June 14, 2017 02:00 AM NPT
7.5 percent growth
The rate of economic growth, when taken in isolation, can paint a distorted image of the health of the underlying economy. Nepal’s GDP, for instance, grew by a paltry 0.8 percent in 2016. Yet, come 2017, that figure is expected to rocket to close to 7.5 percent, which, if realized, would make Nepal the third-fastest growing economy in the world, behind only Ethiopia (8.3 percent) and Uzbekistan (7.6 percent). In fact, there is much to celebrate about the Nepali economy this year. Thanks to reliable power supply, industries are now operating at around 65 percent of their capacity, from less than 50 percent only a year ago. Food imports declined and Nepali farmers had more money to spend thanks to a bumper harvest after a better-than-expected monsoon. The people whose homes were destroyed by the 2015 earthquakes are finally starting to rebuild, with or without government help. As post-quake reconstruction has picked up, so have demands for inputs like cement and bricks. Slowing inflation in India, by far Nepal’s biggest import partner, has been imported, as annual inflation in Nepal has come down from double digits to under three percent. These are all healthy signs, but also rare flukes.
It will be hard to sustain the 7.5 percent growth projected for this year because of the twisted fundamentals of Nepali economy. Remittance is worth nearly a third of our GDP. Yet the rate of increase in remittance has been steadily slowing over the past few years. The recent crisis in the Middle East—triggered after seven Gulf countries declared they were cutting off diplomatic ties with Qatar—is indicative of the volatility of the region on which Nepal is so reliant for its income. Qatar alone employs around 400,000 Nepali migrant workers; around five million Nepalis are employed in the Gulf countries and Malaysia. Although there is no immediate danger to the jobs of Nepalis in Qatar, it is hard to say how this emerging crisis will eventually unfold. Just like there is no guarantee of stability in the Middle East, there is also no guarantee that the upcoming monsoon will be as plentiful as the last one. Nor will the national economy next year get to grow from such a low base, and so the 7.5 percent growth is bound to come down.
How much it slows will in turn depend on the level of political stability in the country. If the three sets of constitutionally-mandated elections can be completed on time, then the political class can focus all its energy on the all-important task of economic empowerment of Nepali people. If not, the country will continue to witness middling 2-4 percent growth, and Nepal will then miss the target of graduating to a ‘developing country’ status by 2022. Besides elections, the future contributors of economic growth could be clearing remaining hurdles to post-quake rebuilding and ensuring that our industries continue to get enough power so as to be able to operate near full capacity. We hope our politicians internalize the fact that for a country at Nepal’s stage of development, 7-8 percent annual growth need not be a matter of chance.