The International Monetary Fund (IMF) has said that the political consensus that has eluded the parties for the last seven months will have an impact on investment in the country.
"Medium-term prospects hinge on reaching a political consensus that would serve as a base for reform and facilitate higher levels of confidence and investment," it said, adding that Nepal has significant potential in services, hydroelectric power generation, and basic manufacturing, but a stable policy regime backed by sound macroeconomic policies and continued reforms to the investment environment are needed.
Current macroeconomic projections are based on the status quo — incorporating only modest improvements to growth and investment, it added.
Though the government has declared fiscal year 2012-13 as Nepal Investment Year, the private sector has not yet gained confidence.
IMF has also claimed that the potential weak private sector credit, continued political uncertainty, and delayed budget coupled with weaker monsoon — that may lower agricultural production — will pull economic growth down to 3.8 per cent for the current fiscal year.
Though, externally, migration has increased, the softening global outlook suggests that remittance growth will slow, and in turn dampen some service sector activities and reduce the current account surplus in the coming year."India’s slowdown — which increasingly appears to be a medium-term phenomenon driven by declining domestic investment — will negatively impact Nepal via lower export demand, weaker inward investment and possibly through the remittance channel," it added.