Launching Asian Development Outlook 2016 here on Wednesday, the multilateral development partner also projected a 1.5 percent economic growth for the current Fiscal Year 2015/16, after a 3 percent growth last fiscal year.
"However, the growth rate is expected to pick up to 4.8 percent in the next Fiscal Year 2016/17 through stabilization of political climate, acceleration of reconstruction, and normal monsoon favoring agricultural growth," Kenichi Yokoyama, ADB Country Director for Nepal, said, launching the outlook.
ADB has also suggested an urgent need to accelerate reconstruction and implementation of development programs to prevent a further slowdown in economic growth. "The economic growth is possible only through the speedy reconstruction drive and focusing on sectors of energy, tourism and agriculture," he said, adding that very low growth is seen in services, particularly in wholesale and retail trade, transport and communication, and tourism, which are worst affected by the supply disruptions.
The Ministry of Agricultural Development expects harvests of paddy to drop by 10 percent and maize by 5 percent, slowing agriculture growth to a projected 0.5 percent. Likewise, industry is projected to see little or no growth owing to fuel shortages and the lack of raw materials for manufacturing and construction. Inflation has also looked up due to supply side constraints because of economic blockade by India.
"Nepal witnessed an inflation rate of 7.2 percent in 2014/15, whereas it was significantly higher in January this year, standing at 12.1 percent due to blockade," the report said, adding that inflation is projected to rise to 10.5 percent, higher than the target of 8.5 percent set by the central bank in its Monetary Policy. "Although lower global oil prices are being passed through to administered fuel prices -- a policy adopted in September 2014 -- average inflation in fiscal year 2015/16 will be elevated on the combined effects of a smaller harvest, acute shortages of fuel and other essential commodities, and higher transport costs during much of the year."
The flagship publication of ADB also noted that the devastating earthquakes challenged Nepal's growth and development prospects over the short to medium term. The disaster exacted a huge human toll, taking nearly 9,000 lives and destroying 750,000 homes, factories, and cultural heritage sites. It upended the livelihoods of 5.4 million, pushing an estimated 3 percent of the population into poverty. The government's Post-disaster Needs Assessment (PDNA) estimated $5.2 billion in capital stock losses and another $1.9 billion in economic losses. The combined losses are estimated to equal one-third of GDP. The cost of recovery and rebuilding the lost capital stock is estimated at $6.7 billion.
Notwithstanding the significant cost of reconstruction and recovery, the key policy challenge is not a dearth of resources, it said, adding that Nepal's development partners pledged $4 billion in reconstruction aid during the International Conference on Nepal's Reconstruction (ICNR) that the government successfully organized in the aftermath of the earthquakes."Further, in response to the earthquakes, the government presented an ambitious budget for the current fiscal year, which calls for total spending to increase to equal 32.1 percent of GDP from 24.3 percent in 2014/15, while capital expenditure is to more than double to 10 percent of GDP. The $910 million allocation for reconstruction is nearly half of the capital budget," it added.
But more than 8 months into the fiscal year, only a small fraction of the reconstruction budget has actually been spent, reflecting institutional and procedural bottlenecks that constrain the timely execution of capital works.
ADB has also outlined key factors holding back rapid reconstruction including delay in establishing the National Reconstruction Authority (NRA), which particularly affected the speedy initiation of housing reconstruction; significant damage in vast rural areas with difficult access; the limited capacity of sector institutions that oversee private housing, schools, hospitals, roads, and other community infrastructure to assess damage, plan reconstruction, procure materials, and implementation reconstruction with quality control; and the limited availability of such human resources as masons, engineers, and social workers.
ADB concerned over slow pace of development projects
'TAKE ADVANTAGE FROM CHINA'
Asian Development Bank (ADB) has suggested that Nepal should grab the opportunities from neighboring China to achieve the targeted economic growth rate for the next two years.
Launching Asian Development Outlook 2016 here on Wednesday, ADB said Asia's leading economy China's structural change in imports can create immense opportunities for the border-sharing Nepal.
"China's structural change is a golden chance for Nepal," Kenichi Yokoyama, ADB Country Director for Nepal, said. "Thus, it's perfect time to attract direct foreign investment from the northern neighbor to strengthen economy."
