Saturday, December 31, 2011

Economic indicators fail country

The year that started with the contraction in the economy due to liquidity crunch ended with liquidity surplus resulting mainly from low borrowing capacity of private sector that is certain to contract the economy further.
The low credit demand from the private sector will pull economic growth down, though the year witnessed a good harvest, one of the key propellers of the economic growth.
Apart from higher interest rates, private sector has been dogged by regular hours of power outage and industrial disturbances throughout 2011 pulling industrial growth down. According to Central Bureau of Statistics (CBS), Manufacturing Production Index grew by only 1.23 per cent in the first quarter (mid-July to mid-October). The change in government and policy instability also hit private sector hard, though, after the second half of the year, the country moved ahead with peace process and Constitution drafting. The pending issues of political settlement since last three years also forced the private sector to wait and watch.In absence of domestic investment, the foreign investment has also became a pipe dream.
Prime Minister Dr Baburam Bhattarai, has, however, tried to instill some confidence in investors by signing Bilateral Investment Promotion and Protection Agreement (BIPPA) and revised Double Taxation Avoidance Agreement (DTAA) with India, the largest trading partner. But the agreements will take time to bear fruits, as the security situation has not yet improved and the peace process has to get a logical conclusion. The low domestic demand pulled import down compared to last years but export has also not improved widening trade deficit to over Rs 332.97 billion.
The only respite the country got this year, is due to rising remittance that stood at Rs 78.5 billion by the third month of the current fiscal year due to increased outflow of Nepali migrant workers — also due to rising unemployment back home — and historic low Indian rupee that pulled Nepali rupees down. In the fourth month of current fiscal year, some 156,721 Nepalis have already left the country for foreign employment, according to Department of Foreign Employment.
The strong dollar against the weak Indian rupee helped Nepal receive more remittance giving a boost to the foreign exchange reserve that has swelled to over Rs 330 billion by the end of Mangsir, the fourth month of the current fiscal year.
The forex reserve also swelled due to rising tourist arrivals this year because of Nepal Tourism Year 2011 celebration that witnessed a record visitor arrivals crossing half-a-million mark by November. The positive current account and service account also helped Balance of Payment (BoP) to post Rs 33.86 billion surplus.
Timely budget could also be termed as an ‘achievement’ this year, also due to delayed budgets in last three successive years, that have hit the economic growth. But the timely budget could not boost the development expenditure that could boost employment and economic growth. Finance Minister Barsha Man Pun accepted that he is not satisfied with the development expenditure of Rs 5.29 billion, out of Rs 72.61 billion development budget, by the end of Mangsir (mid-November).
Similarly, the share market, — a mirror of economy — also remained bearish throughout the years due to lack of investors’ confidence on government’s policy and over flooding of shares compared to demand.
The non-economic factors like bandh and strikes also became regular headlines putting pressure on supply side ultimately rising price of essential goods. The inflation started looking up after the second half of the year as the government hiked prices of petroleum products that contribute 75 per cent to inflation, according to latest IMF research.
Rising petroleum prices coupled with power crisis made the economy more expensive and less competitive pulling the export down. The country witnessed an export of Rs 18.037 billion compared to Rs 100.26 billion worth imports by mid-October.
Though, Prime Minister Dr Bhattarai said that the country has started journey towards economic revolution, the overall annual trend defies his claim and the year will be registered in the history as yet another year of lost opportunity.


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