Reconstruction has increased 4.5 percentage point contribution to GDP, according to a study.
According to a preliminary report ‘Impact of Post-Earthquake Reconstruction on Nepalese Economy’, jointly prepared by the National Reconstruction Authority (NRA) and the Society of Economic Journalists Nepal (Sejon), public and private spending on post-earthquake reconstruction helped increase 4.5 percentage points to the economic growth rate.
It means the casual impact of reconstruction ‘contributed’ 7x0.045 = 0.32 per cent growth in annual GDP, assuming 7 per cent annual GDP growth rate.
The report – supported by the National Democratic Institute for International Affairs (NDIIA) and the United States Agency for International Development (USAID) – also claimed that the reconstruction activities in the aftermath of the 2015 devastating earthquakes also generated 1.42 million jobs.
Economist and lead author Nirmal Kumar Raut, while presenting the report today, said that around 550,000 people were engaged in reconstruction work in the current fiscal year alone. “The study also reveals that housing reconstruction alone created jobs equal to 255 million man days which is equivalent to 1.42 million people being employed by the end of fiscal 2017-18. “Currently, some 0.55 million people are working in reconstruction of houses with jobs equal to 100 million work days being created indicating that the construction industry has been the largest employer in recent periods.”
Roughly speaking, about 7 per cent of the total employment in 2017-18 was created from the reconstruction of destroyed, damaged infrastructure alone, according to the report. “This is also a lower bound estimate of the total employment in the reconstruction work because this calculation is based only on a basic structure of house proposed among others and also this excludes the employment in the reconstruction of public infrastructure.”
Nepal was struck by two devastating earthquakes of magnitudes 7.8 and 7.3 on April 25 and May 12, respectively, killing some 8,790 people and injuring 22,300. The economic loss was estimated at $7 billion, out of which 76 per cent was in the private sector. The economic growth rate plunged to 2.97 per cent in the fiscal year 2014-15 – following the disaster – decelerated further to a record low of 0.2 per cent in the fiscal year 2015-16.
After the devastating earthquake, lots of reconstruction activities picked up creating employment and helping economic activities to push the economic growth. The Nepali economy grew by 7.74 per cent in the fiscal year 2016-17, the highest growth rate since the fiscal year 1993-94. Likewise, in the fiscal year 2017-18, the economy grew by 6.3 per cent, according to the Central Bureau of Statistics (CBS).
The report also claims that reconstruction work alone contributed most to the economic growth rate.
The report used two different approaches – one contribution of the construction industry to the GDP and second econometric model – to analyse.
The first inference was drawn from the contribution of the construction industry to the GDP vis-à-vis other major industries before and after the earthquake, Raut said, adding that the second inference was made by exploiting an econometric model. “An econometric model is one of the tools economists use to forecast developments in the economy.”
The econometric model also measures past relationships among such variables as consumer spending, household income, and employment, among others, and then forecasts how changes in some variables will affect future development, though some of the economists do not buy the result of the report.
“An average 4.5 per cent growth contribution by the reconstruction drive alone is not possible,” a former member of the National Planning Commission (NPC) Govinda Nepal said, adding that there are no substantial bases to claim that reconstruction activities fuelled a growth of 4.5 per cent, even though it has contributed significantly to revitalising the economy.
Nepal also said there is a need to conduct a comprehensive study on how reconstruction activities contributed to the economy before making such a large claim.
The government – in the fiscal year 2015-16 – spent Rs 21 billion on reconstruction, and in the next fiscal year 2016-17 – it spent Rs 27 billion. But in the past four fiscal year years, the government spent a total of Rs 450 billion – with most of the spending taking place in the last two fiscal year – which gives ample ground to conclude that the 4.5 per cent contribution – from fiscal year 2015-16 to fiscal 2017-18 – to the economy by the reconstruction drive is just not possible, Nepal added.
However, the outcome is construed as a lower bound estimate of the effects of reconstruction on economic growth owing to the limitations in the availability of data of other major variables and confounding effects of the 2015 blockade, natural shocks and other concurring adversities such as border blockade, the report explains. “Of the four major sectors--agriculture, manufacturing, whole and retails and construction, the share of only the construction sector in the economy expanded while share of other three sectors decreased.”
Chief executive officer (CEO) of the National Reconstruction Authority (NRA) Sushil Gyewali, on the occasion, said that the employment generated by the reconstruction drive looks realistic though there is a need for more research to find out the actual contribution of reconstruction activities to the economy. “Whatever growth there was did not just come from the government’s investment only,” he said, adding that the government invested only Rs 150 billion in the housing sector and the private sector poured in Rs 600 billion to build homes. “As Nepal’s reconstruction used local materials and resources, most of the money did not go outside the country supporting the grassroots level the most.”
Reconstruction also imparted skills to many Nepalis, mostly benefitting women, and increased financial inclusion with about 770,000 new bank accounts opened, some 30 per cent by women, the report reads, adding that – according to the NRA data – as many as 482,323 beneficiaries, out of the total 816,560, have rebuilt their houses. “As many as 56,382 beneficiaries have received construction completion certificates.”
A total of 769,926 households have received the first tranche of the government grant with 621,449 beneficiaries receiving the second tranche too, the NRA data reveals, adding that a total of 525,233 have received the third installment of government assistance. “The government provides Rs 300,000 for homeowners, whose homes were completely damaged and have no other home.”
The reconstruction of some 5,063 public schools, some 25,128 school rooms, some 665 health institutes, some 380 archaeological sites, some 311 government buildings and some 165 buildings of security agencies has also been over, according to the NRA.
According to a preliminary report ‘Impact of Post-Earthquake Reconstruction on Nepalese Economy’, jointly prepared by the National Reconstruction Authority (NRA) and the Society of Economic Journalists Nepal (Sejon), public and private spending on post-earthquake reconstruction helped increase 4.5 percentage points to the economic growth rate.
It means the casual impact of reconstruction ‘contributed’ 7x0.045 = 0.32 per cent growth in annual GDP, assuming 7 per cent annual GDP growth rate.
The report – supported by the National Democratic Institute for International Affairs (NDIIA) and the United States Agency for International Development (USAID) – also claimed that the reconstruction activities in the aftermath of the 2015 devastating earthquakes also generated 1.42 million jobs.
Economist and lead author Nirmal Kumar Raut, while presenting the report today, said that around 550,000 people were engaged in reconstruction work in the current fiscal year alone. “The study also reveals that housing reconstruction alone created jobs equal to 255 million man days which is equivalent to 1.42 million people being employed by the end of fiscal 2017-18. “Currently, some 0.55 million people are working in reconstruction of houses with jobs equal to 100 million work days being created indicating that the construction industry has been the largest employer in recent periods.”
Roughly speaking, about 7 per cent of the total employment in 2017-18 was created from the reconstruction of destroyed, damaged infrastructure alone, according to the report. “This is also a lower bound estimate of the total employment in the reconstruction work because this calculation is based only on a basic structure of house proposed among others and also this excludes the employment in the reconstruction of public infrastructure.”
Nepal was struck by two devastating earthquakes of magnitudes 7.8 and 7.3 on April 25 and May 12, respectively, killing some 8,790 people and injuring 22,300. The economic loss was estimated at $7 billion, out of which 76 per cent was in the private sector. The economic growth rate plunged to 2.97 per cent in the fiscal year 2014-15 – following the disaster – decelerated further to a record low of 0.2 per cent in the fiscal year 2015-16.
After the devastating earthquake, lots of reconstruction activities picked up creating employment and helping economic activities to push the economic growth. The Nepali economy grew by 7.74 per cent in the fiscal year 2016-17, the highest growth rate since the fiscal year 1993-94. Likewise, in the fiscal year 2017-18, the economy grew by 6.3 per cent, according to the Central Bureau of Statistics (CBS).
The report also claims that reconstruction work alone contributed most to the economic growth rate.
The report used two different approaches – one contribution of the construction industry to the GDP and second econometric model – to analyse.
The first inference was drawn from the contribution of the construction industry to the GDP vis-à-vis other major industries before and after the earthquake, Raut said, adding that the second inference was made by exploiting an econometric model. “An econometric model is one of the tools economists use to forecast developments in the economy.”
The econometric model also measures past relationships among such variables as consumer spending, household income, and employment, among others, and then forecasts how changes in some variables will affect future development, though some of the economists do not buy the result of the report.
“An average 4.5 per cent growth contribution by the reconstruction drive alone is not possible,” a former member of the National Planning Commission (NPC) Govinda Nepal said, adding that there are no substantial bases to claim that reconstruction activities fuelled a growth of 4.5 per cent, even though it has contributed significantly to revitalising the economy.
Nepal also said there is a need to conduct a comprehensive study on how reconstruction activities contributed to the economy before making such a large claim.
The government – in the fiscal year 2015-16 – spent Rs 21 billion on reconstruction, and in the next fiscal year 2016-17 – it spent Rs 27 billion. But in the past four fiscal year years, the government spent a total of Rs 450 billion – with most of the spending taking place in the last two fiscal year – which gives ample ground to conclude that the 4.5 per cent contribution – from fiscal year 2015-16 to fiscal 2017-18 – to the economy by the reconstruction drive is just not possible, Nepal added.
However, the outcome is construed as a lower bound estimate of the effects of reconstruction on economic growth owing to the limitations in the availability of data of other major variables and confounding effects of the 2015 blockade, natural shocks and other concurring adversities such as border blockade, the report explains. “Of the four major sectors--agriculture, manufacturing, whole and retails and construction, the share of only the construction sector in the economy expanded while share of other three sectors decreased.”
Chief executive officer (CEO) of the National Reconstruction Authority (NRA) Sushil Gyewali, on the occasion, said that the employment generated by the reconstruction drive looks realistic though there is a need for more research to find out the actual contribution of reconstruction activities to the economy. “Whatever growth there was did not just come from the government’s investment only,” he said, adding that the government invested only Rs 150 billion in the housing sector and the private sector poured in Rs 600 billion to build homes. “As Nepal’s reconstruction used local materials and resources, most of the money did not go outside the country supporting the grassroots level the most.”
Reconstruction also imparted skills to many Nepalis, mostly benefitting women, and increased financial inclusion with about 770,000 new bank accounts opened, some 30 per cent by women, the report reads, adding that – according to the NRA data – as many as 482,323 beneficiaries, out of the total 816,560, have rebuilt their houses. “As many as 56,382 beneficiaries have received construction completion certificates.”
A total of 769,926 households have received the first tranche of the government grant with 621,449 beneficiaries receiving the second tranche too, the NRA data reveals, adding that a total of 525,233 have received the third installment of government assistance. “The government provides Rs 300,000 for homeowners, whose homes were completely damaged and have no other home.”
The reconstruction of some 5,063 public schools, some 25,128 school rooms, some 665 health institutes, some 380 archaeological sites, some 311 government buildings and some 165 buildings of security agencies has also been over, according to the NRA.
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