ADB projects 3.8 per cent growth

Asian Development Bank (ADB) has projected 3.8 per cent growth for 2011 due to low offfarm activities that have been hit hard by political uncertainty and long hours of power cut.
Releasing Asian Development Outlook (ADO) 2011 -- the flagship publication of ADB -- here today, ADB country director for Nepal Barry J Hitchcock -- assuming continued normal weather condition -- said that the growth is expected to improve modestly to four per cent in the year 2012.
The gross domestic production (GDP) growth inched up to four per cent in the fiscal year 2010 (ended on July 15, 2010) from 3.8 per cent in a fiscal year ago.

However, the government had targetted 4.5 per cent growth in its budget and the Central Bureau of Statistics has projected 3.45 per cent growth for the current fiscal year.
Political uncertainties, unfavourable weather and weakening remittance restrained economic growth in 2010, it said, adding that growth will fall below the five-year average of four per cent in this fiscal year primarily reflecting the protracted postconflict transition process but a modest pick up in foreseen in 2012, supportd by tourism and more vibrant construction activity. "However, key risks to growth are further delay to completing the transition, high food and oil prices, and potential impact of unrest in the Middle East."
The report also attributed marginal improvement in relatively small industry sector due to fewer political strikes and sustained expansion of service sector.
However, inflation -- a key challenge to Asian countries -- remains a biggest threat as it has been in double digits owing to high food prices which in turn originated in a low domestic crop and Indian high food-inflation.
The report has projected inflation at 10 per cent, due to external factors like high food and oil prices and domestic distortations like power cuts.
Similarly, both domestic and external factors wil challenge any further strenghtening of the Balance of Payment that has registered a deficit of Rs 12.57 billion in the seventh month of the current fiscal year.
The deceleration in remittance growth, alongside commercial banks' excessive lending to real estate and reduced liquidity in banking, drove interbank borrowing rates to a record high.
"Given the high volumn of commercial banks lending for real estate, surging loan defaults would repress normal financial activities," Hitchcock said, adding that the banks need to reorient their portfolio in future.
Exports as a share of GDP have been dwindling in the last few years because low productivity and infrastructure bottleneck have undermined competitiveness. "Conversly, imports as a share of GDP have been showing an increasing trend over several years, with growth more pronounced in 2010, as gold imports swelled," the report added. "Gold was the investment of choice, given paucity of attractive alternatives in a corecting real estate market."

ADB in hydro
KATHMANDU: Apart from helping transmission and distribution line construction, ADB has shown interest in Upper Seti hydro project. "ADB is helping prepare engineering design of the 127-Megawatt (MW) Upper Seti storage project," ADB country director for Nepal Barry J Hitchcock said, adding that preliminary estimates of the project comes to more than $300 million. "ADB has never pulled out of West Seti too," he added.