Print Edition - 2016-10-05  |  MONEY

Nepal’s economy to grow by 4pc

- RUPAK D SHARMA, Kathmandu

Oct 5, 2016- The International Monetary Fund (IMF) has revised Nepal’s economic growth forecast for the current fiscal year, bringing it down to 4 percent despite a good monsoon that is expected to increase the agricultural output and probability of higher post-earthquake reconstruction spending that is likely to boost consumer demand. 

Around a year ago, the international organisation that monitors the global economy had projected the country’s economy to grow at the rate of 5.4 percent in 2016-17.
The IMF’s revised growth estimate made public on Tuesday evening through the latest World Economic Outlook is far lower than the government’s growth estimate of 6.5 percent. The IMF’s latest forecast is also lower than the growth projection of 5 percent made by the World Bank and 4.8 percent made by the Asian Development Bank.
Although the IMF has not provided reasons for coming up with a conservative growth projection in its latest report, international organisations fear that a slowing remittance inflow and low capital spending may work as headwinds and prevent the economy from growing faster.
Nepal has witnessed deceleration in remittance income since September 2015, and recorded a negative growth of 2.5 percent in July for the first time since October 2014. 
The negative growth rate in remittance income—which as percentage of gross domestic product (GDP) stands at over 28 percent—coincides with drop in number of Nepalis leaving the country for overseas employment.
In 2014-15, for instance, the number of outbound workers dropped 2.8 percent to 512,887, shows the data of the Department of Foreign Employment. In 2015-16, the number plunged another 18.4 percent to 418,713.
Many have started taking these falling numbers as a harbinger for lower inflow of remittance in the coming days. 
If remittance income continues to fall as expected, consumption and investment spending by the private sector in the country will be hit. This may, in turn, affect the government’s revenue collection.
While the inflow of remittance has started to taper in line with drop in number of outbound workers, the government has not taken initiatives to create jobs for those who have decided to stay back in the country. 
This calls for the need to develop labour-intensive industries, for which the private sector must step in. But the confidence of private investor is still low, as the country—apart from governance related problems—faces crippling shortage of electricity and transport infrastructure.
This means public spending on construction of hydroelectric projects, power transmission lines, roads, bridges and airports must go up. For this, the government’s capital spending must increase. 
Yet the government’s capital spending after more than two months into the current fiscal year stood at Rs 5.4 billion, which is not even 2 percent of the capital budget of Rs311.9 billion allocated for 2016-17. 
This lethargy shown by the government in spending the money may hit economic growth of this fiscal year because public spending here crowds in private investment.
Other problems that may disturb economic activities, as identified by international organisations, are hurdles that may emerge during the course of holding proposed local elections and implementing the new constitution. 
The average economic growth rate of Nepal in the last 15 years prior to last year’s earthquakes—from 1999-2000 to 2013-14—stood at 4.3 percent per annum. 
In the last fiscal year, the growth rate plunged to 14-year low of 0.8 percent largely because of unfavourable monsoon and trade blockade imposed by India, which hit supplies of almost all goods.

 

IMF's Forecast for 2016-17

GDP growth   4pc
Inflation      9.9pc
Balance on current account     –0.9pc of GDP

Published: 05-10-2016 08:04

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