Economy to grow between 1.5 per cent and 2.8 per cent

The economic growth is expected to fall to a range between 1.5 per cent and 2.8 per cent in the current fiscal year 2019-20 reflecting lower remittances, trade and tourism, and broader disruptions caused by the coronavirus outbreak, according to the World Bank.

The government – despite lowering the budget during the mid-term budgetary review – was still targeting to achieve 8.5 per cent economic growth, despite its failure in capital budget spending, and meeting the revenue mobilisation target. The corona pandemic has become a face saver to the majority government led by Prime Minister KP Sharma Oli that has not only failed to expedite economic growth but also create business environment in the country.

Likewise, the Asian Development Bank (ADB) – last week – also slashed its own growth forecast for Nepal to 5.3 per cent for the current fiscal year, a sharp decrease from last year's 7.1 per cent growth.

Releasing its twice-a-year-regional update, the Washington-based multilateral development partner said that the prolonged outbreak of Covid-19 would impact growth significantly with a further deceleration or contraction in services and industrial production. “Economic growth during fiscal year 2020-21 is also likely to remain subdued due to the lingering effects of the pandemic with some recovery expected in the fiscal year 2021-22,” the report reads, adding that the Covid-19 shock will likely reinforce inequality in South Asia. “Nepal’s economy will grow by 1.4 per cent to 2.9 per cent in the fiscal year 2020-21, followed by 2.7 per cent to 3.6 per cent in the fiscal year 2021-22.”

According to World Bank country manager for Nepal Faris Hadad-Zervos, the World Bank is closely monitoring how the Covid-19 pandemic is evolving across Nepal. “Our immediate priority is to coordinate our action with the government, private sector and international development partners to ensure that health supplies and equipment are readily available and that a comprehensive recovery package is in place to support the poor and most vulnerable," he said.

The impact of the pandemic will hit low-income people hard, especially informal workers in the hospitality, retail trade, and transport sectors who have limited or no access to healthcare or social safety nets.

“As played out across the region, the sudden and large-scale loss of low paid work has driven a mass exodus of migrant workers from cities to rural areas, spiking fear that many of them will fall back into poverty,” the report reads, adding that there are no signs yet of widespread food shortages but a protracted Covid-19 crisis may threaten food security, especially for the most vulnerable.

In the short term, the report recommends preparing weak healthcare systems for greater Covid-19 impacts, as well as providing safety nets and securing access to food, medical supplies, and necessities for the most vulnerable. The report calls for establishing temporary work programmes for unemployed migrant workers, enacting debt relief measures for businesses and individuals, and easing inter-regional customs clearance to speed up import and export of essential goods, to minimise short-term economic pain.

Amid the mounting human toll and global economic fallout triggered by the Covid-19 pandemic, South Asian governments must ramp up action to curb the health emergency, protect their people, especially the poorest and most vulnerable, and set the stage now for fast economic recovery, the World Bank said.

In its South Asia Economic Focus, the WB anticipated a sharp economic slump in each of the region’s eight countries, caused by halting economic activity, collapsing trade, and greater stress in the financial and banking sectors.

In this fast-changing and uncertain context, the report has presented a range forecast, estimating that regional growth will fall to a range between 1.8 and 2.8 per cent in the current fiscal year 2019-20, down from 6.3 per cent projected six months ago. “That would be the region’s worst performance in the last 40 years, with temporary contractions in all South Asian countries,” it reads. In case of prolonged and broad national lockdowns, the report warns of a worst-case scenario in which the entire region would experience a negative growth rate this year.

The deteriorated forecast will linger in the fiscal year 2020-21, with growth projected to hover between 3.1 per cent and 4 per cent, down from the previous 6.7 per cent estimate.

Once lockdown restrictions are loosened, South Asian governments should adopt expansionary fiscal policies combined with monetary stimulus to keep credit flowing in their economies, the report suggests, adding that many South Asian countries have limited fiscal space, these policies should target people worst hit by the freeze on economic activity. The report urges governments to adopt temporary spending measures and coordinate with international financial partners to avoid unsustainable long-term debt levels and fiscal deficits.

“After tackling the immediate Covid-19 threat, South Asian countries must keep their sovereign debt sustainable through fiscal prudence and debt relief initiatives,” said World Bank chief economist for the South Asia Region Hans Timmer. “And looking beyond the present crisis, lie great opportunities to expand digital technologies for payment systems and distant learning to unlock remote areas in South Asia.”

Due to the Covid-19 pandemic, economic circumstances within countries and regions are fluid and change on a day-by-day basis, and the World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response, increase disease surveillance, improve public health interventions, and help the private sector continue to operate and sustain jobs, the press release reads, adding that it is deploying up to $160 billion in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery.

Nepal has been under lockdown since March 24, effectively shutting down the entire country.

The economy has lost more than Rs 100 billion in Chaitra (mid-March to mid-April) alone.