Tuesday, October 4, 2016

Economic growth projection for Nepal – IMF: 4 per cent, ADB: 4.8 per cent and World Bank: 5 per cent against government target of 6.5 per cent

The International Monetary Fund (IMF) today projected 4 per cent economic growth for Nepal, whereas the World Bank (WB) projected 5 per cent for the current fiscal year.
The IMF and the World Bank forecast comes almost a fortnight after another multilateral development partner – the Asian Development Bank (ADB) – projected a growth of 4.8 per cent for the current fiscal year for Nepal.
However, the government has targeted to achieve an economic growth of 6.5 per cent in the current fiscal year.
Releasing the World Economic Outlook (WEO) today in Washington, DC, amid a press meet, the IMF made a forecast that Nepal’s gross domestic product (GDP) will rebound by 4 per cent only.
IMF has further lowered the economic growth forecast by 0.5 percentage points to 4 per cent from its April forecast, when it had claimed Nepal’s growth would rebound by 4.5 per cent in 2017.
The Fund had projected the Nepal economy to grow only by 0.5 per cent in the last fiscal year 2015-16, when the World Bank had estimated Nepal's growth at 0.6 per cent.
However, the Central Bureau of Statistics (CBS), has estimated Nepal saw an economic growth of 0.77 per cent in the last fiscal year, experiencing its slowest growth in the last 14 years.
In April, the IMF officials had said that they expected there was a good chance for growth to pick up once reconstruction started in earnest and border conditions normalised. The devastating 2015 earthquakes and economic blockade imposed by India had pushed down Nepal’s economic growth by 0.77 per cent in the fiscal year 2015-16.
However, IMF’s downward revision of growth forecast comes at a time when reconstruction has failed to gather momentum as expected. "Weak capital spending, slowing remittances, political uncertainty and other number of head winds that we see in Nepal have led us for the conservative projections,” a deputy director at the Research Department of IMF Gian Maria Milesi-Ferreti said.
Meanwhile, the World Bank was a bit more optimistic about Nepal’s economic growth in a separate report by the World Bank released today, the multilateral development partner projects an economic growth of 5 per cent in the current fiscal year. The World Bank has attributed improvement in the agriculture, construction and reconstruction to cause a rebound in the growth rate.
"Agriculture and construction are expected to improve on the account of a good monsoon as well as increased disbursements of housing reconstruction grants, the report '‘Investment Reality Check’ reads. "Coupled with increased government spending, this is expected to push the fiscal year 2016-17 growth to 5 per cent and to remain in line with potential thereafter."
"The rebound in growth is on the back of a normal monsoon that will boost agricultural output and supported by increased investment – both public and private – as the political process stabilises and earthquake recovery gathers speed. "Manufacturing in particular is expected to get some boost starting from the current fiscal year with the apparels and garment industry getting a duty free access in the US market,” it adds.
Nepal has had a difficult year due to the earthquake, border disruptions with India, and reduced remittances, the World Bank noted.
However, Nepal’s projected growth rate is far below the growth rate projected for the South Asia region. Led by solid performance in India, the economic growth is expected to gradually accelerate to 7.3 per cent in the current fiscal year from 7.1 per cent in the last fiscal year, according to the World Bank report.
According to the twice-a-year South Asia Economic Focus, the region remains a global growth hotspot and has proven resilient to external head winds such as China’s slowdown, uncertainty around stimulus policy in advanced economies, and slowing remittances. The main challenges remain domestic, and include policy uncertainty as well as fiscal and financial vulnerabilities.
“A reality check reveals that private investment – a key future growth driver across South Asia – is yet to be ignited to sustain and further increase economic growth,” said World Bank South Asia Region’s vice president Annette Dixon. "Countries will need to activate the full potential of private investment and exports to accelerate economic activity further, reduce poverty and boost prosperity."
Given its weight in the region, India sets the pace for South Asia as a whole. Its economic activity is expected to accelerate to 7.7 per cent in 2016-17, after maintaining a solid 7.6 per cent in 2015-16. "This performance is based on solid growth contributions from consumption, boosted by normal monsoon and civil service pay revisions. Over the medium term, accelerated infrastructure spending and a better investment climate may help increase private investment and exports.
A reality check on the state of private investment in South Asia shows that the region has fallen short of expectations. Mobilising domestic savings remains key at the aggregate level.
However, remittances and foreign direct investment prove very effective on a per-dollar basis, and the region should make the most of them.
India can further rely on public infrastructure to crowd-in private investment, while finance may constrain investment in Pakistan. The business cycle matters all across the region, providing a potential accelerator from GDP growth to investment growth. Ultimately, the investment climate sets the broader stage. “Alas, most South Asian economies suffer from a challenging business environment and some are subject to broader uncertainty and insecurity, which is detrimental to investor confidence,” it said.  
“Political economy risks are widespread across South Asia, and uncertainty will need to be managed, particularly with a view to creating an attractive environment for domestic and foreign investment alike,” World Bank South Asia Region’s chief economist Martin Rama, said. "Delivering the necessary energy, infrastructure, and regulatory improvements remains critically important to increasing private investment, thus boosting job creation and reducing poverty."