ADB projects four per cent growth

Against the government's forecast of five per cent growth, Asian Development Bank (ADB) has projected Nepal's growth at four per cent for the fiscal year 2012 (ending in July 2012).
But Nepal’s gross domestic product (GDP) growth slowed somewhat in fiscal year 2011 (ended in July 2011) to 3.5 per cent from the earlier forecast of 3.8 per cent, according to the Asian Development Outlook Update 2011.
A weather induced rebound in agriculture could not fully offset the deceleration in nonfarm activities and high international food and oil prices kept inflation near double digits, said the flagship publication of the Asian Development Bank published on Wednesday.
Competition from non bank financial institutions has siphoned off deposits, exacerbating liquidity constraints on lending by banks, it said, adding that four-month delay in budget also hit revenue and capital spending, undermining already weak economic conditions.
The external position strengthened modestly, as import growth gradually decelerated and remittance growth stabilised at around 12 per cent. The overall current account, however, posted a small — but wider than forecast — deficit with exports staying weak.
In the fiscal year 2012, the GDP growth will likely edge back up — to reach the ADO 2011 forecast — with the marginal improvement coming fromagriculture and services.
Given a favourable monsoon, agricultural output is expected to grow faster than fiscal year 2011’s four per cent, according to the report. "For services, some slackness is expected to tighten in fiscal year 2012, reflecting Nepal Rastra Bank’s more accommodative monetary stance, a pickup in remittance inflows, robust tourist arrivals and the timely budget.
"Industry, however, is likely to remain unchanged, as power outages, sporadic fuel shortages, and poor labour relations are likely to persist.Continuing inflation among key trading partners, high international oil prices and upward adjustments in domestic oil prices, and a generous hike in civil servants’ salaries will exert upward pressure in fiscal year 2012, thereby raising the forecast, despite expectations of a solid food crop, the Asian Development Outlook Update 2011 revealed.
Remittance, the bulwark of Nepal’s external position, is expected to grow, as it did even during the turmoil in the Middle East earlier in 2011 benefitting the current account to move to a small surplus, even as the trade deficit remains wide.
"Similarly, growth in South Asia is also slowing this year as monetary authorities move to combat still high levels of inflation, the report said, adding that the South Asian GDP is expected to expand by 7.2 per cent, with the inflation forecast marked up to 9.1 per cent. "Next year growth should pick up to 7.7 per cent, led by India, after higher interest rates crimped consumer spending and investment in 2011."