IMF paints gloomy economic picture

The International Monetary Fund (IMF) has concluded that Nepal's economic growth performance has weakened in the last three months.

"Nepal’s economic growth performance has weakened since the IMF annual

Article IV consultation in November, owing both to external factors and domestic considerations," said IMF mission chief for Nepal Todd Schneider at the conclusion of his visit, here today.

"Nepal’s trade partners, particularly India, are growing more slowly than was expected at that time," he said, adding that agricultural output has weakened due to the delayed monsoon. "Domestic factors are also important, particularly the uncertainty related to the budget, which has contributed to significant under-execution of spending plans thus far in the current fiscal year 2012-13."

Lack of clarity about the legal status of spending appropriations in the current fiscal year's budget means the government is likely to register a

significant surplus in 2012-13, he added. "The tight fiscal stance is unfortunate as it will depress an already slowing economy."

Inflation remains stubbornly high, while the external current account surplus has diminished, according to the IMF that has projected Nepal’s trade deficit to rise, as imports have risen and exports declined — in dollar terms — during the first five months of the current fiscal year. "Remittance flows continue to increase but at a slower pace, which have bolstered household incomes, but also served to finance imports of non-durable consumer goods."

The mission urged the government to take steps to accelerate high quality spending, both for poverty-alleviation and public capital investment. "Adoption of a full-year budget ordinance for 2012-13 would be welcome even at this late stage of the fiscal year," the mission said, recommending that equally important is early approval of a budget ordinance for the next fiscal year 2013-14 to facilitate planning by line ministries and avoid another year of budget delay.

The next Article IV consultation mission is expected to take place in the second half of the year. "In the meantime, IMF staff will remain closely engaged with authorities, including in the context of several technical assistance and training activities," added the IMF that had sent its staff team led by Schneider on February 3-8 to assess macroeconomic developments since the Article IV consultation.