The Ministry of Finance (MoF) that unveiled the mid-term review of budget along with preliminary growth estimates has attributed such a rosy economic outlook to robust agro output and services expansion.[break]
“Thanks to good monsoon and other policy support, which buoyed paddy and other agro output, we anticipate agricultural gross domestic product (GDP) to expand by 4.75 percent,” said Finance Minister Barshaman Pun. MoF has also projected non-agricultural GDP to grow by 4.25 percent.
In 2010/11, the economy had grown by 3.5 percent with agricultural GDP expanding by 4.1 percent and non-agricultural GDP growing by a meager 3.1 percent. Likewise, GDP in 2008/09 and 2009/10 had grown by 3.8 percent and 4 percent respectively. The government has targeted to achieve a GDP growth of 5 percent for this fiscal year.
Though the MoF report portrays rosy economic growth prospect, it paints a dismal picture on capital expenditure -- which indicates that the state would again still lag behind in living up to the development promises it made to the people.
“In the budget we eyed to spend Rs 72.60 billion in capital budget. However, given the slow start recorded for the first six months, we now estimate that we will be able to spend just Rs 65.34 billion,” said Pun.
The government has so far managed to spend a mere Rs 9.56 billion worth of capital budget in the first six months of 2011/12, which is a meager 13 percent of the annual allocations.
The MoF has cited problems seen in timely awarding of contracts, environmental impact assessment, land acquisition and adverse impacts of non-project factors on the development projects as the major reasons behind the government´s failure to spend capital budget in full.
As for the recurrent budget, it would be used in full, said Pun. Devaluation of the Nepali rupee, on the other hand, is projected to add a cost of around Rs 1 billion on the government, as strengthening of the US dollar -- in which foreign loans are serviced -- is going to raise the financial budget to Rs 46.36 billion from the allocated amount of Rs 45.68 billion.
In the mid-term review, the government has also said that consumer inflation this year would remain between 7 to 8 percent. In the budget statement, the government had set a target of 7.5 percent.
Referring to recent rise in petro prices by more than 11 percent, Governor of Nepal Rastra Bank Yuvaraj Khatiwada admitted it has sparked inflationary pressure.
“Still, we believe we will be able to contain inflation within the revised target, mainly because inflation in India is easing and also the entry of bumper harvests is expected to further drag down food prices,” he stated.
According to MoF, the government during the first six months of 2011/12 received foreign aid commitments of over Rs 44 billion and mobilized only Rs 7 billion in domestic borrowing.
Moreover, citing the balance of payment surplus of Rs 61.19 billion and foreign currency reserve of Rs 363.68 billion, Minister Pun said the government has managed to lay a strong foundation for driving the country on a higher growth trajectory.
Pun also promised special package to relieve students and low-income groups from the fuel price hike. He said the government was also working out 50 priority projects and eying to implement at least 20 of them in a bid to lure foreign investment during the Investment Year 2012/13.
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