Economic activity is set to grow on an average 6 per cent over the medium term, though the performance could be less impressive due to challenging transition to a federal system that has effected infrastructure provision and service delivery, according to a report. The report has also underlined other risks in the economy like slow implementation of reforms.
"Despite limited resources available for infrastructure financing and public service delivery, the Nepali economy has been growing at a stable rate," reads a report published by the World Bank-South Asia Focus 2018. "Additional private sector resources and engagement – including foreign direct investment (FDI) – are needed to sustain investment and maintain high levels of growth."
"This necessitates timely implementation of reforms to support an enabling environment for the private sector and to increase foreign investment," it further reads, adding that the service sector has been witnessed as a key sector to boost growth. "Services were the main driver contributing 3.6 percentage points, over 60 per cent of which came from trade and hotels."
For industry, over 90 per cent of growth came from construction and manufacturing. On the demand side, investment and private consumption were the main drivers of growth,” as according to the report. "The federal structure will be particularly important to enhance implementation capacity and revenue potential at sub-national levels of government."
Likewise, raising revenue potential of sub-national governments will be critical as will be their capacity to implement their projects and programmes.
Overall, taxes on rising imports, luxury items and incomes of wealthier households, including a broadening of the tax base, will help increase revenue to 29 per cent of gross domestic product (GDP) over the medium term, the report reads. The government has set a revenue collection target of Rs 945.56 billion in the current fiscal year 2018-19 compared to Rs 730.05 billion in the last fiscal year 2017-18.
The World Bank report also mentions that the budget of ongoing fiscal year includes investments to promote improved inputs and storage facilities for farmers, including for irrigation. “These investments focus on modernisation, commercialisation, mechanisation and the expansion of value chains, which is expected to boost agriculture sector growth from 2.8 per cent to 4.5 per cent in the next fiscal year,” the report states, adding that the number of foreign tourists is also expected to increase as the country has launched the ‘Visit Nepal 2020' campaign.
Growth will be supported by key infrastructure projects. A new large foreign investment– Hongshi Shivam Cement – is expected to boost construction activities, whereas the agreement to construct another cement factory with Chinese investment is likely to enhance FDI in the next fiscal year too, according to the report.
Likewise, the World Bank has projected inflation can be controlled at five per cent over medium term, assuming oil prices rise, and the exchange rate depreciates.
“The government is shifting from consumption to investment-based growth, with emphasis on engaging the private sector and raising the very low levels of FDI," it reads, adding that key reforms will include establishing public private partnerships (PPP), one-stop investor services, and e-government services for citizens, in addition to infrastructure investments. "Consolidated spending of government is expected to reach 34 per cent of GDP over the medium term against 28 per cent in the last fiscal year 2017-18, with three per cent to four per cent of the increase from federalism alone. Transfers to sub-nationals are expected to increase by four percentage points to reach six per cent of GDP by 2020-21.
Real GDP growth in Nepal
2016 – 2017 – 2018 (e/f) – 2019 (f) – 2020 (f)
0.6pc – 7.9pc – 6.3pc – 5.9pc – 6pc
e: estimate, f: forecast.
"Despite limited resources available for infrastructure financing and public service delivery, the Nepali economy has been growing at a stable rate," reads a report published by the World Bank-South Asia Focus 2018. "Additional private sector resources and engagement – including foreign direct investment (FDI) – are needed to sustain investment and maintain high levels of growth."
"This necessitates timely implementation of reforms to support an enabling environment for the private sector and to increase foreign investment," it further reads, adding that the service sector has been witnessed as a key sector to boost growth. "Services were the main driver contributing 3.6 percentage points, over 60 per cent of which came from trade and hotels."
For industry, over 90 per cent of growth came from construction and manufacturing. On the demand side, investment and private consumption were the main drivers of growth,” as according to the report. "The federal structure will be particularly important to enhance implementation capacity and revenue potential at sub-national levels of government."
Likewise, raising revenue potential of sub-national governments will be critical as will be their capacity to implement their projects and programmes.
Overall, taxes on rising imports, luxury items and incomes of wealthier households, including a broadening of the tax base, will help increase revenue to 29 per cent of gross domestic product (GDP) over the medium term, the report reads. The government has set a revenue collection target of Rs 945.56 billion in the current fiscal year 2018-19 compared to Rs 730.05 billion in the last fiscal year 2017-18.
The World Bank report also mentions that the budget of ongoing fiscal year includes investments to promote improved inputs and storage facilities for farmers, including for irrigation. “These investments focus on modernisation, commercialisation, mechanisation and the expansion of value chains, which is expected to boost agriculture sector growth from 2.8 per cent to 4.5 per cent in the next fiscal year,” the report states, adding that the number of foreign tourists is also expected to increase as the country has launched the ‘Visit Nepal 2020' campaign.
Growth will be supported by key infrastructure projects. A new large foreign investment– Hongshi Shivam Cement – is expected to boost construction activities, whereas the agreement to construct another cement factory with Chinese investment is likely to enhance FDI in the next fiscal year too, according to the report.
Likewise, the World Bank has projected inflation can be controlled at five per cent over medium term, assuming oil prices rise, and the exchange rate depreciates.
“The government is shifting from consumption to investment-based growth, with emphasis on engaging the private sector and raising the very low levels of FDI," it reads, adding that key reforms will include establishing public private partnerships (PPP), one-stop investor services, and e-government services for citizens, in addition to infrastructure investments. "Consolidated spending of government is expected to reach 34 per cent of GDP over the medium term against 28 per cent in the last fiscal year 2017-18, with three per cent to four per cent of the increase from federalism alone. Transfers to sub-nationals are expected to increase by four percentage points to reach six per cent of GDP by 2020-21.
Real GDP growth in Nepal
2016 – 2017 – 2018 (e/f) – 2019 (f) – 2020 (f)
0.6pc – 7.9pc – 6.3pc – 5.9pc – 6pc
e: estimate, f: forecast.
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