Tuesday, September 26, 2017

ADB forecasts 4.7 percent economic growth for Nepal

Asian Development Bank (ADB) has pulled the economic growth projection down to only 4.7 per cent in the current fiscal year 2017-18 – due to flood in the southern plains – compared to 6.9 per cent of the previous fiscal year 2016-17.
Against the central bank's projection and government target – of 7.2 per cent – the 'Macroeconomic Update: Nepal (September 2017)' released today by the ADB said that the economy will likely grow at a slower rate of 4.7 per cent in the current fiscal year largely due to heavy rainfall during this monsoon that affected paddy and other major crops in the Tarai belt which is considered to be the breadbasket of the country.
The growth forecast by the ADB of this fiscal year has been revised down from the earlier estimate of 5.4 per cent in the wake of severe floods and landslides in August that affected one-third of the country, resulting in the loss of human lives and livelihoods, and destruction of crops.
The World Bank has also last week said that economic growth rate is likely to moderate to 4.6 per cent in the current fiscal year. Both multilateral development partners have attributed the recent floods in Tarai as a major reason to the possible slowdown in economic growth, though the central bank has downplayed the impact of the floods.
"Heavy rainfall since mid-August led to landslides and floods, resulting in the loss of human lives and livelihoods," the report reads, adding that the floods inundated paddy fields and destroyed crops in most of the Tarai districts. "This will depress farm output, hampering growth prospect."
The ADB has also said that the transition to federal system will weigh on the economic growth of the country. The World Bank has also pointed out the lack of clarity regarding fiscal architecture as a dampener for the economic growth.
“Though dates for provincial and federal level elections have been announced, several bills, namely, Natural Resources and Fiscal Commission including Inter-governmental Fiscal Transfer imperative for effective implementation of fiscal federalism have yet to be enacted,” read the periodic report. "In the absence of these bills, distribution of natural resources and revenue among all three tiers of the government will be affected, hampering growth prospect.”
The ADB’s macroeconomic report has said that the agriculture sector is expected to expand by just 2.4 per cent in fiscal 2017-18, compared to 5.3 per cent of last fiscal owing to the destruction of paddy plantation and other major crops in the Tarai belt of Nepal, which is considered the rice bowl of the country.
However, the industry sector is expected to expand by 6.6 per cent in the current fiscal as a result of the regular supply of electricity and availability of construction materials. The services sector, meanwhile, is projected to grow by 5.5 per cent in this fiscal due to an expansion of the financial intermediation, wholesale and retail trade, and tourism subsectors.
“The economy rebounded strongly in fiscal 2016-17 from fiscal 2015-16, which was a difficult year due to various external shocks. This year, we expect economic growth to be a bit tepid compared to last fiscal, partly because of the floods,” principal economist and officer-in-charge of ADB’s Nepal Resident Mission Sharad Bhandari said, adding that reforms to improve the quality of public and private investment and to encourage a competitive private sector would reduce the economy’s dependence on external factors such as the monsoon and remittances.
Like in the previous fiscal years, delay in the implementation of development projects is going to be another obstacle for economic growth in the current fiscal year. "Implementation delays of national pride projects have continued in the current fiscal year," it further reads, adding that it will likely lead to a substantial shortfall in capital expenditure and depress economic growth.
Likewise, the ADB projected inflation to rise in the current fiscal year but remain below the average 8.9 per cent of price rise in the past last decade.
According to the ADB, the inflation is expected to pick up to 6.5 per cent in the current fiscal year, up from 4.5 per cent in the last fiscal year. The proposed expansionary budget for the current fiscal year, including the fiscal transfer and election expenditures as well as the depressed farm output and infrastructure damage from the recent floods, could raise the inflationary pressure, the report adds.
The report further reads that the fiscal transfer and election expenditures compounded by depressed farm output will exert inflationary pressure in the current fiscal year.

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