Cautiously optimistic

  • Nepal’s GDP forecast of 5.2-6.2 percent for 2017 looks encouraging, but a lot can still go wrong

Mar 30, 2017-

Buoyed by good agricultural output, an improving reconstruction process and a stable supply of electricity, the economic forecast for the year looks decent. Nepal’s Gross domestic product (GDP) is forecast to grow between 5.2 and 6.2 percent in FY2017, according to the Asian Development Bank’s new report.

“Overall, tailwinds from the expected acceleration in post-earthquake reconstruction, a slight uptick in demand following the disbursement of housing grants and the election related expenditures may negate the headwinds from the demand dampening effect originating from deceleration of remittance inflows, demonetisation shock in India and some degree of political instability in the Terai region,” says the report on Nepal’s latest macroeconomic indicators 

published by the ADB this week.

Yes, there has been some decline in remittances, which contribute heavily in maintaining our balance of payments, in recent times. Some Gulf countries, including Saudi Arabia which is one of the top labour destinations for Nepali migrant workers, have been hit by falling oil prices. 

A more-than-average monsoon has contributed to a bumper harvest. A pickup in post earth-quake reconstruction in the last two quarters, an improving investment climate and steady power supply have also helped the economy. So has the resumption of manufacturing activities that were hit hard by the devastating earthquakes and months-long border blockade. All these are expected to boost the industrial output, and have contributed to ‘an optimistic growth outlook’.

There have been some hiccups, although they seem manageable. The effects of the demonetisation of higher denomination notes in India have been ‘marginal’. But the deceleration in remittance inflows could be alarming if the trend persists.  

Despite the encouraging forecast, the report warns that uncertainties remain. The government’s ability to utilise capital budget continues to remain poor. Although FY2017 budget was announced one-and-a-half months before the start of the fiscal year with the expectation that it would provide enough time to plan procurement and approvals, the expenditure performance until the first half of the fiscal year is not encouraging. The monthly expenditure pattern, according to the ADB, is similar to the ones seen in the previous years. Actual spending was just 26.2 percent of the planned spending by the first half of FY2017, the same as in the first half of FY2015 but lower than 30.2 percent in the same period in FY2014.

The Ministry of Finance, which has outlined a series of measures to expedite capital spending, can hopefully do more than formulate policies. A lot can still go wrong within a year that is supposed to see three elections.

Published: 30-03-2017 08:54

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