Economy is anticipated to shrink to 5.3 per cent (at market prices) in the current fiscal year 2019-20, down from 7.1 per cent a year earlier, according to the Asian Development Outlook (ADO) 2020, the Asian Development Bank’s (ADB) annual flagship economic publication.
“The global outbreak of the COVID-19 pandemic and subsequent nationwide lockdown that is necessary to contain the contagion will adversely affect the economy,” said ADB country director for Nepal Mukhtor Khamudkhanov. “Industry and services face supply disruptions,” he said, adding that remittances will likely decline during the last quarter of this fiscal year, dampening domestic demand. “Growth will also be slower as a result of lower rice production.”
If the situation due to the COVID-19 pandemic further worsens, growth could be lower than currently anticipated, he added.
Before the Covid-19 pandemic, ADB had forecast a 6.3 per cent growth while the government had aimed for an ambitious target of 8.5 per cent. While the bank has made necessary revisions taking the pandemic into account, the government is yet to revise its growth forecast.
According to the Nepal Macroeconomic Update, which is released today, average annual inflation will inch up to 6 per cent, up from 4.6 per cent a year earlier, reflecting lower production and supply chain disruptions due to the COVID-19 pandemic. “Headline inflation has averaged 6.5 per cent in the first seven months of the current fiscal year, significantly higher than 4.2 per cent a year earlier,” the report reads, adding that food inflation increased by 9.8 per cent as of mid-February 2020 compared to a year earlier, with significant increase in the prices of vegetables, spices, and alcoholic beverages. “The temporary closure of international borders over COVID-19 concern has nudged up food prices.”
The average annual inflation for the current fiscal year could be higher than anticipated, if the situation further worsens due to the Covid-19 pandemic, adds the report.
Likewise, merchandise trade deficit narrowed by 4.9 per cent year-on-year in the first seven months of the current fiscal year after widening by 15 per cent in the year-earlier period. The deficit contracted on higher export growth, particularly of palm oil and cardamom to India and reduced import of construction materials, vehicles, and petroleum products. The improved trade balance has helped contain current account deficit to $1 billion in the fiscal year through mid-February 2020 from $1.5 billion in the corresponding period a year earlier. The deficit is forecast to narrow from 7.7 per cent of gross domestic product (GDP) in the last fiscal year to 5.4 per cent on shrinking imports of petroleum products, capital, and consumer goods. However, it could be higher if remittances fall substantially in the last quarter of the current fiscal year.
ADB, however, projects Nepal’s GDP to recover at 6.4 per cent for the next fiscal year 2020-21, assuming a quick end to the Covid-19 pandemic, a return to pre-Covid economic activities, and a normal monsoon. The government of Nepal expects a couple of large infrastructure projects, namely the 456-megawatt (MW) Upper Tamakoshi Hydroelectric Plant and Gautam Buddha International Airport, to be commercially operational by the next fiscal year 2020-21, the report reads, adding that expectation of higher subnational level spending will also stimulate growth.
Average annual inflation will stay moderate at 5.5 per cent in the next fiscal year 2020-21, assuming a reversal to normal activities after the Covid-19 disruption, better harvest, subdued oil prices, and a modest uptick of inflation in India. The current account deficit is expected to widen from 5 per cent of GDP in the current fiscal year to 5.6 per cent – next fiscal year – as imports of capital goods increase. The deficit will, however, be largely contained by lower oil prices, a gradual reduction in the import of fossil fuel with better electricity supply, and higher hydroelectricity exports to India, according to the report.
Downside risks to the outlook in the next fiscal year 2020-21 are the pervasiveness of the Covid-19 pandemic that could paralyze the economy, if the outbreak persists. Natural hazards like erratic monsoons and flood could depress farm output and damage infrastructure. Persistent capacity deficiencies regarding project and program execution at the provincial and local levels will weaken subnational spending, the report reads, adding that exogenous shocks such as the Covid-19 pandemic will weaken global demand, affecting out-migration for foreign employment and putting pressure on Nepal’s external stability.
“The global outbreak of the COVID-19 pandemic and subsequent nationwide lockdown that is necessary to contain the contagion will adversely affect the economy,” said ADB country director for Nepal Mukhtor Khamudkhanov. “Industry and services face supply disruptions,” he said, adding that remittances will likely decline during the last quarter of this fiscal year, dampening domestic demand. “Growth will also be slower as a result of lower rice production.”
If the situation due to the COVID-19 pandemic further worsens, growth could be lower than currently anticipated, he added.
Before the Covid-19 pandemic, ADB had forecast a 6.3 per cent growth while the government had aimed for an ambitious target of 8.5 per cent. While the bank has made necessary revisions taking the pandemic into account, the government is yet to revise its growth forecast.
According to the Nepal Macroeconomic Update, which is released today, average annual inflation will inch up to 6 per cent, up from 4.6 per cent a year earlier, reflecting lower production and supply chain disruptions due to the COVID-19 pandemic. “Headline inflation has averaged 6.5 per cent in the first seven months of the current fiscal year, significantly higher than 4.2 per cent a year earlier,” the report reads, adding that food inflation increased by 9.8 per cent as of mid-February 2020 compared to a year earlier, with significant increase in the prices of vegetables, spices, and alcoholic beverages. “The temporary closure of international borders over COVID-19 concern has nudged up food prices.”
The average annual inflation for the current fiscal year could be higher than anticipated, if the situation further worsens due to the Covid-19 pandemic, adds the report.
Likewise, merchandise trade deficit narrowed by 4.9 per cent year-on-year in the first seven months of the current fiscal year after widening by 15 per cent in the year-earlier period. The deficit contracted on higher export growth, particularly of palm oil and cardamom to India and reduced import of construction materials, vehicles, and petroleum products. The improved trade balance has helped contain current account deficit to $1 billion in the fiscal year through mid-February 2020 from $1.5 billion in the corresponding period a year earlier. The deficit is forecast to narrow from 7.7 per cent of gross domestic product (GDP) in the last fiscal year to 5.4 per cent on shrinking imports of petroleum products, capital, and consumer goods. However, it could be higher if remittances fall substantially in the last quarter of the current fiscal year.
ADB, however, projects Nepal’s GDP to recover at 6.4 per cent for the next fiscal year 2020-21, assuming a quick end to the Covid-19 pandemic, a return to pre-Covid economic activities, and a normal monsoon. The government of Nepal expects a couple of large infrastructure projects, namely the 456-megawatt (MW) Upper Tamakoshi Hydroelectric Plant and Gautam Buddha International Airport, to be commercially operational by the next fiscal year 2020-21, the report reads, adding that expectation of higher subnational level spending will also stimulate growth.
Average annual inflation will stay moderate at 5.5 per cent in the next fiscal year 2020-21, assuming a reversal to normal activities after the Covid-19 disruption, better harvest, subdued oil prices, and a modest uptick of inflation in India. The current account deficit is expected to widen from 5 per cent of GDP in the current fiscal year to 5.6 per cent – next fiscal year – as imports of capital goods increase. The deficit will, however, be largely contained by lower oil prices, a gradual reduction in the import of fossil fuel with better electricity supply, and higher hydroelectricity exports to India, according to the report.
Downside risks to the outlook in the next fiscal year 2020-21 are the pervasiveness of the Covid-19 pandemic that could paralyze the economy, if the outbreak persists. Natural hazards like erratic monsoons and flood could depress farm output and damage infrastructure. Persistent capacity deficiencies regarding project and program execution at the provincial and local levels will weaken subnational spending, the report reads, adding that exogenous shocks such as the Covid-19 pandemic will weaken global demand, affecting out-migration for foreign employment and putting pressure on Nepal’s external stability.
No comments:
Post a Comment