Economic growth to contract in coming years

If the current trend of economic activities continues, growth will contract to 3.15 per cent in 2016 due to prolonged political instability, according to a report.
The economy is projected to grow by 3.62 per cent in 2013, said the Nepal Economic Outlook 2012-2013, published by the Institute for Integrated Development Studies (IIDS), here, today. The ‘conditional forecast’ could be U-turned, if the economic agenda could be brought to the forefront, it added.
The country has been struggling to maintain a positive economic growth in recent years, it said, adding that agriculture that serves as a major sector of providing rural employment, producing raw materials for agro-industries, and providing market for industrial products, has been highly disappointing due to poor resource allocation, weak implementation, and lack of coordination among government and non-government agencies.
The report has mentioned that the mechanisation of agriculture, improvement of extension services, irrigation and timely availability of seeds and fertilisers could help push economic growth up, as agriculture contributes to one-third of the total gross domestic product (GDP).
The second report of IIDS has also urged the government to increase capital expenditure as according to the study, one per cent increase in capital expenditure will contribute to 0.43 per cent in the real GDP, whereas one per cent increment in recurrent expenditure will contribute only 0.26 per cent to the real GDP.
Thus, public spending is key to economic growth despite the increasing importance of the private sector, according to the report that has revealed that private sector investment has, however, been decreasing compared to the GDP.
“However, foreign direct investment has seen an increment after 2005-06 after the comprehensive peace agreement. If the political stalemate does not sideline the economic agenda, Nepal has the potential to emerge as one of the fastest growing economies in a few years,” said executive director of IIDS Dr Bishnu Dev Pant, on the occasion.
The current political wrangling has crippled the economic agenda, he said, adding that the bureaucracy also plays a key role in improving economy, despite the political instability.
“The manufacturing sector has been performing poorly in the last couple of years,” said former economic advisor of the finance ministry Keshav Acharya.
“The high cost of operation and low returns have made investors shy away from manufacturing,” he said, adding that the country should encourage the agriculture sector first, then the industrial sector and finally the services sector, for balanced growth.
Trade should not be fixed up with services sector, said IIDS chair Dr Mohan Man Sainju.
“Without a sound basis, the current growth of services sector also will not be sustainable,” he said, adding that the government should encourage a detailed study before it introduces any policy.