World Bank revises Nepal’s growth forecast downwards to 4.5pc

  • lowered expectations
- Post Report, Kathmandu
The Washington, DC-based multilateral lender had previously estimated Nepal’s economy to grow by 5 percent in the current fiscal year

Sep 18, 2017-The World Bank (WB) has revised Nepal’s economic growth forecast for the current fiscal year downwards to 4.5 percent (at basic and market prices) stating floods will hit agricultural output, which makes a big contribution to the gross domestic product (GDP).

The Washington, DC-based multilateral lender had previously estimated Nepal’s economy to grow by 5 percent in the current fiscal year which began on July 16.

The WB’s forecast is way lower that the government’s growth estimate of 7.2 percent.

“Economic growth is expected to be lower than earlier forecast and is expected to average 4.5 percent over the next two fiscal years,” said Sudyumna Dahal, WB economist and principal author of the Nepal Development Update, which was released on Sunday.

The WB had lowered its forecast following devastations caused by floods, which are expected to affect agricultural output, which contributes to around 30 percent of the GDP. 

The floods have affected over 5 percent of the total population, with several districts recording the heaviest rainfall in 60 years. Over 80 percent of land in southern Tarai, the country’s food basket, was affected. Estimates of destroyed crops at 64,000 hectares will likely lead to a weak agricultural output in the current fiscal year. This will hamper agricultural output in 2017-18, says the report.

The impact on industry sector, on the other hand, is expected to be temporary, while construction sector is likely to remain strong driven by post-earthquake and flood reconstruction. Activity in the remaining sectors is expected to be affected by uncertainty stemming from the transition to the federal structure, several elections, and the possibility of a further slowdown in remittances, the WB has said.

The main driver of growth will be services in the current fiscal year as well, but the sector will grow more slowly than in previous years. 

Services are expected to grow at 5.8 percent, on average, during the forecast period, driven by trade, transport, and tourism, according to the WB. “The outlook in services is also dependent on remittances stabilising at the present level, particularly given the large share of wholesale and retail trade subsectors,” says the report, adding, “However, the boost in tourism, in particular, is expected to continue in the forecast period, as some of the damage done by the floods in places like Chitwan is expected to be restored by the fall tourist season.”

Industry sector is likely to get some boost in the current fiscal year, as electricity generation and construction subsectors continue to perform relatively well. However, manufacturing is expected to face some temporary setbacks as the Terai region, where most of the industries are located, has been severely affected by floods. Also, with the 465MW Upper Tamakoshi Hydroelectric Project expected to be delayed until fiscal year 2018-2019, hydropower generation will be lower than earlier expected.

Nonetheless, small hydropower projects will continue to provide some boosts to the electricity subsector. “Hence, internally generated electricity and additional imports from India are expected to keep the manufacturing sector running smoothly in the current fiscal year as well,” says the report.

Published: 18-09-2017 08:09

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