The World Bank (WB) has projected growth at three per cent for the current fiscal year.
"However, growth rate could climb up to four per cent in the next fiscal year, and 4.2 per cent and 4.5 per cent in the fiscal years following that," according to the WB report 'South Asia Economic Update-Moving Up, Looking East' released here today.
Similarly, South Asia is poised to grow by about seven per cent led by India in 2010 and eight per cent the next fiscal year.
However over the longer period of time, according to WB’s projection, growth is likely to be arrested at around five per cent, if reforms stay incremental and key structural impediments remain. Likewise, if the country attains political stability next year enabling serious efforts to remove the impediments, the growth could reach five per cent by fiscal year 2012-13.
Furthermore, the Bank has also estimated the inflation to be 11.8 per cent in the current fiscal year. The government had aimed to reduce the inflation to seven per cent though revised it to 11 per cent in mid-term budget evaluation. According to the WB projection in the view of Indian inflation and remittances, in the fiscal year 2010-11 inflation will go down to eight per cent and by the fiscal year 2012-13 it will be tapered down to five per cent.
The WB has also attributed the political uncertainties as the reason for darker economic prospects of Nepal which is expected to continue until the political parties reach the consensus. "Similarly, low business confidence, due to unending law and order problems, extortion, strikes and lack of security, is causing the industry and commerce to contract," said the report.
Likewise, WB has also pointed out the nation’s inability to design and implement key structural reforms that address matters such as labour regulations and financial weaknesses as responsible for slower growth rate.
The bank has, however, called the government’s sound fiscal framework with strong revenue performance as a positive sign for the Nepali economy.
Furthermore, it has pointed out the potential to achieve substantial service exports due to relative indifference of the service sector to the political development as another encouraging sign for the economy.
However, WB has assumed that the in coming years also Nepal will be politically unsteady, the fiscal management will be still be sustainable. Similarly, it has projected a slow improvement of efficiency and climate of investment and the remittance flows are also supposed to continue to grow but at a slower pace of 10-12 per cent per year as in line with projected growth of destination economies.
According to the WB projection, India will grow by nine per cent in 2011, Bangladesh by 6.4 per cent, Bhutan by seven per cent, Sri Lanka by six per cent and both Maldives and Pakistan by four per cent, making South Asia fastest growing region after East Asia and Pacific.