Kenichi Yokoyama, ADB’s Country Director for Nepal said, “We all agree Nepal has huge potential for growth, but there are also substantial hurdles to overcome in triggering the high growth process.” [break]
“Developing infrastructure bases, particularly power, strengthening institutional capacities, and promoting strategic and proactive policies are urgently needed to improve investor confidence in Nepal,” he said.
According to the ADB´s flagship, an annual economic publication, Asian Development Outlook 2013 (ADO 2013), released today, ADB projects Nepal’s gross domestic product (GDP) growth to slow to 3.5 per cent in the fiscal year (FY) 2013 due to a shortage of fertilizers, poor monsoon season, low investor confidence and the lack of a full budget, causing funding shortages for ongoing development activities.
The prospects of a lower agriculture harvest, wage pressures, further upward adjustment of administered fuel prices, continued power shortages and other supply-side constraints are expected to push inflation to 10.5 per cent in the fiscal year 2013.
It read the widening trade deficit and a more moderate remittance growth will likely result in a current account deficit of 0.5 per cent of GDP in FY2013.
In the fiscal year 2012, growth rebounded to 4.6 per cent boosted by a favorable monsoon and robust services growth despite a slowdown in the industry sector and political uncertainties. Agricultural output grew by about five percent the highest rate in four years, while the high growth in services reflected a pickup in tourism and remittances-backed consumer spending.
Favorable monsoon, adequate fertilizer supplies, the timely adoption of the full budget, and moderate expansion of remittances, ADO 2013 forecasts GDP growth to rebound to 4.2 per cent in the fiscal year 2014. Assuming a good harvest and cautious monetary policies, inflation in the fiscal year 2014 is projected to ease only slightly to nine percent as most of the underlying pressures of the previous year persist.
Similarly, ADO 2013 projects current account to slide more slowly to a 1.8 per cent deficit in fiscal year 2014.
While the recent regulatory and monitoring directives by the Central Bank to deal with banking sector issues are steps in the right direction to handle the sector’s immediate problems, the report says that much more needs to be done if
Nepal is to address structural changes required to shield the banking sector and the economy from internal and external shocks. It includes consolidating the financial institutions, ensuring sound corporate governance, strengthening internal project and loan analysis, more effective monitoring and control, and better understanding and monitoring of the activities of cooperatives.
It includes consolidating the financial institutions, ensuring sound corporate governance, strengthening internal project and loan analysis, more effective monitoring and control, and better understanding and monitoring of the activities of cooperatives.
The further stated that government expenditures continue to suffer stress from subsidies, including on diesel and liquefied petroleum gas. Prices should be rationalized, while making provisions to protect the welfare to the poor.
The report further says that the fiscal year 2014 budget needs timely passage to allow for the revision of tax rates, authorization for domestic borrowing, and provision of funding to accelerate development activities, along with measures to address governance issues.
The ADB has been contributing in Asia and Pacific region for inclusive economic growth, environmentally sustainable growth regional integration having its headquarters in Manila, Philippines.
Established in 1966, it is owned by 67 members. Of it, 48 are from this region.
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