Almost all vital economic indicators but one at least, revenue collection, are in disarray. Both the agriculture and manufacturing sectors are stagnant; exports are dwindling resulting in a whopping rise in trade deficit, growth rate of remittance -- backbone of economy -- is shrinking and inflation is creeping up steadily. [break]
But, two concerns -- rapidly rising lending rates and alarming balance of payment deficit -- have towered above all others in recent months, adding woes to country´s already fragile economy.
The economic woes are further compounded by deteriorating law and order situation, resulting in a massive erosion of investors´ confidence. The private sector´s declining confidence on the economy is reflected by the increasing volatility of the stock market and a declining number of new business enterprises.
The gloomy real sector
Most disturbing development is seen in the agriculture sector, which accounts for 33 percent of GDP. Overall agriculture production is estimated to grow by 1.12 percent, half of the annual population growth rate. Paddy production, which accounts for 20 percent of agricultural production, has nosedived by over 11 percent, thanks to lack of reliable agricultural infrastructures that forced farmers to depend on erratic monsoon.
Since paddy production largely determines income of a majority of peasants, decline in its production directly affects their purchasing power, thereby slowing down demand for goods and services in rural areas.
The other pessimistic development comes from the industrial sector, the second largest employment generator after the agricultural sector. Though its growth rate is expected to expand by 2.25 percent this year, the real industrial output, squeezed for two straight years is most likely to remain stagnant at best.
Experts fear that the nominal growth rate might shrink once the CBS computes industrial performances of second half of current fiscal year -- a period when industries face a terrible ten hours of power cuts.
According to Federation of Nepalese Chambers of Commerce and Industry, the acute power shortage has already forced hundreds of medium-sized enterprises that are running in low marginal profits go bankrupt. This has resulted in an alarming rise in job losses and pushed the unemployment rate to over 10 percent, according to National Planning Commission. Concerns are already high that massive rise in unemployment due to shrinking industrial activities could lead to social unrest.
The monetary front
The soaring inflation that touched 11.8 percent by the end of sixth month -- almost 5 percentage points higher than the target for this year -- has emerged as another challenge for the shaky economy. Higher price rise in food and beverage that rose by 18.1 percent mainly due to higher price rise in India fueled the inflation. However, central bank officials are hopeful of an ease in price rise, as India is lately enjoying bumper agriculture production.
Though the deficit of Balance of Payment has declined slightly in recent months, the deficit is still enough to trigger a serious financial crisis. Most pressing problem has been seen in current account that recorded a frightening deficit of Rs 19.38 billion, almost double of what was seen during the same period. Higher import growth in contrast to the shrinking exports resulted in a 52 percent rise in trade deficit, which propelled the current account deficit to such an alarming scale.
The fiscal balance
Amid all this gloom there is some good news as well. The increase in government revenues by around 30 percent during the first half of current fiscal year despite stagnant growth is one of the few things that deserve appreciation. As a result, the government is expecting to exceed the annual revenue target by Rs 13.10 billion, thanks to remittance-fueled consumptions. However, low capital expenditure continued to be dismal.
According to the central bank, the government has been able to spend just Rs 18.41 billion, which was 16 percent of the cash allocation by the third week of February. The concerned authorities say low capital expenditure is due to the slow pace of works in big projects either due to shortage of power or escalating labor disputes or both.
prem@myrepublica.com
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