Monday, April 11, 2016

Quakes, trade disruptions hit economic growth hard: World Bank

Nepal's economic growth has been stalled due to devastating earthquakes as well as significant cross-border trade disruptions in the second half of the calendar year, according to the World Bank.
The incidents imposed a severe toll on economic activity, the World Bank said in its report 'South Asia Economic Focus' which has projected economic growth to slow down to 1.7 per cent in the current fiscal year 2015-16.
However, the multilateral development partner has also expected the economy to recover on the back of strong reconstruction activity in the next fiscal year. The World Bank has expected normalisation by the end of 2016, leading to strong rebound in 2017 with GDP expected to grow by 5.8 per cent. "Though challenge is the potential slowing down of remittance inflows, which represent around 30 percent equal of GDP," it added.
Likewise, in the near term, Nepal will also have to face higher inflation as a result of the trade disruptions and related supply bottlenecks," it read. "Disruptions increased inflation to double digits, affecting the welfare of the poor and vulnerable, while reducing revenue collection and slowing reconstruction efforts."
According to the biennial report, South Asian economic performance prospects remain strong due limited exposure to global turbulence, coupled with increasing investment activity. "Led by robust growth in India, South Asia shows resilience in the face of turbulent international markets and remains the fastest-growing region in the world, with economic growth forecast to gradually accelerate from 7.1 per cent in 2016 to 7.3 per cent in 2017," the report said.
However, there are also signs of fading tailwinds, it said, adding that capital flows to the region have declined and remittances from oil exporting countries have started to weaken. "Fuel and food prices remain low but are unlikely to keep falling," World Bank South Asia vice president Annette Dixon said, adding, "As a result overall output growth is slower than previously anticipated and inflation has recently been creeping up."
South Asia has been resilient to global turbulence due to its limited exposure to slowdowns in other major economies coupled with the tailwinds of favorable oil prices, capital flows, and remittances, she added. "However, fiscal and financial vulnerabilities remain and countries should strive to address them through generating revenue and creating more fiscal space."
The report's analysis of fiscal policy across the region suggests that governments need to find a balanced path towards fiscal consolidation.
"Fiscal policy has a wide range of impacts for development," said World Bank South Asia chief economist Martin Rama. "The fiscal deficit affects macroeconomic stability, capital expenditures are needed for growth, and taxes and social spending matter for equity," he said, adding, "With the currently low oil prices, this is also an opportune time for South Asian policy makers to introduce or expand explicit carbon taxes. This would improve environmental and fiscal sustainability at the same time."
Many South Asian countries show potential for accelerated growth in the short to medium term. However, they should expect a more difficult global environment demanding well-managed domestic economies.
Given its weight in the region, India sets the pace for South Asia as a whole. Economic activity is expected to accelerate from 7.5 per cent in fiscal year 2015-16 to 7.7 per cent in the next fiscal year 2016-17 based on the expectation of strong private investment, a push in infrastructure spending, an improved investment climate, and deleveraged corporate and financial balance sheets, according to the report.

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