ADB slashes growth forecast

Asian Development Bank (ADB) has slashed Nepal's growth forecast to three per cent -- against the government’s seven per cent -- for the year 2009. Contrary to the Central Bank's revised forecast of 11 per cent price hike, ADB looked more optimistic and projected only a 10 per cent price hike.
"If growth accelerates, the inflation will not have much impact," said Paolo Spantigati, senior country specialist at Nepal Resident Mission, while launching the Asian Development Outlook (ADO) 2009 here today. He added that it, however, depended on smooth political transition, prudent macro policies and improved business confidence.
The ADB's flagship annual economic publication -- Asian Development Outlook 2009 (ADO 2009) -- has projected growth at 3.5 per cent and inflation at eight per cent for 2010.
Though the aid flow might tighten due to global recession, the Balance of Payment (BoP) will remain surplus, he said adding ADB will also readjust its assistance -- albeit marginally -- based on performance. "Assistance to Nepal will not be impacted," he said.
"Short-term challenges for Nepal are not as bleak as perceived for the region," Spantigati said adding that improvement in business environment for increased private sector investments, scaling up capital spending on infrastructure and social sectors to support the peace process, employment generation given the burgeoning labour force, repatriation of migrant workers and strenghtening regulation and supervision of financial institutions will, however, remain challenging.
In the long-term, sustaining the poverty reduction gains of the past, addressing the rising inequality in economy, social and human development, addressing structural weakness in the economy and attracting private sector investment for infrastructure development also will be challenging, according to the new report.
South Asia, though not as open to trade as other regional economies, is also expected to lose steam. According to the report, The highest economic growth rate in South Asia in 2009 was in Bangladesh at nine per cent and the lowest in the Maldives at one per cent.
"Rebalancing growth is in developing Asia's interest. A more balanced approach can boost social welfare by using its savings more productively and help reduce global imbalances that factored the current crisis," he said.
Developing Asia's economic growth will slow in 2009 to its most sluggish pace since the 1997-98 Asian financial crisis. The report has forecast that economic growth in developing Asia will slide to just 3.4 per cent in 2009, down from 6.3 per cent last year and 9.5 per cent in 2007.
Many Asian governments have already responded quickly to the crisis with appropriate financial, monetary and fiscal policies and so far the impact on financial stability has been limited, the report added. But it warned that there are significant downside risks to the global outlook, which could further impact the already gloomy regional outlook.
If the global economy experiences a mild recovery next year, the outlook for the region will improve to six per cent in 2010. Deteriorating economic prospects will hinder efforts to reduce poverty. With the slow growth, more than 60 million people in 2009, and close to 100 million people in 2010, will remain trapped in poverty -- living on less than $1.25 a day.
The report said that the region's slowdown underlines the risks of excessive dependence on external demand, and developing Asia must adopt a mix of policies that will bolster demand and use resources more efficiently.