. During the same period a year ago, paddy transplantation was completed on about 75 percent of the rice fields. 

Improvements in paddy transplantation have raised hopes for higher economic growth in the current fiscal year, as paddy makes 

the largest contribution to the country’s agricultural output.

“However, landslides caused some damage to crops during the last week of July and the first week of August. This is another downside risk and can hit agricultural production,” ADB Chief Economist for Nepal Sharad Bhandari said. 

Other downside risks, according to Bhandari, are slow pace of budget execution, depressed demand in the services sector arising from deceleration in remittance inflows, and slow pace of reconstruction.

The scope and pace of reconstruction projects will affect demand for quarrying, manufacturing and construction activities, which largely dictates the trajectory of industrial output, says the ADB report. 

“Timely, effective and judicious budget execution, which includes both accelerated spending and reform measures, on the other hand, will be at the core of industrial and services sector recovery. Similarly, a slowdown in the growth of overseas migrants is bound to affect remittance inflows, which subsequently would affect the major components in the services sector.”


Inflation likely to stand at 8.5pc

KATHMANDU: The Asian Development Bank has projected consumer prices to go up by 8.5 percent in the current fiscal year, as against the 9.9 percent recorded in the last fiscal year. The ADB’s inflation forecast is higher than the central bank’s projection of 7.5 percent. “Better agricultural harvest due to normal monsoon, subdued inflation in India, low international fuel and commodity prices and normalisation in 

production and supplies since February, will likely lower general prices of goods and services in the fiscal year 2016-17, despite demand-side pressures emanating from the earthquake-related fiscal stimulus,” says ADB’s latest Macroeconomic Update. (PR)

Published: 17-09-2016 11:04

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